Does Life-Cycle Influence Board Composition?
26 Pages Posted: 12 Oct 2016 Last revised: 15 Oct 2016
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: Suggested Citation