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Determinants of Board Size and Composition: A Theory of Corporate Boards
Open accessAbstract
This paper models the interaction of firm insiders and outsiders on a corporate board and addresses the question of the board's ideal size and composition. In the model, the board is responsible for monitoring projects and making CEO succession decisions. Inside directors are better informed regarding the quality of firm investment projects, but outsiders can use CEO succession to motivate insiders to reveal their superior information and help the board implement higher value projects. The optimal board structure is determined by the trade-off between maximizing the incentive for insiders to reveal their private information, minimizing coordination costs among outsiders and maximizing the ability of outsiders to reject inferior projects. I show that optimal board size and composition are functions of the directors' and the firm's characteristics. I also develop testable implications for crosssectional variations in the optimal board structure across firms.
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Citations
Cited by
The role of information and financial reporting in corporate governance and debt contracting
Armstrong, C. S., Guay, W. R., & Weber, J. P. (2010) · Journal of Accounting and Economics · doi:10.1016/j.jacceco.2010.10.001 · Cited by 1,494
Bebchuk, L. A., Cremers, K. J. M., & Peyer, U. C. (2011) · Journal of Financial Economics · doi:10.1016/j.jfineco.2011.05.006 · Cited by 993
Politically Connected Boards of Directors and The Allocation of Procurement Contracts
Goldman, E., Rocholl, J., & So, J. (2013) · Review of Finance · doi:10.1093/rof/rfs039 · Cited by 920
CEO Compensation and Board Structure
CHHAOCHHARIA, V., & GRINSTEIN, Y. (2009) · The Journal of Finance · doi:10.1111/j.1540-6261.2008.01433.x · Cited by 611
Corporate Governance and Involuntary Delisting: Empirical Evidence from China
Malik, M. N., Xinping, X., & Shabbir, R. (2014) · International Journal of Economics and Finance · doi:10.5539/ijef.v6n6p247 · Cited by 8
Artificial intelligence (AI) and corporate governance: Evidence from board size
Chatjuthamard, P., Jiraporn, P., & Lee, S. M. (2026) · Journal of Behavioral and Experimental Finance · doi:10.1016/j.jbef.2026.101144 · Cited by 4
Metadata
- Authors
- Raheja, C. G.
- Venue
- Journal of Financial and Quantitative Analysis
- Publisher
- Cambridge University Press (CUP)
- Published
- 2005-06
- Volume
- 40
- Issue
- 2
- Pages
- 283-306
- ISSN
- 0022-1090 (ISSN-L)
- 1756-6916
- OpenAlex
- W3121199437
- Cited by
- 1,275
- References
- 0
- FWCI
- 155.35
- Type
- journal article
- Language
- en
- Open access
- green
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