Effect of multiple directorships on financial performance of listed companies: The case of the Vietnamese stock market

Abstract

This study aims at analyzing the effect of multiple directorships on the financial performance of companies listed on the Vietnamese stock exchange. The panel data is collected from 130 companies listed from 2014 to 2019. The statistics demonstrate that multiple directorships are quite common in Vietnamese stock market. The results of REM show that multiple directorships at the director level measured by the mean number of directorships held by directors have a positive effect on financial performance of listed companies. However, financial performance of listed firms will be negatively influenced when listed companies have a ratio of directors who hold 3 or more than 3 directorships in different companies. This empirical evidence on the Vietnamese stock market supports the reputation hypothesis. Appointing directors who hold many directorships in other companies will bring benefits for the listed company as this company can take advantage of the expertise and relationships of these concurrent directors. This study also provided statistical evidence to support the busyness hypothesis. Therefore, listed companies should consider the decision on appointing more directors with interlocking behaviour when the BOD has many directors holding three or more directorships in different companies.