COUNSEL 20 Lecture 15:
Document Summary
Reexamination of the relation between firm value and board structure. Complex firms (greater advising requirements than simple firms) have larger boards with more outside directors. Relation between tobin"s q and board size u-shaped either very small or very large boards are optimal (arises from differences between complex and simple firms) R&d-intensive firms (firm-specific knowledge of insiders important) have a higher fraction of insiders on the board for these firms, q increases with fraction of insiders on the board. Findings challenge notion that restrictions on board size and management representation on the board necessarily enhance firm value. Board of directors monitors and advises top management believed that greater level of board independence allows for more effective monitoring, improves firm performance. Nonetheless, many firms persist in having large boards and with high insider representation. Does not matter if there are no transaction costs to altering board structure, if suitable control variables are included in the regression specification.
