Skip to main content
SpringerLink
Log in

Board size and corporate performance: the missing role of board leadership structure

  • Published:
Journal of Management & Governance Aims and scope Submit manuscript

Abstract

Different arguments have been introduced in the literature both for and against large and small board sizes. In this context, empirical evidence regarding the impact of board size on corporate performance is less conclusive, which means that further study is needed. Contrary to previous work, it is hypothesized in this study that the relationship between board size and corporate performance is more likely to be confounded by board leadership structure. Econometric analysis provided strong evidence for the applicability of this hypothesis and demonstrated that board size positively affects corporate performance in the presence of CEO non-duality (board leadership structure that is split between the roles of the CEO and the roles of the chairman). Furthermore, board size is shown to have a negative influence on corporate performance in the presence of CEO duality (board leadership structure that assigns the roles of both CEO and chairman to the same person). This conclusion is robust to the use of different measures of corporate performance, control variables and econometric models. Thus, these findings cast doubt on most of the existing evidence that posits that either large or small board size is always the best alternative to be followed in all organizations.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1

Similar content being viewed by others

References

  • Abdel, S. S. (2001). Corporate governance is becoming a global pursuit: What could be done in Egypt? Working paper, working paper (SSRN: social science research network). doi:10.2139/ssrn.286875.

  • Abdel, S. S. (2003). Does ownership structure affect firm value? Evidence from the Egyptian stock market. Working paper, working paper (SSRN: social science research network). doi:10.2139/ssrn.378580.

  • Adams, M., Hardwick, P., & Zou, H. (2003). Corporate governance and cost efficiency in the United Kingdom life insurance industry. Working paper, School of Business and Economics, Swansea University.

  • Aguilera, R. (2005). Corporate governance and director accountability: An institutional comparative perspective. British Journal of Management, 16, S39–S54.

    Article  Google Scholar 

  • Aguilera, R., & Cuervo-Cazurra, A. (2004). Codes of good governance worldwide: What is the trigger? Organization Studies, 25, 417–446.

    Article  Google Scholar 

  • Aguilera, R., & Cuervo-Cazurra, A. (2009). Codes of good governance. Corporate Governance: An International Review, 17, 376–387.

    Article  Google Scholar 

  • Aguilera, R., & Jackson, G. (2003). The cross-national diversity of corporate governance: Dimensions and determinants. Academy of Management Review, 28, 447–465.

    Google Scholar 

  • Aguilera, R., Filatotchev, I., Gospel, H., & Jackson, G. (2008). An organizational approach to comparative corporate governance: Costs, contingencies and complementarities. Organization Science, 19, 475–492.

    Article  Google Scholar 

  • Ahmed, A., & Duellman, S. (2007). Accounting conservatism and board of director characteristics: An empirical analysis. Journal of Accounting and Economics, 43, 411–437.

    Article  Google Scholar 

  • Ahmed, K., Hossain, M., & Adams, M. (2006). The effects of board composition and board size on the informativeness of annual accounting earnings. Corporate Governance: An International Review, 14, 418–431.

    Google Scholar 

  • Baliga, B., Moyer, C., & Rao, R. (1996). CEO duality and firm performance: What’s the fuss? Strategic Management Journal, 17, 41–53.

    Article  Google Scholar 

  • Beiner, S., Drobetz, W., Schmid, F., & Zimmermann, H. (2004). Is board size an independent corporate governance mechanism? KyKlos, 57, 327–356.

    Article  Google Scholar 

  • Belkhir, M. (2009). Board of directors’ size and performance in the banking Industry. International Journal of Managerial Finance (forthcoming).

  • Bennedsen, M., Kongsted, H., & Nielsen, K. (2004). Board size effects in closely held corporations. Institute of Economics, University of Copenhagen. Working papers, Centre for Applied Microeconometrics (http://www.econ.ku.dk/CAM/).

  • Bhagat, S., & Black, B. (2001). The non-correlation between board independence and long term firm performance. Journal of Corporation Law, 27, 231–274.

    Google Scholar 

  • Bohren, O., & Odegaard, B. (2001). Corporate governance and economic performance: A closer look. Working paper, The Norwegian School of Management.

  • Boone, A., Field, L., Karpoff, J., & Raheja, C. (2007). The determinants of corporate board size and composition: An empirical analysis. Journal of Financial Economics, 85, 66–101.

    Article  Google Scholar 

  • Booth, R., Cornett, M., & Tehranian, H. (2002). Boards of directors, ownership and regulation. Journal of Banking & Finance, 26, 1976–1996.

    Article  Google Scholar 

  • Boyd, B. (1995). CEO duality and firm performance: A contingency model. Strategic Management Journal, 16, 301–312.

