Journal
JOURNAL OF FINANCIAL ECONOMICS
Volume 85, Issue 1, Pages 66-101Publisher
ELSEVIER SCIENCE SA
DOI: 10.1016/j.jfineco.2006.05.004
Keywords
corporate boards; IPO; board size; board independence
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Using a unique panel dataset that tracks corporate board development from a firm's IPO through 10 years later, we find that: (i) board size and independence increase as firms grow and diversify over time; (ii) board size-but not board independence-reflects a tradeoff between the firm-specific benefits and costs of monitoring; and (iii) board independence is negatively related to the manager's influence and positively related to constraints on that influence. These results indicate that economic considerations-in particular, the specific nature of the firm's competitive environment and managerial team-help explain cross-sectional variation in corporate board size and composition. Nonetheless, much of the variation in board structures remains unexplained, suggesting that idiosyncratic factors affect many individual boards' characteristics. (c) 2007 Elsevier B.V. All rights reserved.
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