Too Busy or Well-Connected? Evidence from a Shock to Multiple Directorships
55 Pages Posted: 12 May 2018 Last revised: 26 May 2018
Date Written: February 1, 2018
Prior literature documents that multiple directorships are negatively associated with operating performance due to overly busy directors; however, multiple directorships may also increase firm value because directors gain access to valuable connections, resources, and information through their multiple appointments. This paper examines M&A that terminate target firms’ entire boards as a negative shock to both board busyness and connections at other firms, as a complement to Hauser (2017). We document that firms experiencing a decrease in multiple directorships due to M&A exhibit improved operating performance, monitoring, and strategic advising on average. Firms with the smallest decrease in board connections experience the greatest improvement in operating performance and advising, while firms with the greatest decrease in board connections experience null or negative effects on operating performance and advising. Our findings provide new evidence of the costs and benefits of multiple directorships, depending on the level of board connections.
Keywords: Board, Monitoring, Advising, Connection
JEL Classification: M41
Suggested Citation: Suggested Citation