مدیران پرمشغله و عملکرد شرکت: آیا محل شرکت تعیین کننده است؟ Busy directors and firm performance: Does firm location matter?

1. Introduction Busy directors, defined as those with three or more outside directorships1 (Ferris, Jagannathan, & Pritchard, 2003; Fich & Shivdasani, 2006; Jiraporn, Kim, and Davidson, 2008), affect firm performance. Empirical studies document equivocal results on the impact of busy directors on firm performance, with some studies show a positive effect (Ferris et al., 2003; Fich, 2005; Field, Lowry, & Mkrtchyan, 2013; Harris & Shimizu, 2004; Keys & Li, 2005), while others document a negative one (Ahn, Jiraporn, & Kim, 2010a,2010b; Andres & Lehmann, 2010; Jiraporn, Kim, & Davidson, 2008). Cashman, Gillan, and Jun (2012) contribute the disparate results to sample selection and empirical design. We argue that contextual factors may also lead to these inconsistent findings. Studies show that busy directors are not universally the same.2 Further, specific contextual factors, such as firm characteristics, firm operating environment, director incentives, directors’ perception of the importance of a directorship, may affect their social and professional connections, behavior, decisions, value creation abilities, and hence firm performance. Therefore, simply counting the number of outside directorships held by individual directors and/or focusing on their affiliations to the host firms may not be able to capture their true value effects. For example, Field et al. (2013) find busy directors in IPO firms have different value effects from those in the most established firms; Elyasiani and Zhang (2015) show that the performance of bank holding companies increases with director busyness; Masulis and Mobbs (2014) show that busy directors rank directorships held and allocate their limited resources unequally by distributing more efforts and resources to firms where their directorships are more prestigious or are perceived more valuable. Therefore, we cannot generalize the effect of busy directors on firm value. In this paper, we analyze the effect of a firm’s location on busy director-firm performance relation. We classify firms into Metro firms and Rural firms based on their headquarter locations. Metro firms refer to those located in one of the largest ten metropolitan statistical areas (MSA areas) as of the 2010 Census (Loughran, 2008; Gao, Ng, & Wang, 2011; John, Knyazeva, & Knyazeva, 2011).3 Rural firms are those that do not satisfy the definition of Metro firms. We empirically test whether Metro firms benefit more from busy directors than Rural firms and investigate possible channels through which value is created by busy directors. We further examine whether busy directors-firm performance relation varies corresponding to two important events in recent history: the Sarbanes-Oxley Act (SOX) of 2002 and the 2007–2008 financial crisis, since the two events triggered significant debates on the effectiveness of board monitoring and its impact on firm value. In particular, we use Tobin’s Q and return on assets (ROA) as firm performance proxies. Tobin’s Q is calculated as the market value of common equity plus the book value of assets minus the book value of common equity scaled by the book value of assets and ROA is calculated as the ratio of earnings before interest and taxes to total assets.