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 proportionof outside directors on the link between directors holding multiple directorshipsand firm misconduct. The study utilized a sample of 181 firms drawn from thefinancial services sector during the 1999-2003 time period. The results suggestthat among those firms whose directors hold multiple directorships, the incidenceof 10K investigations initiated against those firms is significantly less in thosefirms having smaller boards. The results offer further evidence that smallerboards might be better monitors of their firms' behavior than larger boards.Further, contrary to theory, no significant relationship was observed betweenproportion of outside directors, multiple directorships and the incidence of 10Kinvestigations. The implications of the findings and areas for future researchare discussed.