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1. Introduction
Aiming for profitability and value creation, the organizations recruit professionals and experts in their boards. However, the scarcity of quality human resources in the corporate world widens the opportunities for professionals to hold multiple directorships (MD). Past literature claims that the quality of the directors is reflected through their holding of MD (Fama and Jensen, 1983). Furthermore, successful directors get more offers for board positions in different companies (Ferris et al., 2003). These MD not only create valuable resources and competitive advantages (Hillman et al., 2009) but also restricts the attention and dedication of an outside director to a particular firm (Falato et al., 2014; Chen et al., 2015).
Past literature establishes the contradictory relationship between MD and firm performance. Some empirical studies favour the existence of a non-linear relationship (Sarkar and Sarkar, 2009), whereas others support either positive (James et al., 2018) or negative (Ahn et al., 2010; Kamardin and Haron, 2011) relationship. Hence, there is a lack of concrete evidence regarding the relationship between MD and firm performance. Most of the past studies have only focused on the number of directorships held by directors in different companies while ignoring the dimension of industry experience. Further, the Upper Echelons Theory confirmed the importance of the interpersonal skills or traits of top executives. It argued that the personalized constructs drive the action of the executives, and these constructs are developed through their experiences, values and personalities (Hambrick and Mason, 1984; Hambrick, 2007). Similarly, the social capital theory also strengthens these arguments and suggests that an individual can create value through interpersonal relationships and those relationships generate the resources, which can be used to achieve the desired goals (Adler and Kwon, 2002; Bizzi, 2015). Likewise, the human capital theory claims that an individual can advance skill and knowledge through education, training and experience (Becker, 1993; Bailey and Helfat, 2003). Thus, there is a possibility that when a director holds MD in similar or diverse industries, the performance of a firm may improve because of his/her knowledge expertize or industry exposure.
The study by Kor and Misangyi (2008) argued that the industry experience of outside directors could offset the lack of top management’s industry experience. It suggests that the...