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Determinants of the Size and Structure of Corporate Boards: 1935-2000

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  • Lehn, Kenneth
  • Patro, Sukesh
  • Zhao, Mengxin
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    Abstract

    We argue that the size and composition of corporate boards are determined by tradeoffs involving the information that directors bring to boards versus the coordination costs and free rider problems associated with their additions to boards. Our hypotheses lead to predictions that firm size and growth opportunities are important determinants of these board characteristics. Using a sample of 82 U.S. firms that survived over the period of 1935 through 2000, we find strong support for the hypotheses. The hypotheses also find support in the relation between changes in board size and firms' merger and divestiture activity, and changes in the geographical diversification of firms. We find no robust relation between firm performance and either board size or composition after accounting for the determinants of these board characteristics.

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    File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/15748/1/WP2008-13a.pdf
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    Bibliographic Info

    Paper provided by Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University in its series CEI Working Paper Series with number 2008-13.

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    Length: 53 p.
    Date of creation: Apr 2008
    Date of revision:
    Handle: RePEc:hit:hitcei:2008-13

    Note: December, 2007
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    Related research

    Keywords: Board size; board composition; mergers and acquisitions; firm size; growth opportunities; diversification; geographical diversification; firm performance; endogeneity;

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    1. Yermack, David, 1996. "Higher market valuation of companies with a small board of directors," Journal of Financial Economics, Elsevier, vol. 40(2), pages 185-211, February.
    2. Benjamin E. Hermalin & Michael S. Weisbach, 2003. "Boards of directors as an endogenously determined institution: a survey of the economic literature," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 7-26.
    3. Boone, Audra L. & Casares Field, Laura & Karpoff, Jonathan M. & Raheja, Charu G., 2007. "The determinants of corporate board size and composition: An empirical analysis," Journal of Financial Economics, Elsevier, vol. 85(1), pages 66-101, July.
    4. Renée B. Adams & Daniel Ferreira, 2007. "A Theory of Friendly Boards," Journal of Finance, American Finance Association, vol. 62(1), pages 217-250, 02.
    5. Denis, David J. & Sarin, Atulya, 1999. "Ownership and board structures in publicly traded corporations," Journal of Financial Economics, Elsevier, vol. 52(2), pages 187-223, May.
    6. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
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