Do directors’ outside appointments hurt board effectiveness: An analysis under familial dominance in the Taiwan case

Appointing directors to affiliated companies is common practice to reinforce control or build connections under the familial-oriented culture in East Asia. This paper investigates whether outside appointments entrench board monitoring effectiveness on management investment behaviour for Taiwanese firms. The results show that investments are significantly related to internal cash flow. However, no economically significant relationship exists between multiple directorships and investment-cash flow sensitivity, indicating that the outside appointments of chairpersons neither aggregate nor alleviate managerial discretion problem on investment in this sample. We also provide explanations for the results.