Multiple directorships of corporate boards and firm performance in India

Abstract

The purpose of the paper is to investigate, first, the association between multiple directorship assignments (busyness) undertaken by corporate directors and firm performance, second, whether endogenously determined limits of multiple directorships, highlighting the ownership structure and other institutional settings, explain the above association better than those by exogenously mandated by regulators and third, the association between the nature of busyness and firm performance. The study develops measures of busyness in the light of the agency and resource dependence theories. The spline regression technique is applied in order to reflect institutional settings of a large sample and sub-samples of firms classified as local private, foreign and government firms in India. For local private firms, the association between the number of directorships and firm performance becomes negative before reaching the maximum number of directorships set by legislation, whereas, for foreign and government firms, the same continues to remain positive throughout. Endogenously determined cut-off points of busyness reflect institutional settings of firms, which may remain masked otherwise. The findings of the current paper can be useful to study the same phenomenon in other emerging markets having corporate governance, and ownership structures similar to that of India. The effect of busyness can be different on different firms; however, exogenously fixed regulatory limits do not reflect their institutional settings. The current paper is an attempt to fill in this research gap.