The Determinants of Corporate Board Size and Composition: An Empirical Analysis
36 Pages Posted: 18 Oct 2004 Last revised: 21 Jun 2017
Date Written: March 1, 2006
Using a unique panel dataset that tracks corporate board development from a firm's IPO through 10 years later, we find that: (i) board size and independence increase as firms grow and diversify over time; (ii) board size — but not board independence — reflects a tradeoff between the firm-specific benefits and costs of monitoring; and (iii) board independence is negatively related to the manager's influence and positively related to constraints on that influence. These results indicate that economic considerations — in particular, the specific nature of the firm's competitive environment and managerial team — help explain cross-sectional variation in corporate board size and composition. Nonetheless, much of the variation in board structures remains unexplained, suggesting that idiosyncratic factors affect many individual boards’ characteristics.
Keywords: Boards of Directors, IPOs, Ownership Evolution
JEL Classification: G24, G30, G32
Suggested Citation: Suggested Citation