VGSF - WU Vienna - LC

Dirk Jenter, London School of Economics

Campus WU D3.0.225 11:00 - 12:30

Organizer VGSF

As part of the ser­ies of the "Fin­ance Re­search Sem­inar", VGSF wel­comes Dirk Jen­ter from the Lon­don School of Eco­nom­ics to present his re­search pa­per.
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Does Board Size Mat­ter?

This pa­per uses min­imum board size re­quire­ments to assess whether large boards re­duce firm per­form­ance. Since 1976, the leg­ally re­quired min­imum size of Ger­man su­per­vis­ory boards in­creases from 12 to 16 dir­ect­ors as firms pass 10,000 do­mestic em­ploy­ees. Board sizes in­crease sharply at this threshold, in­dic­at­ing that the man­date is bind­ing for many firms. Us­ing a re­gres­sion dis­con­tinu­ity design around the threshold and a dif­fer­ence-in-dif­fer­ences ana­lysis around the law’s in­tro­duc­tion, we find ro­bust evid­ence that for­cing firms to have large boards lowers per­form­ance and value. At the threshold, op­er­at­ing re­turn on as­sets drops by 2-3 per­cent­age points and To­bin’s Q by 0.20-0.25, with sim­ilar de­clines for treated firms after the law’s in­tro­duc­tion. Firms just above the threshold also gen­er­ate lower ac­quis­i­tion an­nounce­ment re­turns than firms just below, sug­gest­ing that large boards un­der­take worse ac­quis­i­tions.

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