, Volume 12, Issue 1, pp 73-91
Date: 29 Feb 2008

The effects of board size and ‘busy’ directors on the market value of Italian companies

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This paper presents evidence that corporate governance quality measured by (1) the board size and (2) the fraction of directors that serve on more corporate boards, influences the market value of firms. The analysis is based in Italy, a country that is characterized by family and concentrated ownership, low legal protection of investors and pyramidal firm structures. Our empirical results suggest that the level of ‘busy-ness’ of corporate directors as a measure of board effectiveness has a significant influence on firm’s market performance. By contrast, we find limited evidence that board size has a substantial impact on the market valuation, except in small and medium enterprises and in some specific industry sectors.

The study is part of research undertaken for the European Commission project “Harmonia” (Contract HPRN-CT-2000-00062). The authors appreciate helpful comments from Stuart McLeay, Begoña Giner, Neil Garrod and Joshua Ronen and participants at the 27th Annual EAA Congress Prague 2004, the 3rd EIASM Workshop on Accounting Regulation, Siena 2004, and the seminars at the University of Valencia, 2003, and the Athens University of Business and Economics, 2004. This paper was submitted to JMG before the takeover Editorship (July 2006). After this change the reviewing process was assigned to one of the JMG co-Editors, completely blind to the Editor.