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Boards: Does one size fit all?
Journal article   Peer reviewed

Boards: Does one size fit all?

Jeffrey L. Coles, Naveen D. Daniel and Lalitha Naveen
Journal of financial economics, v 87(2), pp 329-356
01 Feb 2008
DOI: https://doi.org/10.1016/j.jfineco.2006.08.008

Abstract

Business & Economics Business, Finance Economics Social Sciences
This paper reexamines the relation between firm value and board structure. We find that complex firms, which have greater advising requirements than simple firms, have larger boards with more outside directors. The relation between Tobin's Q and board size is U-shaped, which, at face value, suggests that either very small or very large boards are optimal. This relation, however, arises from differences between complex and simple firms. Tobin's Q increases (decreases) in board size for complex (simple) firms, and this relation is driven by the number of outside directors. We find some evidence that R&D-intensive firms, for which the firm-specific knowledge of insiders is relatively important, have a higher fraction of insiders on the board and that, for these firms, Q increases with the fraction of insiders on the board. Our findings challenge the notion that restrictions on board size and management representation on the board necessarily enhance firm value. (c) 2007 Published by Elsevier B.V.

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Domestic collaboration
Web of Science research areas
Business, Finance
Economics
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