Are Busy Directors Harmful or Helpful? Evidence from the Great Recession

21 Pages Posted: 14 Mar 2018

See all articles by Pradit Withisuphakorn

Pradit Withisuphakorn

National Institute of Development Administration (NIDA)

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Date Written: March 14, 2018

Abstract

We contribute to the debate on the costs and benefits of busy directors by investigating the effect of busy directors on firm value during a stressful time, i.e. during the Great Recession. Our results show that busy directors improve firm value significantly during the financial crisis. In particular, a rise in directors’ busyness by one standard deviation results in an improvement in Tobin’s q by 6.41%. Directors with multiple board seats appear to help firms navigate the crisis more successfully, supporting the notion that multiple board seats signal higher quality. Outside the crisis period, however, we find that busy directors reduce firm value, consistent with many prior studies. Our results are crucial as they show that governance mechanisms function differently during stressful times than they do during normal times. Firms should exercise great caution before imposing limits on outside board seats on their directors.

Keywords: busy directors, multiple directorships, multiple board seats, corporate governance, financial crisis

JEL Classification: G30, G32, G34

Suggested Citation

Withisuphakorn, Pradit and Jiraporn, Pornsit, Are Busy Directors Harmful or Helpful? Evidence from the Great Recession (March 14, 2018). Available at SSRN: https://ssrn.com/abstract=3140626 or http://dx.doi.org/10.2139/ssrn.3140626

Pradit Withisuphakorn

National Institute of Development Administration (NIDA) ( email )

118 Seri Thai Road
Bangkok, 10240
Thailand

Pornsit Jiraporn (Contact Author)

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

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