Multiple directorships of outside directors and firms’ cost behaviour: evidence from Korea

This study examines how multiple directorships of outside directors are related to firms’ cost behaviour. Results based on a sample of Korean-listed companies from 2011 to 2017 show that the level of cost stickiness is attenuated when outside directors hold multiple directorships. However, multiple directorships do not mitigate the degree of cost stickiness that is associated with managers’ strategic response to expected future sales increase. We find evidence that the degree of cost stickiness of firms with high cash holdings can be attenuated by multiple directorships. These results suggest that outside directors who serve on multiple boards are effective at monitoring cost management of empire-building managers. Further, the level of cost stickiness is not attenuated by outside directors sitting on the boards of multiple subsidiaries within the same business group. These results suggest that outside directors’ business group affiliations undermine their monitoring roles as independent directors. This study is closely related to finance and accounting literature on economic benefits of multiple directorships or board connection.