Busy Directors and Shareholder Satisfaction

45 Pages Posted: 20 Dec 2017 Last revised: 23 Mar 2018

Kevin Chen

University of Pennsylvania - Accounting Department

Wayne R. Guay

University of Pennsylvania - Accounting Department

Date Written: March 20, 2018

Abstract

Prior research has examined the firm-level performance implications of corporate boards that have a large proportion of “busy” directors. Firm-level analysis, however, masks important heterogeneity in the time constraints and expertise of busy directors. We develop and validate shareholder voting as a proxy for shareholders’ satisfaction with various types of busy directors. Our director-specific tests show that busy directors receive lower shareholder satisfaction than non-busy directors, but the effects vary substantially depending on the individual director’s other time constraints. Specifically, the negative relation between shareholder satisfaction and busyness is smaller for retired directors, and is larger for directors who are full-time executives and who sit on boards where fiscal-year-ends cluster in the same month. We also find that the potential expertise benefit of busy directors is more pronounced in early-stage firms, firms with higher CEO ownership, and firms with lower book-to-market ratios. Our analyses shed new light on the heterogeneity of busy directors and, more broadly, highlight the useful role of shareholder voting in board composition research.

Keywords: busy directors, corporate governance, board composition, shareholder satisfaction, time constraints, shareholder voting, advising, monitoring

JEL Classification: G3, G34

Suggested Citation

Chen, Kevin and Guay, Wayne R., Busy Directors and Shareholder Satisfaction (March 20, 2018). Available at SSRN: https://ssrn.com/abstract=3088814 or http://dx.doi.org/10.2139/ssrn.3088814

Kevin Chen

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104
United States

Wayne R. Guay (Contact Author)

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
1329 Steinberg-Dietrich Hall
Philadelphia, PA 19104-6365
United States
215-898-7775 (Phone)
215-573-2054 (Fax)

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