    Article  Google Scholar 

  • Bozec, R., & Dia, M. (2007). Board structure and firm technical efficiency: Evidence from Canadian state-owned enterprises. European Journal of Operations Research, 177, 1734–1750.

    Article  Google Scholar 

  • Bresser, R., Thiele, R., Biedermann, A., & Lüdeke, H. (2006). Opportunist or steward? The influence of the board chairman on CEO dismissals and replacements. Papers presented at the 26th annual conference of the strategic management society, Vienna.

  • Brickley, J., Coles, J., & Jarrell, G. (1997). Leadership structure: Separating the CEO and chairman of the board. Journal of Corporate Finance, 3, 189–220.

    Article  Google Scholar 

  • Cairo and Alexandria Stock Exchange (2007). Market data: Main market indicators. (www.egyptse.com) (Access: 12 Nov 2007).

  • Chaganti, S., Mahajan, V., & Sharma, S. (1985). Corporate board size, composition and corporate failure in retailing industry. Journal of Management Studies, 22, 400–417.

    Article  Google Scholar 

  • Cheng, S. (2008). Board size and the variability of corporate performance. Journal of Financial Economics, 87, 157–176.

    Article  Google Scholar 

  • Chung, H., & Pruitt, W. (1994). A simple approximation of Tobin’s q. Financial Management, 23, 70–74.

    Article  Google Scholar 

  • Coles, J., Daniel, N., & Naveen, L. (2008). Boards: Does one size fit all? Journal of Financial Economics, 87, 329–356.

    Article  Google Scholar 

  • Combs, J., Ketchen, D., Perryman, A., & Donahue, M. (2007). The moderating effect of CEO power on the board composition—firm performance relationship. Journal of Management Studies, 44, 1299–1323.

    Google Scholar 

  • Conyon, J., & Peck, I. (1998). Board size and corporate performance: Evidence from European countries. The European Journal of Finance, 4, 291–304.

    Article  Google Scholar 

  • Dalton, D., Daily, C., Ellstrand, A., & Johnson, J. (1998). Meta-analytical reviews of board composition, leadership structure, and financial performance. Strategic Management Journal, 19, 269–290.

    Article  Google Scholar 

  • Dalton, D., Daily, C., Johnson, J., & Ellstrand, A. (1999). Number of directors and financial performance: A meta-analysis. Academy of Management Journal, 42, 674–686.

    Article  Google Scholar 

  • De Andres, P., Azofra, V., & Lopez, F. (2005). Corporate boards in OECD countries: Size, effectiveness, functioning and effectiveness. Corporate Governance: An International Review, 13, 197–209.

    Article  Google Scholar 

  • Dedman, E. (2002). The Cadbury committee recommendations on corporate governance—A review of compliance and performance impacts. International Journal of Management Reviews, 4, 335–352.

    Article  Google Scholar 

  • Desai, A., Kroll, M., & Wright, P. (2003). CEO duality, board monitoring, and acquisition performance: A test of competing theories. Journal of Business Strategy, 20, 37–56.

    Google Scholar 

  • Di Pietra, R., Grambovas, C., Raonic, V., & Riccaboni, A. (2008). The effects of board size and ‘busy’ directors on the market value of Italian companies. Journal of Management and Governance, 12, 73–91.

    Article  Google Scholar 

  • Dielman, T., & Rose, E. (1995). A bootstrap approach to hypothesis testing in least absolute value regression. Computational Statistics & Data Analysis, 20, 119–130.

    Article  Google Scholar 

  • Dielman, T., & Rose, E. (1997). Estimating and testing in least absolute value regression with serially correlated distribution. Annals of Operations Research, 74, 239–257.

    Article  Google Scholar 

  • Donnelly, R., & Kelly, P. (2005). Ownership and board structures in Irish PLCs. European Management Journal, 23, 730–740.

    Article  Google Scholar 

  • Dorata, N., & Petra, S. (2008). CEO duality and compensation in the market for corporate control. Managerial Finance, 34, 342–353.

    Article  Google Scholar 

  • Eisenberg, T., Sundgren, S., & Wells, M. (1998). Larger board size and decreasing firm value in small firms. Journal of Financial Economics, 48, 35–54.

    Article  Google Scholar 

  • Eisenhardt, M. (1989). Making fast strategic decisions in high-velocity environments. Academy of Management Journal, 32, 543–576.

    Article  Google Scholar 

  • Elsayed, K. (2007). Does CEO duality really affect corporate performance? Corporate Governance: An International Review, 15, 1203–1214.

    Article  Google Scholar 

  • Elsayed, K. (2009). A multi-theory perspective of board leadership structure: What does the Egyptian corporate governance context tell us? British Management Journal (forthcoming).

  • Elsayed, K., & Paton, D. (2009). The impact of financial performance on environmental policy: Does firm life cycle matter? Business Strategy and the Environment (forthcoming). doi: 10.1002/bse.608.

