This paper examines whether the need for professional independent directors or the need for external source is the cause of busy independent directors. We also investigate the market’s reaction to the busy independent directors. We hypothesize that the busy level of independent directors increases when the need for reputation, expertise, networks, and experiences brought by the independent directors is higher (director professional hypothesis). Since the need for external source is higher for larger firms and firms with higher growth potentials, we postulate that independent directors of these companies are busier than those of other companies (resource need hypothesis). Both hypotheses are supported by empirical study. When the busy level of independent director increases, the market shows significant negative standardized cumulative abnormal returns (SCAR). Moreover, if the business of the directors is due to the firm’s need for the reputational capital brought by the professional independent directors, the market would have significant negative reaction. However, when the firm’s size is larger, the market recognizes that the independent directors are busy because the firm is more difficult to monitor, which in turn results in higher need for external resources. Thus, for larger firms, the busy level of independent directors has a positive impact on the SCAR (market assurance hypothesis). This hypothesis is also supported by the empirical study.
英文關鍵字
Busy Independent Director, Director Professional Hypothesis, Resources Need Hypothesis, Market Assurance Hypothesis.
