Using Demographic Identification to Estimate the Effect of Board Size on Corporate Performance

12 Pages Posted: 25 Aug 2016

See all articles by Pandej Chintrakarn

Pandej Chintrakarn

Mahidol University International College (MUIC)

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Shenghui Tong

Central University of Finance and Economics (CUFE)

Richard Proctor

Siena College

Date Written: August 22, 2016

Abstract

Motivated by agency theory, we investigate the effect of board size on corporate outcomes. To address endogeneity, we exploit the variations in the director-age populations across the states in the U.S. We argue that firms with access to a larger pool of potential directors tend to have larger boards. Consistent with this notion, our empirical results show that firms located where the size of the director-age population is larger have significantly larger board size. Because the director-age population represents broad demographic trends outside of any firm’s control, it is unlikely related to firm outcomes or policies and should be exogenous. Using the director-age population as our instrument, we estimate the effects of board size on firm value and profitability. Our approach is less vulnerable to endogeneity and is more likely to show a causal effect.

Keywords: board size, firm value, corporate governance, instrumental variable, endogeneity

JEL Classification: G30, G32, G34

Suggested Citation

Chintrakarn, Pandej and Jiraporn, Pornsit and Tong, Shenghui and Proctor, Richard, Using Demographic Identification to Estimate the Effect of Board Size on Corporate Performance (August 22, 2016). Available at SSRN: https://ssrn.com/abstract=2827787 or http://dx.doi.org/10.2139/ssrn.2827787

Pandej Chintrakarn

Mahidol University International College (MUIC) ( email )

999 Buddhamonthon 4 Road
Salaya, Nakhonpathom, 73170
Thailand
66 (0) 2441 5090 (Phone)
66 (0) 2441 9745 (Fax)

Pornsit Jiraporn (Contact Author)

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

Shenghui Tong

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Richard Proctor

Siena College ( email )

Loudonville, NY
United States

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