Two faces of busy outside directors

Abstract

In this study, we examine how multiple directorships held by outside directors (busy outside directors) influence shareholder wealth in diversifying acquisitions. With a sample of 893 diversifying acquisitions from 1998 to 2004, we find a negative (positive) busy-director effect for diversifying acquisitions of public-targets (private-targets). Busy directors are negatively (positively) associated with the five-day cumulative abnormal returns in acquisitions involving public (private) targets, where merger-related agency problems are more likely. Our evidence support the notion that, in the case of diversifying acquisitions, increased managerial monitoring plays a more important role versus enhanced advising and business connection from busy directors.