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Busy directors and firm performance: Evidence from mergers

Roie Hauser

Journal of Financial Economics, 2018, vol. 128, issue 1, 16-37

Abstract: This paper studies whether director appointments to multiple boards impact firm outcomes. To overcome endogeneity of board appointments, I exploit variation generated by mergers that terminate entire boards and thus shock the appointments of those terminated directors. Reductions of board appointments are associated with higher profitability, market-to-book, and likelihood of directors joining board committees. The performance gains are particularly stark when directors are geographically far from firm headquarters. I conclude that the effect of the shocks to board appointments is: (i) evidence that boards matter; and (ii) plausibly explained by a workload channel: when directors work less elsewhere, their companies benefit.

Keywords: Board of directors; Board composition; Busy boards; Corporate governance (search for similar items in EconPapers)
JEL-codes: G34 J22 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:jfinec:v:128:y:2018:i:1:p:16-37