LARGE CHANGES IN BOARD SIZE, CORPORATE GOVERNANCE AND FIRM VALUE

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Abstract

We find that substantial changes in board size, either an increase or a decrease of three or more directors at one time, are permanent movements rather than temporary changes, but the large changes are followed by small reversal in the subsequent years. Empirical evidence shows that all types of directors (inside, affiliated, and independent) are strongly affected by board size expansions (or reductions). Large changes in board size provide a good opportunity for a firm to optimize its board structure by increasing board independence and retiring elder directors. Further analysis indicates that such substantial changes in board size are associated with more frequent board meetings, a higher likelihood of CEO transitions, and firm size expansions. However, we find no evidence that large decreases (or increases) in board size add (or destroy) firm value for shareholders in the long run.

Keywords: Board Size, Corporate Governance, Firm Value

How to cite this paper: Ning, Y., Metghalchi, M., Du, J. (2009). Large changes in board size, corporate governance and firm value. Corporate Ownership & Control, 7(2-4), 440-450. https://doi.org/10.22495/cocv7i2c4p4