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Going Overboard? On Busy Directors and Firm Value

37 Pages Posted: 25 Apr 2012 Last revised: 18 Apr 2017

George D. Cashman

Marquette University; Texas Tech University

Stuart Gillan

University of Georgia - Department of Finance

Chulhee Jun

University of Macau - Department of Finance and Business Economics

Date Written: March 1, 2012

Abstract

The literature disagrees on the link between so-called busy boards (where many independent directors hold multiple board seats) and firm performance. Some argue that busyness certifies a director’s ability and that such directors are value enhancing. Others argue that “over-boarded” directors are ineffective and detract from firm value. We find evidence that 1) the disparate results in prior work stem from differences in both sample composition and empirical design, 2) on balance the results suggest a negative association between board busyness and firm performance, and 3) the inclusion of firm fixed effects dramatically affects the conclusions drawn from, and the explanatory power of, multivariate analyses. We also explore alternative empirical definitions of what constitutes a busy director and find that commonly used proxies for busyness perform well relative to more complex alternatives.

Keywords: Corporate governance; Boards of directors; busy directors

JEL Classification: G30; G34; G39

Suggested Citation

Cashman, George D. and Gillan, Stuart and Jun, Chulhee, Going Overboard? On Busy Directors and Firm Value (March 1, 2012). Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2044798 or http://dx.doi.org/10.2139/ssrn.2044798

George Cashman (Contact Author)

Marquette University ( email )

College of Business Administration
P.O. Box 1881
Milwaukee, WI 53201-1881
United States
4142881448 (Phone)

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

Stuart Gillan

University of Georgia - Department of Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States

Chulhee Jun

University of Macau - Department of Finance and Business Economics ( email )

Macau

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