An Empirical Research Of Board Size And The Stability Of Corporate Performance And Dividend Policies

In the corporate governance, whether board size influences the efficiency of the board has been the subject of intense research. Scholars usually test it by studying the influence of board size on corporate performance. The empirical analysis of board size and the stability of corporate performance and dividend policies in this paper just stems from the relationship between board size and corporate performance.Based on the annual report data of 575 listed companies over the period 1999 through 2005 in China, I investigate the relationship between board size and the stability of corporate performance and dividend policies. Results show:1. The firms with larger board size have higher stability of corporate performance. I use five indexes to measure the stability of corporate performance including the standard deviation of ROA,Tobin's Q,Operating Profit Ratio,BPS and Monthly Stock Returns. Results show that board size is negatively associated with the standard deviation of ROA,Tobin's Q,Operating Profit Ratio and BPS.2. Compared with agency problems, communication/coordination problems within larger board affect the stability of corporate performance mostly. On the basis of using CEOpower (whether the chair of the board is also the CEO) to control for the effect of CEO's power on the board size, I extend the former model by adding the interaction between the CEOpower and Ln(Board Size) to prove that communication/coordination problems within larger board affect the higher stability of corporate performance mostly. Results show that the coefficients on Ln(Board Size) in this new model are significantly negative for the standard deviation of Operating Profit Ratio and BPS, while the coefficients on the interaction are insignificant.3. The firms with larger board size have higher stability of dividend policies. I use four indexes to measure the stability of dividend policies including the standard deviation of total dividend,cash dividend,stock dividend and the reserve transferred to common shares. Results show that board size is negatively associated with the standard deviation of total dividend and cash dividend.