Busy Directors and Shareholder Satisfaction
45 Pages Posted: 20 Dec 2017 Last revised: 25 Dec 2017
Date Written: December 15, 2017
Prior research has examined the firm-level performance implications of corporate boards that have a large proportion of “busy” directors, with mixed findings. Firm-level analysis, however, masks important heterogeneity in director time constraints. 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: Suggested Citation