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Market Evidence on Investor Preference for Fewer Directorships

Published online by Cambridge University Press:  28 January 2019

Keren Bar-Hava ,
Feng Gu  and
Baruch Lev
Keren Bar-Hava
Affiliation:
Bar-Hava, kbarhava@gmail.com, the Hebrew University
Feng Gu*
Affiliation:
Gu, fgu@buffalo.edu, the State University of New York at Buffalo School of Management
Baruch Lev
Affiliation:
Lev, blev@stern.nyu.edu, New York University Stern School of Business
*
Gu (corresponding author), fgu@buffalo.edu
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Abstract

We examine investors’ preference for directors serving on fewer versus more boards (“busy directors”) by measuring market reaction to busy directors’ resignations at the companies that still keep these directors on the board. We find a positive reaction implying a preference for fewer directorships. The reaction is more positive when the need for the director’s services is greater, when the resignation frees up more of the director’s time, and when the director is of higher quality. Furthermore, we find that following their resignation, directors increase their board responsibilities/leadership at firms that still retain them and seek no board appointments elsewhere.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 55 , Issue 3 , May 2020 , pp. 931 - 954
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2019

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Footnotes

We thank Paul Malatesta (the editor), Robert Schonlau (the referee), and workshop participants at INSEAD, National University of Singapore, New York University, Tel Aviv University, the Hebrew University, and the 2014 Massachusetts Institute of Technology (MIT) Asia Conference in Accounting for helpful comments and suggestions. Gu thanks the financial support from the State University of New York at Buffalo.

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