Is Busy Really Busy? Board Governance Revisited
Forthcoming Journal of Business Finance & Accounting
42 Pages Posted: 14 Mar 2010 Last revised: 5 Jan 2017
Date Written: September 30, 2013
We investigate the relationship between firm governance and the board’s position in the social network of directors. Using a sample of 133 German firms over the four-year period from 2003 to 2006, we find that firms with intensely connected supervisory boards (1) are associated with lower firm performance, and (2) pay their executives significantly more. We interpret these results as evidence of poor monitoring in firms with directors who are more embedded in the social network. In both cases, simple measures for busy directors that were used by other studies in the past fail to show any significant pattern. The findings suggest that the quality and structural position of additional board seats may play a bigger role than simply the number of board appointments.
Keywords: Director Network, Busy Board, Agency Theory, Executive Compensation
JEL Classification: G30, G38
Suggested Citation: Suggested Citation