“Does Board Size Matter?” Harvard Corporate Governance Blog Post Details Findings

In a recent Harvard Law School Corporate Governance blog post, the authors of a recent study “Does Board Size Matter” explore whether board size impacts effectiveness and decision-making. The authors’ use data from German firms to find correlations between “board size and firm performance,” noting, however, that “large boards are a choice, and because this choice is likely to be correlated with other drivers of performance, these correlations are difficult to interpret.” The study found “robust evidence that forcing firms to have large boards is detrimental.” The authors explore several explanations for this including, frictions in decision-making, free-riding, coordination problems, and other possible factors. The authors conclude by noting that “effectiveness declines as boards grow too large” and that German regulatory requirements regarding minimum board size can in fact be counter-productive. The study does note that, “regulators in many countries have tried to improve their effectiveness by discouraging large boards.”