Multiple Directorship and Financial Performance of Finnish Companies

Abstract

Multiple directorships have differing impacts on firms’ financial performances. However, the existing research has explored the phenomenon of multiple directorships and its impact on financial performance in non-Finnish settings. This has created a need for a study that examines the impact that multiple directorships have on the financial performance of Finnish companies. The specific objectives of the investigation were to investigate how the various types of multiple directorships, namely, the executive, non-executive and independent directorships affected the firms’ financial performance. The literature review and the conceptual framework identified whether the multiple directorships of the executive, non-executive and independent directors had either a positive or negative influence on their respective firm’s performance. The firms’ financial performance was considered on the basis of Return on Investment (hereafter ROI) and the Price to Book (hereafter the P/B ratio). The study applied the positivist viewpoint and used a quantitative research design. More specifically, the study investigated 25 Finnish public companies for a period of 5 years from 2013 to 2017. The findings established that the multiple directorships of the executive directors as well as nonexecutive directors affected the ROI negatively. The multiple directorships of independent directors and the ROI of the Finnish companies were positively correlated. Comprehensively, multiple directorships affected negatively the performance of the Finnish companies especially in terms of ROI. The major weakness of the study was that it focused on measuring performance based on ROI and the P/B ratio only. However, firm performance is a comprehensive measure that also includes nonfinancial measures. Future research should, therefore, seek to assess the impact of multiple directorships on all dimensions of firm performance including non-financial measures, such as employee satisfaction and customer satisfaction.