Impact of multi-industry directorship on firm performance: a study with reference to India

Abstract

Purpose: This study aims to reconcile the contradictory findings of multiple directorships (MD) and its impact on firm performance. The present work incorporates the industry experience of busy directors into the picture and examines its impact on firm performance. Design/methodology/approach: Data are collected for 345 non-financial National Stock Exchange listed firms from Bloomberg, Centre for Monitoring Indian Economy ProwessIQ database and company annual reports from the financial year 2008–2009 to 2017–2018. The industry and year fixed effect panel regression models are used for both business group and non-business group (NBG) firms. Findings: The study reconciled the contradictory findings between MD and the performance of a firm. The results claim that firms having non-executive directors on board with similar industry experience positively influence the firm performance while board having non-executive directors with diverse industry experience establish an adverse relationship. The results are similar for both group affiliated and non-group affiliated firms in India. Further analysis through interaction effect reveals that the presence of more busy outside directors on board irrespective of their industry experience, i.e. similar or diverse, reduces the performance of a NBG affiliated firm. Research limitations/implications: The findings of the study contribute to the existing literature and tries to establish a strong argument for MD by incorporating industry experience. The present work considers non-financial listed firms, while financial firms and industry experience of outside directors in other emerging economies can be studied to draw additional insights into the existing literature. Practical implications: Both regulatory bodies and firms should consider the industry experience of non-executive directors for enhancing firm performance. Originality/value: Existing studies highlight the contradictory arguments for MD and firm performance. The current study incorporates the industry experience of non-executive directors, either in a similar or diverse industry, for the empirical analysis to reconcile the contradictory findings. The present work suggests that a firm should appoint non-executive directors with similar industry experience to enhance firm performance.