Are Busy Directors Harmful or Helpful? Evidence from the Great Recession

Pradit Withisuphakorn, Pornsit Jiraporn

Research output: Contribution to journalArticle

2 Scopus citations

Abstract

We contribute to the debate on the costs and benefits of busy directors by investigating the effect of busy directors on firm value during a stressful time, i. e. during the Great Recession. Our results show that busy directors improve firm value significantly during the financial crisis. In particular, a rise in directors' busyness by one standard deviation results in an improvement in Tobin's q by 6.41%. Directors with multiple board seats appear to help firms navigate the crisis more successfully, supporting the notion that multiple board seats signal higher quality. Outside the crisis period, however, we find that busy directors reduce firm value, consistent with many prior studies. Our results are crucial as they show that governance mechanisms function differently during stressful times than they do during normal times. Firms should exercise great caution before imposing limits on outside board seats on their directors.

Original languageEnglish (US)
Article number20170249
JournalB.E. Journal of Economic Analysis and Policy
Volume18
Issue number2
DOIs
StatePublished - Apr 25 2018

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics
  • Economics, Econometrics and Finance (miscellaneous)

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