If you have board members who are board members in too many companies, then the
busyness hypothesis says that the directors will be over committed and cannot monitor
the firms properly. But this paper seems to suggest otherwise.
Jayati Sarkar and Subrata Sarkar, Multiple board appointments and firm performance in emerging economies: Evidence from India, Pacific-Basin Finance JournalIn Press, Accepted Manuscript, , Available online 4 March 2008.
This paper extends the literature on multiple directorships, busy directors and firm performance by providing evidence from an emerging economy, India, where the incidence of multiple directorships is high. Using a sample of 500 large firms and a measure of “busyness” that is more general in its applicability, we find multiple directorships by independent directors to correlate positively with firm value. Independent directors with multiple positions are also found to attend more board meetings and are more likely to be present in a company’s annual general meeting. These findings are largely in contrast to the existing evidence from the US studies and lend support to the “quality hypothesis” that busy outside directors are likely to be better directors, and the “resource dependency hypothesis” that multiple directors may be better networked thereby helping the company to establish more linkages with its external environment. Multiple directorships by inside directors are, however, negatively related to firm performance. Our results suggest that the institutional specificities of emerging economies like India could work in favor of sustaining high levels of multiple directorships for independent directors without necessarily impairing the quality of corporate governance.