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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.

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  1. Recent papers find contradicting evidence on this issue. Fich and Shivdasani (2006) show that directors who serve on numerous boards are less effective monitors and Jiraporn (2007) presents evidence that busy directors are more likely to be absent from board meetings. On the other hand, Ferris et al. (2003) find no evidence that multiple board directorships have negative effects on firm performance and Harris and Shimizu (2004) argue that busy directors are important sources of knowledge and information and that they have a positive influence on acquisition performance.

  2. A director is interlocked if an inside officer of the firm serves on the board of that outside director’s company.

  3. It should be mentioned that in 2000 the Italian Stock Exchange introduced a mid-cap segment with strong listing standards of companies, called STARs (Segmento Titoli ad Alti Requisiti), which follow stricter standards in terms of transparency, disclosure, monitoring and liquidity. However, the time period examined in this paper does go after the year 2000 where the effects of the creation of STARs would be visible.

  4. As our sample covers the period before the introduction of Euro in Italy, all financial variables are given in Italian Lira.

  5. Model 3 extends and to some extent deviates from the basic Feltham and Ohlson (1995) model by allowing for the full interaction of ‘other information’ with abnormal operating earnings. However, the estimates of the main effects from the basic Model 1change little, verifying the robustness of model’s results.


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Correspondence to Christos A. Grambovas or Ivana Raonic.

Additional information

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.



Table 8 Companies included in the sample and their industry classification

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Di Pietra, R., Grambovas, C.A., Raonic, I. et al. The effects of board size and ‘busy’ directors on the market value of Italian companies. J Manage Governance 12, 73–91 (2008).

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