Using demographic identification to estimate the effects of board size on corporate performance

Pandej Chintrakarn, Pornsit Jiraporn, Shenghui Tong, Richard M. Proctor

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

Motivated by agency theory, we investigate the effect of board size on corporate outcomes. To address endogeneity, we exploit the variations in the director-age populations across the states in the US. We argue that firms with access to a larger pool of potential directors tend to have larger boards. Consistent with this notion, our empirical results show that firms located where the size of the director-age population is larger have significantly larger board size. Because the director-age population represents broad demographic trends outside of any firm’s control, it is unlikely related to firm outcomes or policies and should be exogenous. Using the director-age population as our instrument, we estimate the effects of board size on firm value and profitability. Our approach is less vulnerable to endogeneity and is more likely to show a causal effect.

Original languageEnglish (US)
Pages (from-to)766-770
Number of pages5
JournalApplied Economics Letters
Volume24
Issue number11
DOIs
StatePublished - Jun 25 2017

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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