Abstract
Using a sample of listed firms in Malaysia, Philippines, Singapore and Thailand, this article examines the association between busy board of directors and firm performance. We offer three results. First, we find that firm performance (measured by operating profitability and market-to-book equity) is negatively associated with busy boards. Second, we find that firms with busy boards have higher operating risk (measured by volatility of return on assets, volatility of stock returns and volatility of operating cash flow). Third, we find that the association between firm performance and busy boards is conditional on the firm’s life cycle stage. For firms in the growth stage, busy boards are beneficial to firm performance suggesting that the experience knowledge and reputation accumulated with multiple directorships help busy directors to more effectively advise these firms. In contrast, for firms in the maturity stage of their life cycle, busy boards are detrimental to firm performance suggesting the monitoring role of board is weakened by multiple directorships.
Highlights
The issue of multiple directorships on corporate boards has come under increasing scrutiny from investors and regulators
We find that firm performance is negatively associated with busy boards
We find that the association between firm performance and busy boards is conditional on the firm’s life cycle stage
Summary
The issue of multiple directorships on corporate boards has come under increasing scrutiny from investors and regulators. Masulis and Mobbs (2011) find that firms with inside directors holding outside directorships have better operating performance and market-to-book ratios especially when monitoring is more difficult These firms make better acquisition decisions have greater cash holdings and have lower earnings management.. Using a sample of international firms from 1999 to 2012, Ferris et al (2020) find that firms with busy boards exhibit lower market-to-book ratios and lower profitability. This effect is reversed for younger firms suggesting that the advising ability of these networked directors is most useful for younger firms.. Our main research questions are: 1. What is the association between busy board of directors and firm performance?
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