Multiple Directorships and Corporate Diversification

37 Pages Posted: 12 Jul 2007 Last revised: 16 Jan 2011

See all articles by Pornsit Jiraporn

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Young Sang Kim

Northern Kentucky University - Haile/US Bank College of Business

Wallace N. Davidson

Southern Illinois University at Carbondale - Department of Finance

Abstract

This paper investigates the impact of multiple directorships on corporate diversification. We hypothesize that multiple directorships affect the quality of managerial oversight and, thus, influence the degree of corporate diversification and firm value. The empirical evidence lends credence to this notion. Specifically, we find that directors' busyness is inversely related to firm value. In other words, firms where board members hold more outside board seats suffer a deeper diversification discount. Further analysis also reveals that the negative effect of having overcommitted directors on the board is more pronounced in firms where agency costs are more severe, suggesting that the diversification discount is driven by agency conflicts. Our results aptly fit into the on-going debate on the benefits and detriments of multiple directorships.

Keywords: Diversification, Multiple directorships, Agency theory, Board appointments

JEL Classification: G30, G34

Suggested Citation

Jiraporn, Pornsit and Kim, Young Sang and Davidson, Wallace N., Multiple Directorships and Corporate Diversification. Journal of Empirical Finance, Vol 15, pp. 418-435, 2008. Available at SSRN: https://ssrn.com/abstract=1000098

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

Young Sang Kim (Contact Author)

Northern Kentucky University - Haile/US Bank College of Business ( email )

Dept of Economics and Finance
Highland Heights, KY 41099
United States
859-572-5160 (Phone)
859-572-6627 (Fax)

Wallace N. Davidson

Southern Illinois University at Carbondale - Department of Finance ( email )

Mail Code 4626
Carbondale, IL 62901-4626
United States
618-453-1429 (Phone)
618-453-5626 (Fax)

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