Multiple Directorships of Independent Directors and Firm Performance: Evidence from Hong Kong

This paper studies the effect of multiple directorships by independent directors on firm performance. Using a unique panel data covering all Hong Kong listed firms from 2001 to 2009, we find that number of multiple appointments of independent directors is positively related to firm value, consistent with the 'quality hypothesis', this signaling effect reduces when there are more directorships of the independent directors. In contrast, the accounting performances are negatively related to multiple board appointments, suggesting that the directors’ quality comes with the 'busyness' tradeoff. There is also a strong non-linear relationship between multiple board appointments and accounting performance, where the relationship turns positive when the degree of multiple appointments increases, supporting the resource dependence theory. We address the endogeneity issues using instrumental variable approach, and results are consistent with the fixed-effects models. Overall, our empirical evidence supports the increase of the minimum requirement of independent director, even under a supply constraint of qualified directors.