Abstract
In this paper, we examine the relationship between board busyness and firm performance for BSE 500 companies in India from 2009-2013. We find that over one third of the directors are busy in India and about three fourth of them hold up to 5 directorships. For all firms, we find that there is a weak positive relationship between board busyness and firm performance, while for non-financial firms, the relationship between board busyness and corporate performance is virtually absent. Further, we find that it is the CEO busyness and not board busyness, which adversely affects firm performance in India.
Highlights
The number of directorships that a person can hold has been a debatable issue in the field of corporate governance around the world for some time
The academic research is divided with regards to the “busyness hypothesis” which states that the board busyness affects corporate performance, where, busy boards comprise majority of busy directors measured by the number of directorships held by them
We evaluate the relationship between board busyness and four corporate performance measures viz. Tobin’s Q, Return on Assets (ROA), Return on Sales (ROS) and Sales as a percent of Assets
Summary
The number of directorships that a person can hold has been a debatable issue in the field of corporate governance around the world for some time. The academic research is divided with regards to the “busyness hypothesis” which states that the board busyness affects corporate performance, where, busy boards comprise majority of busy directors measured by the number of directorships held by them. One school of thought argues that busy directors are good from the perspective of firm performance, as they are more networked and have vast knowledge which could positively affect the firm’s performance. Others term multiple directorships as a negative factor on firm’s performance since Directors are left with much less time to devote to a company which adversely impacts firm’s performance
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