Is Board Size an Independent Corporate Governance Mechanism?

30 Pages Posted: 25 Sep 2004

See all articles by Stefan Beiner

Stefan Beiner

University of Basel; University of Oxford - Said Business School

Wolfgang Drobetz

University of Hamburg

Frank Schmid

University of Bern - Institute of Economics

Heinz Zimmermann

University of Basel - Center for Economic Science (WWZ) - Department of Finance

Abstract

Using a simultaneous equations framework with a comprehensive set of publicly listed Swiss companies, our findings suggest that the size of the board of directors is an independent corporate governance mechanism. This implies that any potential relationship between board size and firm valuation is indeed causal. However, in contrast to previous studies, we do not uncover a significant relationship between board size and firm valuation, which can be interpreted as support for the hypothesis of the existence of an optimal board size. On average, firms choose the number of board members just optimally. This indicates that cross-sectional variations in board size to a large extent reflect differences in firms' underlying environment, and not mistaken choices.

Suggested Citation

Beiner, Stefan and Drobetz, Wolfgang and Schmid, Frank and Zimmermann, Heinz, Is Board Size an Independent Corporate Governance Mechanism?. Kyklos, Vol. 57, No. 3, pp. 327-356, August 2004. Available at SSRN: https://ssrn.com/abstract=591554

Stefan Beiner (Contact Author)

University of Basel ( email )

Holbeinstrasse 12
Basel, CH-4051
Switzerland

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Wolfgang Drobetz

University of Hamburg ( email )

Moorweidenstrasse 18
Hamburg, 20148
Germany

Frank Schmid

University of Bern - Institute of Economics ( email )

Gesellschaftstrasse 49
Bern, CH-3012
Switzerland

Heinz Zimmermann

University of Basel - Center for Economic Science (WWZ) - Department of Finance ( email )

Peter Merian Weg 6
Basel, 4002
Switzerland
+41 61 267 33 16 (Phone)
+41 61 267 08 98 (Fax)

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