Determinants of board size in an emerging market

Abstract

Drawing largely upon the selective adaptation paradigm, the resource dependence literature, and the capture argument, we examine determinants of board size using panel data set of Korean-listed companies that have experienced dramatic changes in their governance system following the 1997 Asian crisis and regulatory reforms. Observing that the firm's compliance with statutory requirements reflects a strategic choice, our results also investigate the idea that the determinants of board size differ between firms actively and passively adapting to regulatory reforms. For actively adaptive firms, board size increases along with firm complexity but it varies inversely with the power of controlling shareholders (CSHs). In contrast, the roles of complexity and CSHs are not significant but senioritybased promotion is an important factor to increase the size for the passive firms. Our results suggest that determinants of board size differ depending on corporate strategies to comply with statutory requirements in an emerging market where family business is dominant and corporate governance system has substantially changed. This is an extension of an earlier working paper "Determinants of Board Size and Structure: Does the Agency Theory Explain All?" We thank the editor (Richard Levich) and an anonymous reviewer for valuable comments. We are grateful to

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“…For example, Germain, Galy, and Lee (2014) found that companies' operational level was a significant determinant of the board size in the Malaysian stock market. Other studies have also shown that company size is positively associated with board size, which means larger and more complicated companies would need more directors' expertise and external resources (Boone et al, 2007;Lehn et al, 2009;Linck et al, 2008;Min, 2018;Yermack, 1996). Therefore, in line with the scope of operations hypothesis, this study hypothesizes that: H1 : Company size is positively associated with board size.…”

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