Are Busy Directors Harmful or Helpful? Evidence from the Great Recession

Withisuphakorn Pradit and Pornsit Jiraporn
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Withisuphakorn Pradit: National Institute of Development Administration (NIDA), Bangkok, Thailand

The B.E. Journal of Economic Analysis & Policy, 2018, vol. 18, issue 2, 11

Abstract: We contribute to the debate on the costs and benefits of busy directors by investigating the effect of busy directors on firm value during a stressful time, i. e. during the Great Recession. Our results show that busy directors improve firm value significantly during the financial crisis. In particular, a rise in directors’ busyness by one standard deviation results in an improvement in Tobin’s q by 6.41 %. Directors with multiple board seats appear to help firms navigate the crisis more successfully, supporting the notion that multiple board seats signal higher quality. Outside the crisis period, however, we find that busy directors reduce firm value, consistent with many prior studies. Our results are crucial as they show that governance mechanisms function differently during stressful times than they do during normal times. Firms should exercise great caution before imposing limits on outside board seats on their directors.

Keywords: busy directors; multiple directorships; multiple board seats; corporate governance; financial crisis (search for similar items in EconPapers)
JEL-codes: G30 G32 G34 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (5)

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DOI: 10.1515/bejeap-2017-0249

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