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When are busy boards beneficial?

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  • Kim, Keunyoung

Abstract

Whether busy boards contribute positively to firm value is inconclusive. I examine whether the effectiveness of busy boards varies with firms’ demands for specific board functions: advising and monitoring. I find that the positive effects of busy boards on advising quality, including corporate innovation and acquisition returns, are enhanced when firms have higher advising needs. I also show that the negative effects of busy boards on monitoring quality, including forced CEO turnover-performance sensitivity and income-increasing earnings management, are mitigated when firms have lower monitoring needs. Taken together, firm value results suggest that the positive effect through improved advising is more likely to outweigh the mitigated negative effect through monitoring when firms have higher advising needs but lower monitoring needs.

Suggested Citation

  • Kim, Keunyoung, 2022. "When are busy boards beneficial?," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 437-454.
    • Handle: RePEc:eee:quaeco:v:86:y:2022:i:c:p:437-454
    DOI: 10.1016/j.qref.2022.08.008
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    More about this item

    Keywords

    Corporate Governance; Board of Directors; Multiple Directorships; Monitoring; Advising;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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