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Firm Complexity and Board of Director Composition

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  • Garen Markarian

    (Instituto de Empresa Business School, Madrid, Spain)

  • Antonio Parbonetti

Abstract

This paper examines the relationship between firm complexity and board of director composition. Utilising the board typology of Baysinger and Zardkoohi (1986 ), we classify board members either as insiders, business experts, support specialists, or community influentials, and examine board composition in relation to firm internal and external complexity. Internal complexity refers to the sophistication of internal work processes (proxied by firm R&D expenditures, and the amount of invested capital), while external complexity relates to the external competitive structure (proxied by the number of business and geographic segments, and industrial leadership). Utilising a random sample of 150 firms drawn from six industries over the 2003-2005 time period, and after classifying 4,408 directors to one of our board categories, multivariate results confirm conjectures that complexity is related to the specific capabilities that each board member brings to the firm. We find that externally complex firms substitute community influentials for insiders. Additionally, internally complex firms have lower levels of community influentials, which are substituted by insiders and support specialists. This study adds to a small but growing literature that examines the economic determinants of board structure ( Boone "et al.", 2007 ; Coles "et al.", 2005 ; Gillan "et al.", 2003 ; Linck "et al.", 2005 ), by providing a unique lens in examining board characteristics that goes beyond the traditional insider/independent classification. Copyright (c) 2007 The Authors; Journal compilation (c) 2007 Blackwell Publishing Ltd.

Suggested Citation

  • Garen Markarian & Antonio Parbonetti, 2007. "Firm Complexity and Board of Director Composition," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(6), pages 1224-1243, November.
  • Handle: RePEc:bla:corgov:v:15:y:2007:i:6:p:1224-1243
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    References listed on IDEAS

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    Cited by:

    1. Chitra Singla, 2016. "Factors Determining the Roles Board Members Play in Firms," Working Papers id:10986, eSocialSciences.
    2. Singla, Chitra, 2016. "Factors Determining the Roles Board Members Play in Firms," IIMA Working Papers WP2016-03-56, Indian Institute of Management Ahmedabad, Research and Publication Department.
    3. Andrea Melis, 2011. "Martin Hilb: New corporate governance," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 15(3), pages 509-514, August.
    4. Giovanna Michelon & Antonio Parbonetti, 2012. "The effect of corporate governance on sustainability disclosure," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 16(3), pages 477-509, August.
    5. Cardinaels, Eddy, 2009. "Governance in non-for-profit hospitals: Effects of board members' remuneration and expertise on CEO compensation," Health Policy, Elsevier, vol. 93(1), pages 64-75, November.
    6. Francesco PAOLONE, 2014. "Cost Structure Complexity And Stock Prices Volatility: An Analysis Of Possible Relationship Among Italian Listed Companies In The Period Of Crisis," Romanian Journal of Economics, Institute of National Economy, vol. 38(1(47)), pages 107-133, June.
    7. Christophe Volonté & Pascal Gantenbein, 2016. "Directors’ human capital, firm strategy, and firm performance," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 20(1), pages 115-145, March.

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