Board Busyness Research Articles

Board Quality and Earnings Management: Evidence from India

This article examines whether board qualities influence the earnings management behaviour of firms in a large emerging market set-up by using panel data of 783 Indian private manufacturing firms over a period of 7 years (April 2009–March 2016). The study finds that it is board quality that helps in curbing earnings manipulation and not just board independence. Results reveal that diligent and busy boards help in reducing earnings management, CEO duality affects the quality of reported earnings and promoters’ influence on boards increases earnings management. Domestic or foreign institutional investors do not have any independent impact on earnings management. However, domestic institutional ownership reduces earnings management when promoters’ influence exists. The article contributes to the literature by focusing on whether corporate governance (CG) mechanisms are important in curbing earnings management in an emerging market context. The findings are expected to be helpful to policymakers and regulators while framing appropriate CG policies and regulations.

Does directors’ experience positively moderate the impact of board busyness on firm efficiency? Evidence from Asia-Pacific

Purpose The purpose of this paper is to examine the impact of board busyness on firm efficiency in the context of directors’ experience, specifically on directors’ experience that moderates the impact of board busyness on firm efficiency. Directors’ experience is examined by exploring both depth (board tenure) and breadth (number of former listed directorship) of experience. Design/methodology/approach This paper employs data envelopment analysis (DEA) to examine firm efficiency. Then, fixed effect panel regression analysis is applied to test the direct and moderating effect based on a sample of firms in the selected Asia-Pacific countries. Findings Significant positive evidence for the moderating effect of directors’ experience on the impact of board busyness on firm efficiency is documented. Practical implications Findings are essential for managers, country policymakers and potential investors as inputs to improve the current company practices, laws and policies through the notion that directors’ experience does enable the busy board to contribute to improved firm efficiency. Originality/value This paper contributes to the debated perspectives on board busyness by providing initial evidence that directors’ experience positively moderates the impact of board busyness on firm efficiency.

LABOR MARKET CONSEQUENCES FOR BUSY DIRECTORS: EVIDENCE FROM INTERNATIONAL MERGERS AND ACQUISITIONS

AbstractUsing 13,233 acquisitions from 57 countries, we examine merger and acquisition (M&A) decisions made by busy boards. We find that few busy acquirers originate from emerging markets and that they tend to undertake cross‐border mergers, favor public targets, finance with cash and equity, pursue nondiversifying mergers, avoid targets with multiple bidders, and long‐term underperform relative to nonbusy acquirers. Importantly, we discover a nonlinear relation between an acquirer's board busyness and merger announcement returns. We find that the labor market penalizes directors who approve bad acquisitions but does not reward them for good mergers. We find a similar nonlinear relation between an acquirer's board busyness and its long‐term performance along with a suggestion of an optimal board busyness.

Board busyness, performance and financial stability: does bank type matter?

ABSTRACTThis study examines the impact of board busyness (i.e. multiple directorships of outside board members) on the performance and financial stability of banks in a dual banking system (Islamic and conventional). We consider banks from 14 countries for the period 2010–2015. The results provide strong evidence that conventional banks with busy boards exhibit high bank performance (i.e. high profitability and low cost to income) and greater financial stability (i.e. low insolvency risk, credit risk, liquidity risk, asset risk, and operational risk). These findings are in line with the reputation hypothesis, which asserts that the expertise and connections of busy outside directors lead to better decision making, more efficient resource utilisation and more effective monitoring. In contrast, Islamic banks’ performance and stability are adversely affected by the presence of busy board members, with Islamic banks show low profitability, high cost to income and high risk-taking. This result might be attributed to the complex governance structure of Islamic banks and the uniqueness of their financial products, which require additional effective monitoring.

