Multiple directorships and the extent of loan loss provisions: Evidence from banks in South Asia

Abstract

This paper examines whether directors with multiple directorships affect extent of banks' loan loss provisions in South Asia. Our results indicate that directors with multiple directorships tend to delay the recognition of loan loss provisions. Specifically, we find the existence of a U-shaped relationship between directors with multiple directorships and loan loss provisions, indicating that the delay is more pronounced in the case of moderately busy directors than in that of directors with fewer directorships and time-poor over-boarded directors. This helps directors achieve profitability targets while maintaining their reputations and indicates their optimism about the loans’ future. Our results are robust in terms of accounting for endogeneity concerns, which are addressed using a two-stage least squares regression and entropy-balancing methodology as well as some alternative definitions of ‘multiple directorships’ used in the literature.