Multiple directorships in unlisted medium-sized firms

Abstract

During the last decade, several studies examined the benefits and detriments of multiple directorships in listed firms. Recently, governance guidelines for SME’s emerged and strongly recommended the adoption of outside directors in SME’s, increasing the likelihood of a director supply gap and making the discussion about multiple directorships in non listed SME’s relevant as well. This study shows that a busy board has a significant positive influence on firm performance if the CEO is also busy. However, this positive effect of a busy board on performance appears to become insignificant for smaller firms. Our results also suggest that a busy CEO has a significant negative influence on firm performance. This negative effect is mitigated by a busy board and firm size. If the majority of the directors is busy, a busy CEO is no longer detrimental for firm performance. An increase in the busyness of the board seems to decrease the significance of the negative impact of busyness of the CEO on firm performance. In addition, a busy CEO seems to have a more significant negative effect on performance in larger firms. Our hypotheses were tested in the unique Belgian setting with the Belfirst database containing detailed financial and directors’ information.