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The Impact of Board Size on Firm Value: Evidence from the UK

Guest, P (2009) The Impact of Board Size on Firm Value: Evidence from the UK The European Journal of Finance, 15 (4). pp. 385-404.

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Abstract

We examine the impact of board size on firm performance for a large sample of 2746 UK listed firms over 1981–2002. The UK provides an interesting institutional setting, because UK boards play a weak monitoring role and therefore any negative effect of large board size is likely to reflect the malfunction of the board’s advisory rather than monitoring role. We find that board size has a strong negative impact on profitability, Tobin’s Q and share returns. This result is robust across econometric models that control for different types of endogeneity. We find no evidence that firm characteristics that determine board size in the UK lead to a more positive board size–firm performance relation. In contrast, we find that the negative relation is strongest for large firms, which tend to have larger boards. Overall, our evidence supports the argument that problems of poor communication and decision-making undermine the effectiveness of large boards.

Item Type: Article
Divisions : Faculty of Arts and Social Sciences
Authors :
AuthorsEmailORCID
Guest, PUNSPECIFIEDUNSPECIFIED
Date : 30 June 2009
Identification Number : 10.1080/13518470802466121
Additional Information : This is an Accepted Manuscript of an article published by Taylor & Francis in The European Journal of Finance on 30 June 2009, available online: http://wwww.tandfonline.com/10.1080/13518470802466121
Depositing User : Symplectic Elements
Date Deposited : 10 Mar 2015 18:58
Last Modified : 27 May 2016 16:08
URI: http://epubs.surrey.ac.uk/id/eprint/714003

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