ARE THERE GOOD AND BAD DIRECTORS? MULTIPLE DIRECTORSHIPS AND SEGMENTATION IN THE MARKET FOR DIRECTORS

Abstract

Recent anecdotal evidence and Singapore's unregulated director market seem to suggest that there is significant variance in quality of directors in Singapore. This study explores segmentation within the director market by identifying the type of firms they are associated with. Motivated by the lack of a consensus on the implications of multiple directorships, we further investigate if different groups of directors are associated with the reputation or busyness hypothesis respectively. Using a sample of 3379 directors, and subsamples of non-executive and independent directors, our results show that the market for directors appears to be segmented. Specifically, directors sitting on boards of high quality firms are likely to be grouped together. Further, these directors are high quality directors themselves, characterized by having the highest predicted optimal number of directorships. We also find evidence that multiple directorships for high quality directors proxy for reputation while low quality directors holding multiple board appointments tend to hold number of board seats that exceed their optimal, thus supporting the arguments underlying the reputation and busyness hypothesis respectively.