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Busy directors and firm performance: Does firm location matter?

Hui Liang James, Hongxia Wang and Yamin Xie

The North American Journal of Economics and Finance, 2018, vol. 45, issue C, 1-37

Abstract: We examine whether busy directors’ impacts on firm performance vary with firm headquarter locations. We classify firms into Metro and Rural firms based on their headquarter locations. Using a sample of 11,537 firm-year observations from 1997 to 2013, we find that Metro firm busy directors significantly enhance firm performance and are associated with lower default risk, lower cash effective tax rate, lower real earnings management, and more efficient assets utilization. We further show busy independent directors enhance firm performance after the 2007–2008 financial crisis, but not in the early years after SOX. Interestingly, the results indicate that SOX compromises the effectiveness of busy inside directors in Metro firms in the post-SOX period. The location effect is robust across multiple model specifications and various measures of director busyness and Metro firms. We conclude that firm location affects the effectiveness of busy directors and Metro firms benefit more from directors with multiple directorships.

Keywords: Busy directors; Busy inside directors; Busy independent directors; Metro firms; Rural firms; Firm performance (search for similar items in EconPapers)
JEL-codes: G30 G32 G34 G38 (search for similar items in EconPapers)
Date: 2018
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