  • Faleye, O. (2007). Does one hat fit all? The case of corporate leadership structure. Journal of Management and Governance, 11, 239–259.

    Article  Google Scholar 

  • Fama, E., & Jensen, C. (1983). Separation of ownership and control. Journal of Law Economics, 26, 301–325.

    Article  Google Scholar 

  • Fawzy, S. (2003). Assessment of corporate governance in Egypt, Working paper no 82, the Egyptian Center for Economic Studies.

  • Goodstein, J., Gautam, K., & Boeker, W. (1994). The effects of board size and diversity on strategic change. Strategic Management Journal, 15, 241–250.

    Article  Google Scholar 

  • Greene, W. (2003). Econometric analysis (5th ed.). New Jersey: Prentice-Hall.

    Google Scholar 

  • Guest, P. (2008). The determinants of board size and composition: Evidence from the UK. Journal of Corporate Finance, 14, 51–72.

    Article  Google Scholar 

  • Gujarati, D. (2003). Basic econometrics (4th ed.). New York: McGraw-Hill.

    Google Scholar 

  • Gul, F., & Wah, L. (2002). Insider entrenchment, board leadership structure and informativeness of earnings. Working paper, City University of Hong Kong.

  • Hair, J., Anderson, R., Tatham, R., & Black, W. (1998). Multivariate data analysis. Englewood Cliffs, NJ: Prentice-Hall.

    Google Scholar 

  • Hamilton, L. (2003). Statistics with STATA. Belmont, CA: Duxbury/Thomson Learning.

    Google Scholar 

  • Hausman, A. (1978). Specification tests in econometrics. Econometrica, 46, 1251–1271.

    Article  Google Scholar 

  • He, J., & Mahoney, J. (2006). Firm capability, corporate governance, and firm competitive behavior: A multi-theoretic framework. Working paper, College of Business, University of Illinois at Urbana-Champaign.

  • Hermalin, B., & Weisbach, M. (2003). Boards of directors as an endogenously determined institution: A survey of the economic literature. Economic Policy Review, 9, 7–26.

    Google Scholar 

  • Holthausen, W., & Larcker, F. (1993). Boards of directors, ownership structure and CEO compensation. Working paper, Wharton School, University of Pennsylvania.

  • Huse, M. (2005). Accountability and creating accountability: A framework for exploring behavioural perspectives of corporate governance. British Journal of Management, 16, S65–S79.

    Article  Google Scholar 

  • Huther, J. (1997). An empirical test of the effect of board size on firm efficiency. Economics Letters, 54, 259–264.

    Article  Google Scholar 

  • Jensen, M. (1993). The modern industrial revolution, exit, and the failure of internal control systems. The Journal of Finance, 48, 831–880.

    Article  Google Scholar 

  • Jensen, M., & Meckling, W. (1976). Theory of the firm: Managerial behaviour, agency costs and ownership structure. Journal of Financial Economics, 3, 305–360.

    Article  Google Scholar 

  • Johnson, J., Daily, L., & Ellstrand, A. (1996). Board of directors: A review and research agenda. Journal of Management, 22, 409–438.

    Article  Google Scholar 

  • Judge, Q., & Dobbins, G. (1995). Antecedents and effects of outside directors’ awareness of CEO decision style. Journal of Management, 21, 43–64.

    Google Scholar 

  • Kaymak, T., & Bektas, E. (2008). East meets west? Board characteristics in an emerging market: Evidence from Turkish banks. Corporate Governance: An International Review, 16, 550–561.

    Article  Google Scholar 

  • Kiel, G., & Nicholson, G. (2003). Board composition and corporate performance: How the Australian experience informs contrasting theories of corporate governance. Corporate Governance: An International Review, 11, 189–205.

    Article  Google Scholar 

  • Kim, Y. (2005). Board network characteristics and firm performance in Korea. Corporate Governance: An International Review, 13, 800–808.

    Article  Google Scholar 

  • Kim, K., Henderson, G., & Garrison, S. (1993). Examination of Tobin’s q for takeover firms. Quarterly Journal of Business and Economics, 32, 3–26.

    Google Scholar 

  • Lasfer, M. (2006). The interrelationship between managerial ownership and board structure. Journal of Business Finance and Accounting, 33, 1006–1033.

    Article  Google Scholar 

  • Lasfer, M., & Faccio, M. (1999). Managerial ownership, board structure and firm value: The UK evidence. Working paper (SSRN: social science research network). doi:10.2139/ssrn.179008.

  • Lee, D., & Tompkins, J. (1999). A modified version of the Lewellen and Badrinath measure of Tobin’s q. Financial Management, 28, 20–31.

    Article  Google Scholar 

  • Lehn, K., Sukesh, P., & Zhao, M. (2003). Determinants of the size and structure of corporate boards: 1935–2000. Working paper, Katz Graduate School of Business.

