Board Size,Firm Risk And Equity Value

The board of directors is an integral part of corporate governance which plays an important role in corporate performance.And board size is one of the factors determining its operation efficiency.Prior literature documents that larger boards pursue conservative policies and the decisions they made are moderate,which lead to an environment of risk aversion and reduce firm risk.As board of directors functions on behalf of stock holders,it's meaningful to find out whether larger board would hurt stock holders' interests.The innovation of this study is to make research from the perspective of firm risk.This study argues that when firms hold great amounts of long-term debt,the risk reduction caused by larger boards would hurt equity holders but benefit creditors.Addressing potential endogeneity problems associated with board size,this study finds that in firms which have a large amount of long-term debt,there is an equity discount associated with larger boards.But in firms without long-term debt,the negative correlation between equity value and board size disappears.Further research also indicates that firms with larger boards enjoy a lower realized cost of debt.Overall,this study suggests that the association between board size and equity value is a function of the firm's debt structure.