Multiple Directorships and Corporate Misconduct: The Moderating Influences of Board Size and Outside Directors

Abstract

This study examined the possible impact of both board size and the proportion
of outside directors on the link between directors holding multiple directorships
and firm misconduct. The study utilized a sample of 181 firms drawn from the
financial services sector during the 1999-2003 time period. The results suggest
that among those firms whose directors hold multiple directorships, the incidence
of 10K investigations initiated against those firms is significantly less in those
firms having smaller boards. The results offer further evidence that smaller
boards might be better monitors of their firms' behavior than larger boards.
Further, contrary to theory, no significant relationship was observed between
proportion of outside directors, multiple directorships and the incidence of 10K
investigations. The implications of the findings and areas for future research
are discussed.