Busy boards and earnings management – an Australian perspective

PurposeThe purpose of this paper is to assess whether multiple directorships have an influence on earnings management for Australian publicly listed firms. This paper attempts to determine whether boards with multiple directorships are effective monitors and are able to constrain earnings management activities.Design/methodology/approachThe study adopts resource dependency theory on the relationship between multiple directorships and the extent of earnings management. Data analysis is based on publicly listed firms on Australian Stock Exchange utilising SIRCA database with a final pooled sample of 1,815 firm-year observations from 2008 to 2012.FindingsUsing different measures of multiple directorships, it is found that firms having board of directors with multiple directorships exhibit lower levels of earnings management. The results validate the applicability of resource dependency theory on the relationship between multiple directorships and the extent of earnings management suggesting that directors with multiple board seats by sharing experiences, skills, information and other resources limit the extent of earnings management by firms. Evidence also suggests that earnings management behaviour is more pronounced in larger firms compared to smaller firms and as predicted, industry audit specialists restrain earnings management activities.Practical implicationsThis study introduces methodological enhancements to the literature as it measures the multiple directorships in a number of different ways. Firms may be encouraged to actively seek board members with diverse backgrounds, international exposure/experience and pertinent skill-sets with multiple board memberships. These benefits will assist firms to determine the optimal board composition that will enable it to function effectively.Originality/valueEmpirical studies on the association between multiple directorships and earnings management in Australia are scarce and this paper provides an update of the effect of multiple directorships on earnings quality in Australia.

Firm Efficiency of East Asia Countries: The Impact of Board Busyness

This study aims to examine the impact of board busyness on firm efficiency under the concept of technical efficiency. By employing conventional agency theory and busyness hypothesis, the logical relationships between board busyness and firm efficiency are established. In the first stage of analysis, this study employs data envelopment analysis (DEA) to investigate firm efficiency. While in the second stage of analysis, this study adopts panel regression analysis to empirically examine the proposed effect of board busyness on firm efficiency, based on a sample of 400 listed firms in the countries of significant East Asia region from 2009 to 2015. This study discovers the significant and negative impact of board busyness on firm efficiency, suggesting that the busy board significantly impedes firm efficiency due to their overcommitted issue and therefore consistent with busyness hypothesis and agency theory. This study highlights practical implication for managers who pursue to enhance firm efficiency in attaining the goals of profit maximization by understanding how board busyness impacts the firm efficiency. In addition, this study calls for regulators and government policymakers to review the restrictions on board busyness in preventing the overcommitted issue of busy boards.

Bank Boards: What Has Changed Since the Financial Crisis?

Abstract: We investigate how board oversight of U.S. banks has changed since the 2008 financial crisis. We review several expert reports that investigated the crisis to identify key board oversight deficiencies and group them into four categories: (i) lack of enterprise risk management, (ii) lack of risk awareness on the board, (iii) group think among bank directors and (iv) busy directors, especially the chairperson. Our empirical analysis examines improvements, if any, in each of these categories for 95 U.S. banks post-crisis (2008-2015), relative to the pre-crisis period (2000-2007). We find significant structural improvements to the banks’ enterprise risk management structure. Virtually every bank now has a Chief Risk Officer (CRO), and the number of banks with an independent risk committee and a committee devoted to reputation management has also increased significantly. With respect to risk awareness, we find that newly appointed bank directors are much more likely to have prior risk management, banking and specialty finance experience. There are also significantly more risk-related discussions within the financial statements, which indicate a heightened level of risk awareness. With respect to group think and busy board members, we find mixed evidence of progress. We document greater gender diversity and more empowered corporate governance and nominating committee after the crisis. In sum, at least some aspects of bank boards appear to have responded to the financial crisis.

Board Busyness and Firm Performance: Evidence from India

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.

Why and how should SHE make her way into the family business boardroom?

The most successful and longest-enduring family firms are progressively encouraging the active presence of women on their corporate boards. Why is the presence of women on boards so important for family firms? And how can policy makers and controlling owners encourage the active presence of women on family business corporate boards? By integrating the literature on women in governance and the goals of family businesses, we take a step toward increasing shareholder awareness of the economic and noneconomic benefits that women can bring to the family business boardroom. Using theory and empirical evidence, we show that the presence of women on corporate boards can be instrumental for the controlling owners of a family business to achieve prosperity and success, to preserve family cohesion, and to improve the reputation of the family and business simultaneously. Furthermore, we discuss the socioemotional and economic ramifications of excluding women from the family business board of directors. We conclude with four practical recommendations for encouraging the active presence of women on family business boards.

