Does Board Size Really Matter? Evidence from Australia

Lukas Y. Setia-Atmaja

Abstract


This study examines the impact of board size of Australian firms on Tobin’s Q. Agency theory suggests that there is an inverse relationship between board size and Tobin’s Q (Yermack 1996; Eisenberg et al. 1998). The resource dependence argument, however, hypothesizes that larger boards can lead to higher performance as the CEO’s need for advice is a function of the complexity of the organization (Pfeffer 1972; Klein 1998). Analyzing a panel data of 1,530 firm-year observations using random effects technique, this study finds a positive relationship between board size and Tobin’s Q. The random effects regression results also reveal that the positive relationship between board size and Tobin’s Q is driven by firm size as this positive relationship is only found in larger firm sample but not in the smaller firm sample. The overall results support the resource dependence argument.

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DOI: 10.22146/gamaijb.5559

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