Abstract
Drawing on technical efficiency concept, the production of outputs from the inputs of firms is theoretically associated with firm managerial factors. This study therefore attempts to empirically investigate the relationship between board busyness and firm efficiency in selected countries of Southeast and Northeast Asia region for seven years. This study first measures technical efficiency of firms by using non-parametric Data Envelopment Analysis (DEA). Predominantly, this study investigates the proposed relationships of board busyness and firm efficiency by performing panel regression analysis. The results from regression analysis show that the board busyness significantly reduces firm efficiency, supporting the busyness hypothesis. The significant practical implications of study include: firstly, the managers who pursue to enhance firm efficiency in achieving the goals of profit maximization are encouraged to prevent their firms from having busy boards. Secondly, the regulators and policy-makers who intend to prevent the overcommitted issue of busy boards are suggested to review and enforce the restrictions and regulations on board busyness. Thirdly, the potential investors who intend to make investment are urged to consider busy boards as an unfavourable signal.
Highlights
The firm efficiency in terms of technical efficiency plays a significant role in the achievement of profit maximization objective
This study proposes a logical relationship between board busyness and firm efficiency, building on the concept of technical efficiency
Concerning on board busyness literature, past scholars neglect the impact of board busyness towards firm efficiency and mostly on firm performance in general
Summary
The firm efficiency in terms of technical (managerial) efficiency plays a significant role in the achievement of profit maximization objective. The issue of underperformance of firm efficiency in East Asia especially in Southeast and Northeast Asia region is prevalent throughout the years. As East Asia appears to be a fastest growing economic region (White 1988), the underperformance of firm efficiency could have negative influence to the economy as a whole. The attention towards the firm efficiency in the context of East Asia especially Southeast and Northeast Asia is worthwhile. Resource dependency perspective by Pfeffer and Salancik (1978) asserts that busy directors by having more networks and accessibility to resources can be favourable on firms.
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