Do Multiple Directorships Increase Firm Value? Evidence from Independent Directors in Hong Kong

Abstract

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.

Family Ownership, Auditor Choice and Audit Fees: Evidence from Hong Kong

“…This finding supports the argument that multiple directorships imply better quality of directors (quality hypothesis) and busyness of these directors is still less prevalent in Hong Kong, so that multiple directorships would still not harm the firms in Hong Kong (see Lei and Deng, 2013). But, the multiple directorships signal the expertise and monitoring competence over financial reporting, hence lower the audit risk and consequently lower the firm's audit fee.…”

“…In this regard, audit risk would be perceived as lower by auditors due to the effective monitoring quality of the INEDs, then offer lower audit fees. Consistent with Lei and Deng (2013), given the similarities of Asian emerging markets, we expect that the Quality Hypothesis should also dominate in predicting the impact of Multiple Directorships on audit fees in HK.…”

“…More specifically, prior auditing literatures only paid little focus on the association between multiple directorships and audit quality. This paper also extends the recent HK study of Lei and Deng (2013) which investigate the impact of multiple directorships among independent directors on the firm value.…”

“…However, in terms of emerging markets, Lei and Deng (2013) argue that INEDs with greater reputation, knowledge, or experience might obtain more directorships due to limit qualified independent directors available. Consistent with the quality hypothesis, using the sample from Japan, Miwa and Ramseyer (2000) find that most successful public firms recruit well-known industrialists and technologically sophisticated professionals onto the board, who ISSN 2162-3082 2018 always serve on several boards, and induce them to place their own reputations, connections, and expertise behind the firm to align managerial and investor incentives.…”

Hubungan Saling Pengaruh Lembaga Pengarah dan Prestasi Firma: Perspektif Rangkaian Sosial

“…Bukti terkini menunjukkan pengarah bebas yang memegang kepengarahan fi rma lain meningkatkan nilai fi rma (Lei & Deng 2014). 4 Penumpuan kuasa merupakan satu masalah dalam lembaga pengarah yang boleh menjejaskan kualiti keputusan yang dibuat (Mizruchi 1996).…”