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Board Size Effects in Closely Held Corporations

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Author Info

  • Morten Bennedsen

    (Copenhagen Business School)

  • Hans Christian Kongsted

    (Institute of Economics, University of Copenhagen)

  • Kasper Meisner Nielsen

    (Centre for Economic and Business Research, Copenhagen)

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    Abstract

    Previous work on board size effects in closely held corporations has established a negative correlation between board size and firm performance. We argue that this work has been incomplete in analysing the causal relationship due to lack of ownership information and weak identification strategies in simultanous equation analysis. In the present paper we reexamine the causal relationship between board size and firm performance using a dataset of more than 5,000 small and medium sized closely held corporations with complete ownership information and detailed accounting data. We test the potential endogeneity of board size by using a new instrument given by the number of children of the founders of the firms. Our analysis shows that board size can be taken as exogenous in the performance equation. Furthermore, based on a flexible model specification we find that there is no empirical evidence of adverse board size effects in the typical range of three to six board members. Finally, we find a significantly negative board size effect in the minority of closely held firms which have comparatively large boards of seven or more members.

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    File URL: http://www.econ.ku.dk/cam/wp0910/wp0203/2004-25.pdf/
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    Bibliographic Info

    Paper provided by University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics in its series CAM Working Papers with number 2004-25.

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    Length: 24 pages
    Date of creation: Dec 2004
    Date of revision:
    Handle: RePEc:kud:kuieca:2004_25

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    Cited by:
    1. Khaled Elsayed, 2011. "Board size and corporate performance: the missing role of board leadership structure," Journal of Management and Governance, Springer, vol. 15(3), pages 415-446, August.

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