Offsetting the void of overboarding risk: The role of financial expertise in an emerging market

Abstract

To contribute to the growing literature on the implications of board busyness for firm outcomes, this study investigates the relationship between overboarding risk (OBRisk) and firm value (FV) in an emerging market setting and whether financial expertise matters for this relationship. We apply the least square dummy variable (LSDV) two-way fixed effect estimator to panel data of non-financial publicly-listed South African firms from 2014–2020. We provide empirical evidence that OBRisk negatively affects FV. We further find substantial evidence that the benefits of independent directors’ financial expertise outweigh the agency costs of weak monitoring orchestrated by their overboardedness. Specifically, the marginal effect of independent directors’ financial expertise at the maximum level attenuates the effect of OBRisk on FV, indicating that high-level financial expertise is value-relevant. This study comes at an appropriate time when directorship regulation is a topical issue among sub-Saharan African regulators.