Larger Board Size, Decreasing Firm Value, and Increasing Firm Solvency

Posted: 21 Aug 1996  

Theodore Eisenberg

Cornell University, Law School (Deceased)

Stefan Sundgren

Swedish School of Economics and Business Administration

Multiple version iconThere are 2 versions of this paper

Date Written: May 1996

Abstract

This study finds significant correlations between board size and profitability and between board size and solvency in a sample of small and mid-size firms. Several studies hypothesize a relationship between board size and firm financial performance. Empirical tests of the relationship exist in a few studies of large U.S. firms. We find a negative correlation between board size and profitability in small and mid-size Finnish firms. Finding a board-size effect for a new and different class of firms points towards the influence of group size on risk-taking behavior as a source of the board-size effect. A new board-size effect we report, a positive correlation between board size and firm solvency, further supports the hypothesis that board-size effects result from distortions of risk-taking behavior.

JEL Classification: G32

Suggested Citation

Eisenberg, Theodore and Sundgren, Stefan, Larger Board Size, Decreasing Firm Value, and Increasing Firm Solvency (May 1996). Available at SSRN: https://ssrn.com/abstract=8062

Theodore Eisenberg (Contact Author)

Cornell University, Law School (Deceased) ( email )

Myron Taylor Hall
Cornell University
Ithaca, NY 14853-4901
United States

Stefan Sundgren

Swedish School of Economics and Business Administration ( email )

P.O. Box 287
FI-65100 Vasa
Finland

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