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Journal ArticleDOI

Size really matters: Further evidence on the negative relationship between board size and firm value

TL;DR: In this article, the authors examined the impact of corporate governance mechanisms on the firm value of Singapore and Malaysia firms (as measured by Tobin's Q) and found that there is an inverse relationship between board size and firm value in both countries.
Abstract: This study examines the impact of corporate governance mechanisms on the firm value of Singapore and Malaysia firms (as measured by Tobin's Q ) We find little evidence of relationships between most corporate governance mechanisms and Tobin's Q However, consistent with Yermack [Higher market valuation of firms with a small board of directors J Financ Econ 40 (1996), 185–211] and Eisenberg et al [Larger board size and decreasing firm value in small firms J Financ Econ 48 (1998), 35–54], we find that there is an inverse relationship between board size and firm value in both countries This suggests that the negative relationship between board size and firm value transcends different corporate governance systems
Citations
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Journal ArticleDOI
TL;DR: A review of recent research on corporate governance with a special focus on emerging markets is presented in this paper, where the authors find that better corporate governance benefit firms through greater access to financing, lower cost of capital, better performance, and more favorable treatment of all stakeholders.

790 citations

Journal ArticleDOI
TL;DR: The too-much-of-a-good-thing effect (TMGT) as discussed by the authors is a meta-theoretical principle that suggests that antecedent variables widely accepted as leading to desirable consequences actually lead to negative outcomes.

716 citations

Journal ArticleDOI
TL;DR: The authors examined the impact of board size on firm performance for a large sample of 2746 UK listed firms over 1981-2002 and found that board size has a strong negative impact on profitability, Tobin's Q and share returns.
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.

666 citations

Journal ArticleDOI
TL;DR: In this article, the authors investigate the relation between corporate value and the proportion of the board made up of independent directors in 799 firms with a dominant shareholder across 22 countries and find a positive relation, especially in countries with weak legal protection for shareholders.
Abstract: We investigate the relation between corporate value and the proportion of the board made up of independent directors in 799 firms with a dominant shareholder across 22 countries. We find a positive relation, especially in countries with weak legal protection for shareholders. The findings suggest that a dominant shareholder, were he so inclined, could offset, at least in part, the documented value discount associated with weak country-level shareholder protection by appointing an 'independent' board. The cost to the dominant shareholder of doing so is the loss in perquisites associated with being a dominant shareholder. Thus, not all dominant shareholders will choose independent boards.

561 citations

Journal ArticleDOI
TL;DR: In this paper, the authors investigate the relation between corporate value and the proportion of the board made up of independent directors in 799 firms with a dominant shareholder across 22 countries and find a positive relation, especially in countries with weak legal protection for shareholders.

474 citations

References
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Journal ArticleDOI
TL;DR: This article investigated the relationship between management ownership and market valuation of the firm, as measured by Tobin's Q. In a 1980 cross-section of 371 Fortune 500 firms, they found evidence of a significant nonmonotonic relationship.

7,523 citations

Journal ArticleDOI
TL;DR: The last two decades indicate corporate internal control systems have failed to deal effectively with these changes, especially slow growth and the requirement for exit as mentioned in this paper, which is a major challenge for Western firms and political systems as these forces continue to work their way through the worldwide economy.
Abstract: Since 1973 technological, political, regulatory, and economic forces have been changing the worldwide economy in a fashion comparable to the changes experienced during the nineteenth century Industrial Revolution. As in the nineteenth century, we are experiencing declining costs, increasing average (but decreasing marginal) productivity of labor, reduced growth rates of labor income, excess capacity, and the requirement for downsizing and exit. The last two decades indicate corporate internal control systems have failed to deal effectively with these changes, especially slow growth and the requirement for exit. The next several decades pose a major challenge for Western firms and political systems as these forces continue to work their way through the worldwide economy.

7,121 citations

Journal ArticleDOI
TL;DR: In this paper, the authors present evidence consistent with theories that small boards of directors are more effective, using Tobin's Q as an approximation of market valuation, and find an inverse association between board size and firm value in a sample of 452 large U.S. industrial corporations.

6,611 citations

Journal ArticleDOI
TL;DR: The authors investigated the relation between Tobin's Q and the structure of equity ownership for a sample of 1,173 firms for 1976 and 1,093 firms for 1986 and found a significant curvilinear relation between Q and common stock owned by corporate insiders.

4,567 citations

Journal ArticleDOI
TL;DR: The authors examined the separation of ownership and control for 2,980 corporations in nine East Asian countries and found that voting rights frequently exceed cash-ow rights via pyramid structures and cross-holdings.

4,195 citations