Multiple directorships and firm performance: Evidence from independent director effort allocation in Hong Kong

Abstract

While the Hong Kong Stock Exchange does not impose a limit on multiple directorships, there are concerns about the time commitments of overboarded independent non-executive directors (INEDs). Using a firm size-based measure to capture relative directorship prestige, we examine the association between INEDs' unequal effort allocation and firm performance for Hong Kong-listed firms in 2012–2018. We find that firms with a greater proportion of INEDs who view their directorships as relatively prestigious are associated with better firm performance. Further analysis at the director level reveals that INEDs who rank their directorships as more prestigious are associated with higher board meeting attendance and thus greater effort allocation than INEDs who do not. Our results are robust for firms with INEDs holding seven or more directorships.