Quantity versus quality of directors’ time: The effectiveness of directors and number of outside directorships Article

Li, J, Ang, JS. (2000). Quantity versus quality of directors’ time: The effectiveness of directors and number of outside directorships . MANAGERIAL FINANCE, 26(10), 1-21. 10.1108/03074350010766909

cited authors

  • Li, J; Ang, JS

authors

abstract

  • Weinvestigate the issue of whether the number of directorships that directors hold could affect the effectiveness of the directors’ ability to perform both routine and special circumstances monitoring. Mergers targets are chosen for in depths study because directors in these firms would have to perform both routine and special circumstance monitoring. Data are collected and analyzed for 1,195 directors from 121 firms that had become merger targets in years 1989 to 1993. We proposed and tested two hypotheses on directors’ function and effectiveness. The Attention hypothesis postulates that a director’s effectiveness is a function of the attention, or the amount of time, she put into the job, and that the firm needs constant monitoring by the directors. Therefore, directors who accept more outside directorships will divide their attention over many firms, and increasing the likelihood that they may neglect their duties. Instead of quantity of directors’ time, the Expertise hypothesis emphasizes the quality of directors’ time. The Expertise hypothesis argues that individuals who have specialized skills, or established a reputation as valuable directors, will be in high demand, and thus serve on more boards. They need not attend to all routine business decisions, but shall prove their worth in special circumstances. Our empirical findings indicate that expertise could be important in some cases, while attention is not found to be significant. Thus, contrary to popular criticisms, the adverse effect on a firm’s share value due to the number of directorships a director holds is negligible. © MCB UP Limited 2000.

publication date

  • January 1, 2000

published in

Digital Object Identifier (DOI)

start page

  • 1

end page

  • 21

volume

  • 26

issue

  • 10