Mergers and the Market for Busy Directors: A Global Analysis

The issue of directors serving on multiple corporate boards has come under increasing scrutiny from both academicians and practitioners. There are two types of arguments associated with the conflicting evidence of how multiple directorships affect firm value and performance. The first is a reputation hypothesis that contends individuals gain valuable experience, skills, and networks from serving on multiple boards. The competing argument, which we refer to as the busyness hypothesis, is that these individuals are over-committed and thus unable to provide the careful monitoring and diligence that their positions require. The literature has not yet established whether the reputation or busyness effect is dominant.

Nor has the literature been able to establish a link among firm value, busyness, and major corporate decisions such as mergers and acquisitions (M&A).  Doing so would be useful, because busy boards are a global phenomenon, as Ferris, Jayaraman, and Liao (2018) have shown, and they may affect corporate M&A decisions in the U.S.  differently than they do in other countries. In addition, though there is a growing literature on the labor market for outside directors, there are relatively few studies on whether a labor market for director reputation exists worldwide. Addressing this question is important, since shareholders rely on the board of directors to protect their interests, given that incentives to monitor management can vary significantly across countries.

In a recent study, we focus on the relation among international boards, board busyness, and M&A. First, we discover that firms with busy boards are more frequent purchasers of corporate assets than their non-busy peers. Indeed, firms with busy boards are 2.9 times more likely to engage in M&A than those with non-busy boards. Further, we determine that only a few busy acquirers are from emerging markets and that they tend to undertake cross-border mergers, favor public targets, finance the acquisition with a mix of cash and stock, not pursue targets with multiple bidders, and acquire targets that will not diversify their business.

We then investigate the outcome and quality of the M&A decisions made by busy boards. We observe that the market reacts negatively to the announcement of an acquisition by a firm whose board is busy. These results are consistent with the busyness hypothesis of multiple directorships. We further observe that it is not busyness per se that the market discounts, but rather high levels of busyness. There seems to be a level of busyness where the advantages of reputation, experience, and networking shift and become negative due to over-commitment. This finding has important implications for organizations such as Institutional Shareholder Services (ISS), which advocate limiting multiple directorships.

Our analysis also uncovers important patterns in the labor market for busy directors. We find that it does not reward directors for merger success with additional board seats. The labor market, however, does penalize directors who approve bad mergers by removing them from boards. Thus, a bad merger is more adverse to a director’s ability to gain new board seats than a good merger is beneficial.

Finally, we also explore the post-merger accounting performance of the acquirers.  We find that the correlation between an acquirer’s return on assets (ROA) in the three years following the merger and the cumulative abnormal returns (CARs) for the two days following the merger announcement (the “announcement period”) is generally positive and statistically significant. These results support our use of announcement period CARs as a proxy for merger quality. We also examine raw and industry adjusted ROA for three years post-merger and find that acquirers with busy boards consistently underperform those whose boards are not busy.

We conclude that board busyness matters and affects merger activity. Our results provide support for limiting board appointments. Further, our study helps resolve the debate on the value of multiple board appointments by identifying an inflection point in the relation between board busyness and merger returns. Our results suggest that the knowledge and networking advantages of busy directors provide value to the firm, but only up to the point that over-commitment and time demands erode busy directors’ ability to contribute to firm value.


Ferris, S., Jayaraman, N., and Liao, M., The incidence and usefulness of busy boards: a global examination, Global Finance Journal, Forthcoming.

This post comes to us from professors Stephen Ferris at the University of Colorado at Colorado Springs, Narayanan Jayaraman at Georgia Institute of Technology’s Scheller College of Business, and Min-Yu (Stella) Liao at Illinois State University. It is based on their recent paper, “Mergers and the Market for Busy Directors: An International Analysis,” available here.