The virtues of fewer directorships

K. Bar-Hava, F. Gu and B. Lev
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B. Lev: Externe publicaties SBE

No 37, Research Memorandum from Maastricht University, Graduate School of Business and Economics (GSBE)

Abstract: The "busy director" (multi-directorships) phenomenon increased in recent years, despite the substantial rise in directors’ responsibility and time demands. Busy directors are more experienced and better connected than single-firm directors, but also more distracted. The empirical evidence on the tradeoff between these two effects on board effectiveness is mixed. We depart from previous research by examining the reaction to a busy director’s resignation by the shareholders of the companies that still keep the director on their board. Our findings indicate that when busy directors resign from a board, the investors of firms that continue boarding the director react positively to the news of the resignation. Investor reaction is more positive when there is a larger demand for the director’s services, when the resignation frees up more of the director’s time, and when the director is of higher quality. Our analysis suggests that three directorships are perceived optimal by investors. Finally, investors’ positive reaction to the resignation of directors from other companies fails to fully capture the governance benefits of such resignation.

Date: 2013-01-01
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Persistent link: https://EconPapers.repec.org/RePEc:unm:umagsb:2013037

DOI: 10.26481/umagsb.2013037

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