Board Busyness: Target, Deviation, and Firm Performance


I investigate how firm's demand for board services, agency issues, and labor market frictions are associated with board busyness, and reexamine the relation between board busyness and firm performance. My theoretical model predicts the existence of heterogeneous target levels of board busyness, which increase with firms' demand for board advisory services and decrease with demand for monitoring services. However, frictions due to agency issues and director labor market could prevent companies from reaching these target levels. My empirical results suggest that the variation in board busyness explained by firm's demand for board services is positively associated with firm performance as the variation predicted by agency issues and labor market frictions is negatively related to firm performance. I also realize that firm performance is positively from the busyness of audit committee, and negatively get back of nominating committee. Collectively, my results do not support the decision for setting one size fit all limits of multiple directorships for many firms.


The composition and effectiveness of the board of directors have been the focus of corporate governance literature for many years. While prior studies generally focus on monitoring function and board independence, an evergrowing literature investigates the advisory function and other board composition dimensions, such as board busyness, size, and diversity. Due to the increased time commitment necessary for directors of public companies lately, the overboard concern has gained more attention increasingly. Activists and proxy advisors call for limits on multiple directorships with the fact that overboarded directors can harm firm performance. Firms have been increasingly adopting restrictive policies of multiple directorships. A growing literature has emerged to research multiple directorships as well. However, theoretical predictions and empirical findings remain ambiguous regarding the impact of multiple directorships on firm performance.

Multiple directorships are endogenously determined in the director labor market, where directors work as the suppliers of board services as the organizations play as the consumers (demanders). The director labor market plays an essential role in corporate governance by giving managerial talents with reputational incentives through board seats. It really is established in the literature the way the supplier side works. Specifically, the labor market recognizes the power difference of managerial talents through various firm performance metrics and different amounts of board seats accordingly. However, our understanding of the consumer (demander) side is relatively limited. The prior literature assumes that businesses have homogenous demand. Therefore, it isn't clear how firms' different preferences for director services and other characteristics are likely involved when organizations provide director positions to the marketplace. My study aims to fill this gap.

My primary research question asks how firm's preference for advisory services and monitoring services, agency issues, and labor market frictions are from the multiple directorships on the firm level. The response to this question is fundamental to appreciate the relation between multiple directorships and firm performance. I posit that different firms have different target degrees of board busyness, which maximize the worthiness added by their boards. However, agency issues and labor market frictions could lead businesses to deviate from the mark levels. Therefore, the association between your observed levels of board busyness and firm performance depends upon the composition of different components of board busyness.

To examine this argument, I provide a model in which a firm considers its particular preference for advising services and monitoring services and trades off different effects of multiple directors on advising quality and monitoring quality in deciding the target level of multiple directorships held by its board members. The model implies that there exist heterogeneous and time-varying target degrees of multiple directorships, that are positively related to the firm's advisory need and negatively using its monitoring need.

To empirically test the model, I decompose the amount of firm's multiple directorships into demand related component, friction related component, and unexplained residual component by regressing multiple directorships over a set of factors driving firm's demand for board advisory services, demand for monitoring services, agency issues and labor market frictions. Then I examine the relation between these components and different performance metrics. I find steady evidence of a good association between firm performance and the demand related component, and a poor association with the friction related component. My committee level analysis implies that firm performance is positively associated with the multiple directorships of the audit committee, and negatively with the multiple directorships of the nominating committee. Given that audit committees are heavily scrutinized within my sample period, and nominating committees are in charge of nominating directors, this finding could be related to agency issues and director labor market frictions, that i will investigate further.

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