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This paper studies the effect of independent directors' multiple directorships (MDs) on firm value and examines the countervailing effects of quality and "busyness." Using a unique panel data set covering all Hong Kong-listed firms, we find that despite independent directors' busyness, there is a strong and positive relation between the number of MDs of independent directors and firm value. We also find, however, that the positive effect of MDs declines at higher levels of busyness. We find that the effects of MDs on firm value are stronger under better corporate governance standards. We show that independent non-executive directors (INEDs) with a CEO position underperform because of busyness. After the requirement of increasing the minimum number of INEDs in Hong Kong from 2004, the quality effect of MDs seems to be reduced, implying the policy may have increased the busyness of some INEDs. Our results are robust to a range of estimation procedures, including alternative MD and firm-performance measurements, and 2SLS. Our empirical evidence suggests that highly engaged independent directors still improve firm value and supports increasing the minimum requirement for the fraction of independent directors, even under a supply constraint of qualified directors.

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We examine the impact of corporate fraud committed by one firm (the “fraudulent firm”) on other firms with interlocking directors (the “interlocked firms”), focusing on the debtholder side. We argue that the revelation of a fraudulent firm's fraud can damage the reputation of the interlocked firms because corporate governance can propagate via director interlocks. Empirically, we find that the interlocked firms' cost of debt is higher and the loan covenants become stricter after the fraud cases of the fraudulent firms are revealed. Consistent with the corporate governance propagation explanation, our results are weaker (stronger) for interlocked firms that have better (worse) pre‐event corporate governance standards. Our findings suggest that corporate fraud of fraudulent firms can affect other firms through director‐interlocks beyond shareholder value.