Board Size and Corporate Risk Taking: Further Evidence from Japan

19 Pages Posted: 12 Jun 2012

See all articles by Makoto Nakano

Makoto Nakano

Hitotsubashi University

Pascal Nguyen

University of New South Wales

Date Written: July 2012


Manuscript Type. Empirical.

Research Question/Issue. Due to a greater difficulty to achieve compromise, large decision‐making groups tend to adopt less extreme decisions. This implies that larger boards are associated with lower corporate risk taking. We test whether a similar effect applies to the case of Japanese firms. The result is expected to be weaker since Japanese boards form relatively homogeneous groups. We further argue that growth opportunities moderate the relation between board size and risk taking.

Research Findings/Results. Our results indicate that firms with larger boards exhibit lower performance volatility as well as lower bankruptcy risk. However, the effect is not as significant as in the US. The low cross‐sectional variation in risk taking among Japanese firms is found to play a role. In addition, we show that the effect of board size is less significant when firms have plenty of investment opportunities, but much stronger when firms have fewer growth options.

Theoretical Implications. Considering that risk taking contributes to firm performance, our results offer a rationale as to why larger boards might be associated with lower performance. However, they also suggest that this effect should be less detrimental to firms with significant investment opportunities.

Practical Implications. Firms should adapt their decision processes to their business environment. In particular, they may need to adjust the size of their boards to the characteristics of their investment opportunity sets. Firms with fewer growth options would gain most by operating with smaller boards. By restricting their ability to take risks, firms could undermine their growth potential and performance.

Keywords: Corporate Governance, Board Size, Risk Taking, Investment Opportunities, Performance Volatility

Suggested Citation

Nakano, Makoto and Nguyen, Pascal, Board Size and Corporate Risk Taking: Further Evidence from Japan (July 2012). Corporate Governance: An International Review, Vol. 20, Issue 4, pp. 369-387, 2012, Available at SSRN: or

Makoto Nakano (Contact Author)

Hitotsubashi University ( email )

2-1 Naka Kunitachi-shi
Tokyo 186-8601


Pascal Nguyen

University of New South Wales ( email )

Sydney, NSW 2052
(61) 2-9385-5773 (Phone)
(61) 2-9385-6730 (Fax)


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