  • Linck, J., Netter, J., & Yang, T. (2008). The determinants of board structure. Journal of Financial Economics, 87, 308–328.

    Article  Google Scholar 

  • Lindenberg, E., & Ross, S. (1981). Tobin’s q ratio and industrial organization. Journal of Business, 54, 1–32.

    Article  Google Scholar 

  • Lipton, M., & Lorsch, W. (1992). A modest proposal for improved corporate governance. Business Lawyer, 48, 59–77.

    Google Scholar 

  • Loderer, C., & Peyer, U. (2002). Board overlap, seat accumulation, and share prices. European Financial Management, 8, 165–192.

    Article  Google Scholar 

  • Lorsch, W., & MacIver, E. (1989). Pawns and potentates: The reality of America’s corporate boards. Boston: Harvard University Press.

    Google Scholar 

  • Maka, Y., & Kusnadi, Y. (2005). Size really matters: Further evidence on the negative relationship between board size and firm value. Pacific-Basin Finance Journal, 13, 301–318.

    Article  Google Scholar 

  • Mallin, C. (2002). Corporate governance, institutional investors and socially responsible investment. Corporate Governance: An International Review, 10, 1–3.

    Google Scholar 

  • Martin, S. (1993). Advanced industrial economics. UK: Blackwell.

    Google Scholar 

  • MENA (Middle East and North Africa Corporate Governance Workshop). (2003). Corporate governance in Morocco, Egypt, Lebanon and Jordan. The organization of economic co-operation and development (OECD). http://www.gcgf.org/ifcext/cgf.nsf/AttachmentsByTitle/MENA_Sep_03_CG_in_MENA_countries/$FILE/MENA_Sep_03_MENA_CG_Report.pdf (Access: 18 Jun 2006).

  • MENA–OECD. (2006). Egypt national investment reform agenda. www.oced/mena/investement. (Access: 15 May 2008).

  • Monks, R., & Minow, N. (1995). Corporate governance. Cambridge, MA: Blackwell.

    Google Scholar 

  • Mumford, M. (2003). Corporate governance and financial distress: When structures have to change. Corporate Governance: An International Review, 11, 52–64.

    Article  Google Scholar 

  • Pallant, J. (2001). SPSS survival manual. Buckingham: Open University.

    Google Scholar 

  • Pfeffer, J., & Salancik, R. (1978). The external control of organizations: A resource-dependence perspective. New York: Harper & Row.

    Google Scholar 

  • Postma, T., Van Ees, H., & Sterken, E. (2003). Board composition and firm performance in the Netherlands. Research report, Research Institute SOM (Systems, Organizations, and Management), University of Groningen.

  • Raheja, C. (2005). Determinants of board size and composition: A theory of corporate boards. Journal of Financial and Quantitative Analysis, 40, 283–306.

    Article  Google Scholar 

  • ROSC (Report on the observance of standards and codes). (2004). Corporate governance country assessment, World Bank-IMF (http://www.worldbank.org/ifa/rosc_cg_egyp2.pdf). (Access: 3 Jan 2006).

  • Rousseeuw, P., & Leroy, A. (2003). Robust regression and outliers detection. New Jersey: John Wiley.

    Google Scholar 

  • Sofia, L., & Vafeas, N. (2009). The relation between board size and firm performance in firms with a history of poor operating performance. Journal of Management and Governance (forthcoming). doi: 10.1007/s10997-009-9091-z.

  • Tabachnick, B., & Fidell, L. (2001). Using multivariate statistics (3rd ed.). New York: Harper Collins College.

    Google Scholar 

  • Wels, T. (2007). Corporate governance: Roundtable. http://www.mckinsey.com.

  • Wen, Y., Rwegasira, K., & Bilderbeek, J. (2002). Corporate governance and capital decisions of the Chinese listed firms. Corporate Governance: An International Review, 10, 75–83.

    Article  Google Scholar 

  • Yermack, D. (1996). Higher market valuation of companies with a small board of directors. Journal of Financial Economics, 40, 185–212.

    Article  Google Scholar 

Download references

Acknowledgments

The author would like to thank the editor and two anonymous reviewers for their professional work and constructive comments and suggestions.

Author information

Authors and Affiliations

  1. Business Administration Department, Faculty of Commerce, Ain Shams University, Main Campus (Western Division), Abbassia, Cairo, 11566, Egypt

    Khaled Elsayed

Authors
  1. Khaled Elsayed
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Khaled Elsayed.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Elsayed, K. Board size and corporate performance: the missing role of board leadership structure. J Manag Gov 15, 415–446 (2011). https://doi.org/10.1007/s10997-009-9110-0

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10997-009-9110-0

Keywords

Search

Navigation