Board networks as a source of intellectual capital for companies

PurposeThe purpose of this paper is to use the dynamic capabilities framework to explain the effect of board networks, as a source of intellectual capital, on firm performance. The authors propose that the influence of board interlocks depends on their ability to contribute to strategic decision making. As a result, their effect is subject to the business context in which they occur and the different role of the interconnected directors involved.Design/methodology/approachThe authors use social network analysis to make board connections and to calculate centrality measures. The authors also identify busy boards to analyze whether their effect differs from centrality. The authors estimate the theoretical model using the Generalized Method of Moments in order to take advantage of the panel database.FindingsFor a sample of Spanish firms from 1999 to 2015, the results show there is no direct significant effect of directors’ networks on firm performance. However, the authors find a positive and significant influence of intra-industry board connections, particularly when they are established among outsiders.Research limitations/implicationsThe Spanish context of the study can limit the generalization of the papers’ results.Practical implicationsThe results can be useful both for practitioners – since they can serve as a guide for companies to reformulate their boards in search of the optimal structure-, and when implementing good governance codes – establishing limits for director interlocking.Originality/valueThis study helps to offer a better understanding of how directors’ networks can add value to the firm depending on the kind of resources they provide (context) and the role of the director who is connected.

Governance practices and agency cost in emerging market: Evidence from India

In this study, we examine whether governance practices brings down agency cost. We find that board size, board attendance, and CEO duality are important governance characteristics that influence the agency cost. We also bring out systematic differences in governance practices of the business group affiliated firms and stand‐alone firms. Larger board and proportion of independent director helps in reducing the agency cost for group affiliated firms supporting monitoring hypothesis. On the other hand, the governance structure of stand‐alone firms supports commitment hypothesis where we observe that board busyness and CEO duality help in reducing the agency cost.

Scott Family Enterprises: Building the Path to Effective Governance

As founders of First Interstate BancSystem, which held $8.6 billion in assets and had recently become a public company, and Padlock Ranch, which had over 11,000 head of cattle, the Scott family had to think carefully about business and family governance. Now entering its fifth generation, the family had over 80 shareholders across the US. In early 2016, the nine-member Scott Family Council (FC) and other family and business leaders considered the effectiveness of the Family Governance Leadership Development Initiative launched two years earlier. The initiative's aim was to ensure a pipeline of capable family leaders for the business boards, two foundation boards, and FC. Seven family members had self-nominated for governance roles in mid-2015. As part of the development initiative, each was undergoing a leadership development process that included rigorous assessment and creation of a comprehensive development plan. As the nominees made their way through the process and other family members considered nominating themselves for future development, questions remained around several interrelated areas, including how to foster family engagement with governance roles while guarding against damaging competition among members; how to manage possible conflicts of interest around dual employee and governance roles; and how to extend the development process to governance for the foundations and FC. The FC considered how best to answer these and other questions, and whether the answers indicated the need to modify the fledgling initiative. This case illustrates the challenges multigenerational family-owned enterprises face in developing governance leaders within the family. It serves as a good example of governance for a large group of cousins within a multienterprise portfolio. Students can learn and apply insights from this valuable illustration of family values, vision, and mission statement.

Too Busy or Well-Connected? Evidence from a Shock to Multiple Directorships

ABSTRACTPrior literature documents that multiple directorships are negatively associated with operating performance due to overly busy directors; however, multiple directorships may also increase firm value because directors gain access to valuable connections, resources, and information through their multiple appointments. This paper examines M&A that terminate target firms' entire boards as a negative shock to both board busyness and connections at other firms, as a complement to Hauser (2018). We document that firms experiencing a decrease in multiple directorships due to M&A exhibit improved operating performance, monitoring, and strategic advising, on average. Firms with the smallest decrease in board connections experience the greatest improvement in operating performance and advising, while firms with the greatest decrease in board connections experience null or negative effects on operating performance and advising. Our findings provide new evidence of the costs and benefits of multiple directorships based on board busyness and connections.

Mergers and the Market for Busy Directors: An International Analysis

Using 13,233 acquisitions from 57 countries, we examine M&A decisions made by busy boards. We find that few busy acquirers originate from emerging markets and that they tend to undertake cross-border mergers, favor public targets, finance with cash and equity, pursue non-diversifying mergers, avoid targets with multiple bidders, and long-term underperform relative to non-busy acquirers. Importantly, we discover a non-linear relation between an acquirer’s board busyness and announcement returns. We find that the labor market penalizes directors who approve bad acquisitions, but does not reward them for good mergers. We observe that acquirers with busy boards consistently underperform.

