Do Multiple Directorships Increase Firm Value? Evidence from Independent Directors in Hong Kong

This paper studies the effect of independent directors’ multiple directorships ( MD s) on firm value and examines the countervailing effects of quality and “busyness.” Using a unique panel data set covering all H ong K ong‐listed firms, we find that despite independent directors’ busyness, there is a strong and positive relation between the number of MDs of independent directors and firm value. We also find, however, that the positive effect of MD s declines at higher levels of busyness. We find that the effects of MD s on firm value are stronger under better corporate governance standards. We show that independent non‐executive directors ( INED s) with a CEO position underperform because of busyness. After the requirement of increasing the minimum number of INED s in H ong K ong from 2004, the quality effect of MD s seems to be reduced, implying the policy may have increased the busyness of some INED s. Our results are robust to a range of estimation procedures, including alternative MD and firm‐performance measurements, and 2 SLS . Our empirical evidence suggests that highly engaged independent directors still improve firm value and supports increasing the minimum requirement for the fraction of independent directors, even under a supply constraint of qualified directors.