The Determinants of Corporate Board Size and Composition: An Empirical Analysis

36 Pages Posted: 18 Oct 2004 Last revised: 21 Jun 2017

See all articles by Audra L. Boone

Audra L. Boone

Texas Christian University - M.J. Neeley School of Business; European Corporate Governance Institute (ECGI)

Laura Casares Field

University of Delaware - Alfred Lerner College of Business and Economics

Jonathan M. Karpoff

University of Washington - Michael G. Foster School of Business; European Corporate Governance Institute (ECGI)

Charu G. Raheja

Wake Forest University

Date Written: March 1, 2006

Abstract

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

Boone, Audra and Field, Laura Casares and Karpoff, Jonathan M. and Raheja, Charu G., The Determinants of Corporate Board Size and Composition: An Empirical Analysis (March 1, 2006). Journal of Financial Economics (JFE), Vol. 85, No. 1, 2007, AFA 2005 Philadelphia Meetings, Available at SSRN: https://ssrn.com/abstract=605762 or http://dx.doi.org/10.2139/ssrn.605762

Audra Boone

Texas Christian University - M.J. Neeley School of Business ( email )

Fort Worth, TX 76129
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Laura Casares Field (Contact Author)

University of Delaware - Alfred Lerner College of Business and Economics ( email )

419 Purnell Hall
Newark, DE 19716
United States
302-831-3810 (Phone)

Jonathan M. Karpoff

University of Washington - Michael G. Foster School of Business ( email )

Box 353226
Seattle, WA 98195-3200
United States
206-685-4954 (Phone)
206-221-6856 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Charu G. Raheja

Wake Forest University ( email )

P.O. Box 7659
Winston-Salem, NC 27109-7659
United States

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