The Harvard Law School Forum on Corporate Governance and Financial Regulation 2014-02-05
In our paper, Distracted Directors: Does Board Busyness Hurt Shareholder Value?, which was recently accepted for publication in the Journal of Financial Economics, we examine the impact of independent director busyness on firm value in a setting that addresses a key challenge that the board of directors is an endogenously determined institution. A large number of publicly-traded firms in the U.S. have recently limited the number of multiple directorships held by their board members. For example, a recent survey shows that 74 percent of S&P 500 firms impose restrictions on the number of corporate directorships held by their independent directors, up from 27 percent in 2006, and the Institutional Shareholder Services recommends restrictions on the number of multiple directorships. Although such shareholder initiatives are consistent with standard theoretical considerations (e.g., Holmstrom and Milgrom, 1992), the empirical evidence on whether director busyness has any effect on the firm is thus far mixed. While several studies find that busy directors are associated with lower firm valuations and less effective monitoring (e.g., Fich and Shivdasani, 2006; Core, Holthausen and Larcker, 1999) others either do not, or provide mixed evidence (e.g., Ferris, Jagannathan and Pritchard, 2003; Field, Lowry, and Mkrtchyan, 2013).