Busy Directors and Firm Performance: Evidence from Mergers
60 Pages Posted: 5 Apr 2017 Last revised: 24 Apr 2017
Date Written: October 1, 2016
This paper studies whether director appointments to multiple boards impact firm outcomes. To overcome endogeneity of board appointments, I exploit variation generated by mergers that terminate entire boards and thus shock the appointments of those terminated directors. Reductions of board appointments are associated with higher profitability, market-to-book, and likelihood of directors joining board committees. The performance gains are particularly stark when directors are geographically far from firm headquarters. I conclude that the effect of the shocks to board appointments is: (i) evidence that boards matter; and (ii) plausibly explained by a workload channel: when directors work less elsewhere, their companies benefit.
Keywords: Board of directors, Board composition, Busy boards, Corporate governance
JEL Classification: G34, J22
Suggested Citation: Suggested Citation