Determinants of the Size and Composition of US Corporate Boards: 1935‐2000

Abstract

"We examine the determinants of the size and composition of corporate boards for a sample of 82 US companies that survived during the period 1935-2000. Our hypotheses lead to predictions that firm size, growth opportunities, merger activity, and geographical expansion are important determinants of these board characteristics. We find empirical evidence that the four variables are significant determinants of the size and/or composition of boards. After controlling for these determinants of board characteristics, we find no robust relation between firm performance and either board size or composition". Copyright (c) 2009 Financial Management Association International.

The role of information and financial reporting in corporate governance and debt contracting

“…Duchin, Matsusaka, and Ozbas (2010) examine the effects of information acquisition costs on the effectiveness of outside directors and find that an exogenous increase in the proportion of outside directors reduces firm performance when information acquisition costs are high. They also find, similar to Linck et al (2008) and Lehn et al (2008), that the proportion of outside directors is negatively related to proxies for information acquisition costs. Cai et al (2009) explore hypotheses similar to Linck et al (2008) but with greater emphasis on the role of information asymmetry in simultaneously shaping multiple aspects of governance.…”

“…For example, Linck et al (2008) document that in 1990, the typical percentage of outside directors was about 60%-65%, whereas by 2004, the percentage appears to have grown to about 70%. Lehn et al (2008) document a similar increase in the proportion of outside directors over the substantially longer period from 1935 to 2000, with the sharpest increase occurring over the last three decades of their sample period.…”

“…Using a broad sample from 1990 to 2004, they document a negative cross-sectional relation between proxies for information acquisition costs and the proportion of outside directors. Lehn et al (2008) draw a similar conclusion using a time-series research design on an interesting board structure dataset from 1935 to 2000 (Boone et al, 2007, however, find no evidence of such a time-series relation when following the evolution of IPO firms' governance structures). Duchin, Matsusaka, and Ozbas (2010) examine the effects of information acquisition costs on the effectiveness of outside directors and find that an exogenous increase in the proportion of outside directors reduces firm performance when information acquisition costs are high.…”

Foundations of Corporate Governance

“…Small and fast-growing companies in specific industries may have other corporate governance requirements than those suited to large, mature, and diversified firms. As an example, Lehn et al (2009) find evidence that boards adapt their structure endogenously to their operational circumstances (e.g., firm size, industry affiliation, and complexity).…”

What is the Relation (If Any) between a Firm's Corporate Governance Arrangements and Its Financial Performance?

“…In studying the role of the board, the literature has relied on observable attributes like the structure and the composition of the board (Coles et al, 2008); how the board members are compensated (Ryan and Wiggins, 2004); whether they have business dealings with the firm or are independent (Cohen, Frazzini, and Malloy, 2012); whether they hold concurrent appointments at other boards (Fich and Shivdasani, 2006); and even their geographical proximity to the firm (Lehn, Patro, and Zhao, 2009). …”