Do larger boards improve shareholder value creation?

Lakatos, Zsolt (2020) Do larger boards improve shareholder value creation? Society and Economy, 42 (3). pp. 245-279. DOI

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The aim of this study is to analyse the impact of board size on a firms' operational and market performance at the largest East Central European listed non-financial, non-public utility firms. The literature debates the effects of the size of the board. While the resource dependency theory supports a positive effect, the agency theory supports a negative impact on firm value. This question is rarely investigated in two-tiered corporate governance models. This paper estimates the effects of management board and supervisory board size, between 2007 and 2016. The results indicate that the effect of management board size depends heavily on the size of the observed company. In both fixed effects and GMM-type dynamic panel regression models, using Tobin's Q, market-to-book ratio, total shareholder value and ROA as firm performance measures, increase in management board size has a significant positive impact on firm performance; however, in the case of larger firms, the effect is significantly negative. Moreover, the increase in the ratio of outside directors has a positive impact on the firm's performance in all dynamic panel regression models and this effect is even more significant in Tobin's Q and market-to-book ratio models. This can indicate the effective monitoring role of the supervisory board.

Item Type:Article
Uncontrolled Keywords:corporate governance, board size, firm performance
JEL classification:G30 - Corporate Finance and Governance: General
G31 - Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
G34 - Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
ID Code:5960
Deposited By: MTMT SWORD
Deposited On:13 Oct 2020 15:44
Last Modified:13 Oct 2020 15:44

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