Using Geographic Density of Firms to Identify the Effect of Board Size on Firm Value and Corporate Policies

35 Pages Posted: 8 Oct 2019

See all articles by Pandej Chintrakarn

Pandej Chintrakarn

Mahidol University International College (MUIC)

Shenghui Tong

Central University of Finance and Economics (CUFE)

Pornsit Jiraporn

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

Young Sang Kim

Northern Kentucky University - Haile/US Bank College of Business

Date Written: September 27, 2019

Abstract

Prior research shows that firms tend to recruit directors from the geographically-proximate area. Due to a limited supply of qualified individuals in a given area, firms located in close proximity have to share a limited pool of talented individuals. As a result, the larger the number of firms in the same area, the fewer directors each firm in the area is able to obtain on average. Consistent with this notion, our results show that firms located in a zip code with a larger number of other firms exhibit significantly smaller board size. We then exploit the variation in the numbers of firms across the zip codes and estimate the effects of board size on various corporate outcomes. Our results show that larger board size leads to lower firm value, lower accounting profitability, higher leverage, higher dividend payouts, and a stronger propensity to be an acquirer.

Keywords: boards, corporate governance, instrumental variable, firm value, capital structure, dividend policy

JEL Classification: G14, G32, G34

Suggested Citation

Chintrakarn, Pandej and Tong, Shenghui and Jiraporn, Pornsit and Kim, Young Sang, Using Geographic Density of Firms to Identify the Effect of Board Size on Firm Value and Corporate Policies (September 27, 2019). Available at SSRN: https://ssrn.com/abstract=3460738 or http://dx.doi.org/10.2139/ssrn.3460738

Pandej Chintrakarn

Mahidol University International College (MUIC) ( email )

999 Buddhamonthon 4 Road
Salaya, Nakhonpathom, 73170
Thailand

Shenghui Tong

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

39 South College Road
Haidian District
Beijing, Beijing 100081
China

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

Young Sang Kim

Northern Kentucky University - Haile/US Bank College of Business ( email )

Dept of Economics and Finance
Highland Heights, KY 41099
United States
859-572-5160 (Phone)
859-572-6627 (Fax)

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