Do multiple directorships stimulate or inhibit firm value? Evidence from an emerging economy

Abstract

Purpose

This study aims to examine the potential influence of multiple directorships (MDs) on the firm value of listed firms in Jordan.

Design/methodology/approach

Using a sample of 1,067 firm-year observations of Jordanian listed companies from 2010 to 2020, this study applies a pooled ordinary least squares regression model to examine the above-stated relationship. This technique was supported by conducting a generalized method of moments estimation to address the possible occurrence of endogeneity concerns.

Findings

The results show a significant negative relationship between MDs and firm performance, thereby supporting the “Busyness Hypothesis”, which suggests that directors with MDs are expected to be over-committed, too busy and less vigilant. Thus, their ability to effectively monitor the company management on behalf of the shareholders is quite limited.

Originality/value

To the best of the authors’ knowledge, this is the first study in Jordan, and one of the very rare studies in the Middle Eastern and North African region, to examine the relationship between MDs and firm performance. This study provides important policy and practitioner implications in the field of corporate governance by highlighting the necessity of imposing stricter limits on the number of directorships allowed for board directors. Crucially, the empirical evidence implies that limited directorships ensure that directors are able to fulfil their board responsibilities appropriately, which is significantly associated with the firm value.

Citation

Alhaddad, L., Gerged, A.M., Saidat, Z., Ali Al-Qudah, A. and Aziz, T. (2022), "Do multiple directorships stimulate or inhibit firm value? Evidence from an emerging economy", International Journal of Accounting & Information Management, Vol. 30 No. 4, pp. 546-562. https://doi.org/10.1108/IJAIM-05-2022-0094