When are busy boards beneficial?

Keunyoung Kim

The Quarterly Review of Economics and Finance, 2022, vol. 86, issue C, 437-454

Abstract: Whether busy boards contribute positively to firm value is inconclusive. I examine whether the effectiveness of busy boards varies with firms’ demands for specific board functions: advising and monitoring. I find that the positive effects of busy boards on advising quality, including corporate innovation and acquisition returns, are enhanced when firms have higher advising needs. I also show that the negative effects of busy boards on monitoring quality, including forced CEO turnover-performance sensitivity and income-increasing earnings management, are mitigated when firms have lower monitoring needs. Taken together, firm value results suggest that the positive effect through improved advising is more likely to outweigh the mitigated negative effect through monitoring when firms have higher advising needs but lower monitoring needs.

Keywords: Corporate Governance; Board of Directors; Multiple Directorships; Monitoring; Advising (search for similar items in EconPapers)
JEL-codes: G30 G34 K22 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:86:y:2022:i:c:p:437-454

DOI: 10.1016/j.qref.2022.08.008

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