How do ‘busy’ and ‘overlap’ directors relate to <scp>CEO</scp> pay structure and incentives?

Pathan, Shams; Wong, Peh Hwa; Benson, Karen L.

doi:10.1111/acfi.12272

Cited by 10 publications

(9 citation statements)

References 62 publications

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“…Our first measure of busy board ( Busy1 it ) is measured as the number of non-executive directors who hold three or more board appointments scaled by the total number of non-executive directors on the board (Ferris et al , 2003; Fich and Shivdasani, 2006; Méndez et al , 2015). Our second measure of busy board ( Busy2 it ) is the average number of firm directorships held by non-executive directors for a given firm in each year (Ferris et al , 2003; Pathan et al , 2019). This variable assumes a value of zero if the firm does not have any independent directors on its board.…”

Section: Methodsmentioning

confidence: 99%

Busy boards and accounting conservatism – an Australian perspective

Vafaei

Ahmed

et al. 2022

MEDAR

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Purpose This paper aims to examine the association between busy directors on corporate boards and accounting conservatism. Design/methodology/approach The authors use a sample of 500 firms listed on the Australian Security Exchange from 2004 to 2019. The busyness of non-executive directors is proxied by three indicators. For accounting conservatism, the authors use both conditional and unconditional accounting conservatism via asymmetric timeliness of earnings, accrual-based loss recognition, cumulative total accruals and book-to-market ratio. The authors cluster the standard errors at the firm level to compensate for potential residuals’ dependency and heteroscedasticity, in addition to analysing the main models using year and industry fixed effects (Petersen, 2009). Separately, the authors look at the impact of female busy directors on firms’ adoption of conservative accounting methods. Both propensity score matching analyses and Heckman (1979) two-stage approach systematically address endogeneity issues. Findings The presence of busy directors on boards leads to greater unconditional conservatism and less conditional conservatism. The relationships between busy female directors with both conditional and unconditional conservatism remain consistent with the main findings. Practical implications This paper provides useful insights for shareholders, regulators and accounting standards setters to better evaluate busy directors’ effectiveness in monitoring firms’ financial reporting quality. Directors and the companies themselves can refer to the authors’ findings to decide the best structure for their boards and committees, considering their specific monitoring requirements. Given that no mandatory restriction has been legislated, improved policies or new ones will ensure that busy directors can effectively fulfil their duties. Originality/value This research contributes to the broader research theme by examining the influence of directors’ quality on financial reporting conservatism. It also contributes to the ongoing debate in the corporate finance literature regarding the experience and busyness hypotheses of directors with multiple directorships. Additionally, this research adds value to gender diversity research by finding evidence that female busy directors follow the same pattern of reporting conservatism as male busy directors.

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Section: Methodsmentioning

confidence: 99%

Busy boards and accounting conservatism – an Australian perspective

Vafaei

Ahmed

et al. 2022

MEDAR

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“…Furthermore, reduction in multiple directorships has significantly reduced board busyness and connections (Daniliuc et al, 2020). Some studies indicate that independent directors serving in other companies have very limited time and often struggle with information asymmetry which may negatively impact the firm performance (Gray & Nowland, 2018; Pathan et al, 2019). In contrast, a few others have found positive impact as well as no impact (Kutubi et al, 2018; Sarkar & Sarkar, 2009; Xia et al, 2019).…”

Section: Role Of Independent Directors: Global Evidencementioning

confidence: 99%

Can Indian Independent Directors Ever be Independent?

Deb

Baruah

2022

Management and Labour Studies

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The current study has attempted to assess whether the Indian independent directors are, in a true sense, independent. Extant Corporate Governance literature has postulated that independent directors protect non-controlling minority shareholders, and defend their interests by lending their expertise to strategy. In practice, they seldom reject any strategy proposed by the executive directors who represent the dominant shareholders’ viewpoints. Thus, the independent directors perform advisory roles rather than supervisory roles. The study has assayed that independent directors must cease being subservient to the executive directors and has concluded that mere regulatory changes are insufficient; motivational changes must also accrue to the cause. JEL Classifications: G34, G38

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“…Prior studies have questioned the effectiveness of corporate boards as mechanisms of governance with some concluding that boards do not influence firm performance (Yermack, 2006; Adams et al , 2010). Others that have examined board busyness have found mixed evidence, with some concluding that busy boards are detrimental to firm performance and governance (Fernández Méndez et al , 2015; Gray and Nowland, 2018; Nowland and Simon, 2018; Pathan et al , 2019), and others showing the relationship is either positive or non‐linear (Sarkar and Sarkar, 2009; Lee and Lee, 2014; Kutubi et al , 2018; Chen et al , 2018; Xia et al , 2019). However, most prior studies on the relationship between multiple directorships and firm performance are subject to research design problems, such as endogenous selection of board appointments and the omitted variable problem.…”

Section: Introductionmentioning

confidence: 99%

Busy directors and firm performance: a replication and extension of Hauser (2018)

Daniliuc

Wee

2020

Accounting & Finance

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We replicate the 2018 study by Hauser and examine whether director appointments impact firm performance by exploiting the exogenous reduction in board appointments generated by mergers that terminate target boards. Using an extended sample, we find increases in return on assets and Tobin's q for firms with a reduction in board appointments (i.e., treated firms), confirming the results in Hauser's study. In further analysis, we find greater improvements in firm performance when the target and treated firms are from different industries than if they are from the same industry. The results further demonstrate that director appointments influence firm performance via a workload channel.

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How do ‘busy’ and ‘overlap’ directors relate to CEO pay structure and incentives?

Cited by 10 publications

References 62 publications

Busy boards and accounting conservatism – an Australian perspective

Busy boards and accounting conservatism – an Australian perspective

Can Indian Independent Directors Ever be Independent?

Busy directors and firm performance: a replication and extension of Hauser (2018)

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