Does Board Size Matter? New Evidence from Two-Tier Board System

38 Pages Posted: 28 Mar 2011

See all articles by Salim Darmadi

Salim Darmadi

Indonesia Financial Services Authority (OJK)

Date Written: March 23, 2011


This paper contributes to the corporate governance literature by examining the impacts of board size, along with corporate governance structure and firm-specific characteristics, on firm value in a developing economy that adopts two-tier board structure system. Employing a sample comprising 802 firm-year observations of 304 non-financial firms listed on the Indonesia Stock Exchange (IDX) between 2005 and 2007, we conduct regression analysis separately for supervisory and management boards. Using Tobin’s q and return on assets (ROA) as measures of firm value, our empirical evidence reveals that the sizes of both supervisory and management boards are positively related to firm value. However, across different models and estimation techniques, the impact of board size on Tobin’s q is more robust compared to that on ROA. Our results also reveal that larger boards are more likely to be employed by larger firms. The large firms are found to benefit from having larger boards.

Keywords: Corporate Governance, Board Size, Two-Tier Board, Firm Value, Indonesia

JEL Classification: G30, G34

Suggested Citation

Darmadi, Salim, Does Board Size Matter? New Evidence from Two-Tier Board System (March 23, 2011). Available at SSRN: or

Salim Darmadi (Contact Author)

Indonesia Financial Services Authority (OJK) ( email )

Jalan M.H. Thamrin No. 2
Jakarta, Jakarta 10350

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