Better directors or distracted directors? An international analysis of busy boards

This study examines the effect of busy directors and boards on the value of a set of non-U.S. firms from 1999 to 2012. We find that busy directors and boards are a global phenomenon, but that national culture helps to explain the cross-sectional variation in director and board busyness. Firms with busy boards exhibit lower market-to-book ratios and reduced profitability, but this effect is reversed for younger firms. We conclude that the advising ability of these networked directors is most useful for younger firms. A demographic analysis shows that multiple directorships are positively associated with firm performance and education, but negatively associated with female directors.

Too Busy or Well-Connected? Evidence from a Shock to Multiple Directorships

Prior literature documents that multiple directorships are negatively associated with operating performance due to overly busy directors; however, multiple directorships may also increase firm value because directors gain access to valuable connections, resources, and information through their multiple appointments. This paper examines M&A that terminate target firms’ entire boards as a negative shock to both board busyness and connections at other firms, as a complement to Hauser (2017). We document that firms experiencing a decrease in multiple directorships due to M&A exhibit improved operating performance, monitoring, and strategic advising on average. Firms with the smallest decrease in board connections experience the greatest improvement in operating performance and advising, while firms with the greatest decrease in board connections experience null or negative effects on operating performance and advising. Our findings provide new evidence of the costs and benefits of multiple directorships, depending on the level of board connections.

Firm Efficiency and Board Busyness: Empirical Evidence in Southeast and Northeast Asia

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.

Effect Of Foreign Institutional Investors On Corporate Board Attributes: A Literature Review

This paper is a review of the exiting literature on corporate governance focusing on the key attributes of board namely the executive compensation, Board independence and Board busyness. The paper looks into the exiting work on how the foreign investment impacts the corporate governance and the main theories supporting it. The paper provides a model and a research setup for conducting future empirical studies specific to an economy on the impact of different types of foreign institutional investors on the corporate governance through the channel of board attributes. It provides a detailed discussion on how the endogeneity issues are addressed by previous literature and what new empirical research in governance can look forward to.

Family firms, board structure and firm performance: evidence from top Indian firms

PurposeGiven the prevalence of family-run businesses in India, this paper aims to empirically investigate the impact of family firms on the relationship between firm performance and board characteristics. The effectiveness of board characteristics such as independent directors, chairman independence, role duality, non-executive directors, board busyness, board size, board meetings and board attendance are studied in the Indian context.Design/methodology/approachThe sample consists of top-listed firms in India for the period 2002 to 2012. Board index was constructed to capture the governance quality of the firm. The authors also study the relationship between board structure and firm performance by segregating the sample based on family management, family ownership and family representative directors. Random effects model was used for the regression analysis in the study.FindingsThe authors find a negative effect of board structure on firm performance in family firms compared to non-family firms. Contrary to the most Western literature, family management was not found to significantly affect firm performance as compared to that of professionally managed firms. In the subset analysis of family firms, higher proportion of family ownership and family representative directors did not show any significant impact on the firm performance. Having a higher proportion of independent directors, larger board size or an independent chairman does not appear to improve this insignificant relationship between family firms and firm performance. Also, in family firms, no significant difference in performance is noticed before and during recession period.Originality/valueThe study uses a self-defined corporate governance index to measure the governance parameters, specifically the board characteristics. The results documented in this study adds to the debate on the generalizability of the findings in Western governance studies in emerging markets like India with unique institutional development background.

Better Directors or Distracted Directors? An International Analysis of Busy Boards

This study examines the effect of busy directors and boards on the value of a set of international firms from 1999-2012. We find that busy directors and boards are a global phenomenon. We discover that national culture helps to explain the cross-sectional variation in director and board busyness. We determine that firms with busy boards exhibit lower market-to-book ratios and reduced profitability. This effect, however, is reversed for younger firms. We conclude that the advising ability of these networked directors is useful for younger firms. A demographic analysis shows that multiple directorships are positively associated with firm performance and education, but negatively associated with female directors.