Board Size, Firm Type, and Stock Return Volatility

51 Pages Posted: 1 Apr 2020

See all articles by Alexander Merz

Alexander Merz

University of Goettingen

Sebastian Trabert

University of Goettingen

Date Written: March 6, 2020

Abstract

We analyze the association of board size and stock return volatility for different firm types. First, we find significant evidence that the association is non-linear over all firms. Second, we find that this differs for different firm types. While complex firms show a negative linear relationship between board size and volatility, research and development intensive firms exhibit a stronger u-shaped relationship. This shape is incompatible with the explanation in previous studies that larger boards experience communication and coordination problems which lead to lower volatility. Third, we provide evidence for an alternative explanation, namely that having more directors improves monitoring, but only up to a point. Our results hold for a battery of robustness checks, including a variety of endogeneity tests.

Keywords: board size, volatility, complex firms, R\&D-heavy firms, monitoring

JEL Classification: G31; G34; M52

Suggested Citation

Merz, Alexander and Trabert, Sebastian, Board Size, Firm Type, and Stock Return Volatility (March 6, 2020). Available at SSRN: https://ssrn.com/abstract=3549906 or http://dx.doi.org/10.2139/ssrn.3549906

Alexander Merz (Contact Author)

University of Goettingen ( email )

Platz der Göttinger Sieben 3
Göttingen, 37073
Germany

Sebastian Trabert

University of Goettingen ( email )

Platz der Göttinger Sieben 3
Goettingen, 37073
Germany

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