Boards: Does One Size Fit All?

Objective of Research: The purpose of this paper is to analyze prior and contemporary research that attempts to correlate board size of simple and complex firms with firm value.  The authors wish to show that firms will optimize board size based on advising needs.

Methodology: The authors use various databases (Execucomp, Compact Disclosures, IRRC, Lexis-Nexis, Compustat) to sample board and firm characteristics.  The authors obtain univariate and multivariate results which are dispersed throughout the paper summarized in tables. 

Main Findings:  Consistent with the author’s hypotheses complex firms have larger boards and more independent board members then simple firms.  This is due to higher advising needs because of firm diversification, increased leverage, and large size when compared to simple firms.  The authors draw weak support for the hypotheses that firms with high R&D to asset ratios require higher insider representation.  Another important result found by the authors is: “Tobin’s Q increases (decreases) in board size for complex (simple) firms and this relation is driven by the number of outside directors.”  The largest overall finding of this paper is to contradict the idea that shareholders wealth is increased through smaller boards comprised of a high level of independent directors.