Does Life-Cycle Influence Board Composition?

26 Pages Posted: 12 Oct 2016 Last revised: 15 Oct 2016

See all articles by Attila Balogh

Attila Balogh

University of Melbourne - Department of Finance

Date Written: October 14, 2016

Abstract

Using a sample of over 6,000 firm years and 36,000 directorships, we examine whether board composition follows a predictable pattern consistent with firm life-cycle. Our findings build on the established notions on board monitoring and mentoring, and extend the theoretical work by incorporating the life-cycle dimension. Our models explain as much as 71% of the variation in board composition and find that early stage, growth, mature and declining firm boards differ significantly. Consistent with the resource dependence theory, we find that mature firms have larger boards and higher expertise diversity, including expertise in non-business fields. Theory also suggests, and we confirm that the agency problem is mitigated by mature firms through the appointment of independent directors and an independent non-executive chair. Collectively, our results suggest that life-cycle has a significant impact on board composition.

Keywords: Corporate governance, Board of directors, Professional expertise, Life-cycle theory

JEL Classification: G32, G34, M40

Suggested Citation

Balogh, Attila, Does Life-Cycle Influence Board Composition? (October 14, 2016). Available at SSRN: https://ssrn.com/abstract=2851327 or http://dx.doi.org/10.2139/ssrn.2851327

Attila Balogh (Contact Author)

University of Melbourne - Department of Finance ( email )

198 Berkeley Street
Carlton, VIC 3010
Australia

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