The Impact of Board Size on Firm-Level Capital Investment Efficiency

Abstract

<p>The study aims to examine whether and how board structure is associated with firm-level capital investment efficiency. Specifically, I investigate whether the size of a firm’s board is associated with the sensitivity of investments to the availability of internal funds. I hypothesize and find that board size is inversely related to investment-cash flow sensitivity. Larger boards seem to mitigate investment-cash flow sensitivity by reducing information asymmetry between managers and external capital providers. The study is important as it reveals that board structure influences the corporate investment policy, which is one of the most important firm economic decisions.</p>

Corporate Governance and Firm Risk: Evidence from Malaysian Shariah Compliance Companies

“…As prescribed in Table 12, the result shows the (beta = .009, t = .253, p-value = .801). The insignificant relationship for this study is similar with previous study, Ji (2016) that larger size is likely to mitigate sensitivity of cash flow by reducing information asymmetry among capital providers and manager. Thus, the Hypothesis 2 was rejected since the larger board size would result in fewer corporations; increase information costs and lead to increase decision making time (Yermack, 1996).…”

“…However, the result not significant between both variables where (0.873) was gathered from correlation analysis. Ji (2016) found an insignificant relationship between board size and risk. The study conducted to reveal whether board structure affects the important firm economic decisions.…”

“…These studies argue that a small board size is more cohesive and therefore, could monitor the any opportunistic behavior and make decision more effectively as well as to avoid free riders and less coordination cost. However, there are studies that suggest a large size of board would enhance disclosure of risk information about future earnings (Moumen, Othman, & Hussainey, 2016) and is likely to mitigate sensitivity of cash flow by reducing information asymmetry among capital providers and managers (Ji, 2016). Moreover, Mathew and Hill (2013) suggest that firms with a large board size would decrease firm risk.…”

“…In respect with the issue of board size, it is important to reveal that corporate governance mechanism influences sensitivity of investment (John, Litov, & Yeung, 2008) which could affect firm risk as well as in order to improve economic decision (Ji, 2016) and enhance the quality of investor protection (John., Litov, & Yeung, 2005).…”

Pengaruh Corporate Governance Terhadap Inefisiensi Investasi Dengan Free Cash Flow Sebagai Pemoderasi

“…Hasil penelitian Nor et al ( 2017) membuktikan bahwa jumlah anggota dewan direksi yang besar cenderung membuat perusahaan under-investment karena anggota yang banyak akan merusak efektifitas corporate governance sehingga berdampak pada inefisiensi investasi. Dewan direksi yang besar menaikkan sensitifitas cash-flow perusahaan dalam berinvestasi sehingga mempengaruhi efisiensi (Ji, 2016). Jumlah anggota yang besar mengakibatkan dewan direksi menjadi lebih lambat dalam menentukan keputusan investasi karena terlalu banyak perbendaan pendapat anggota yang harus dipertimbangkan dan dikonsultasikan (Guest, 2009;Price, 2018;Veklenko, 2016).…”