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

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

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.

Suggested Citation

  • Pandej Chintrakarn & Pornsit Jiraporn & Shenghui Tong & Richard M. Proctor, 2017. "Using demographic identification to estimate the effects of board size on corporate performance," Applied Economics Letters, Taylor & Francis Journals, vol. 24(11), pages 766-770, June.
    • Handle: RePEc:taf:apeclt:v:24:y:2017:i:11:p:766-770
    DOI: 10.1080/13504851.2016.1226484
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    Cited by:

    1. Thunyanee Pothisarn & Pattanaporn Chatjuthamard & Pornsit Jiraporn & Suwongrat Papangkorn, 2023. "Sustainability, asset redeployability, and board gender diversity," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(4), pages 1738-1752, July.

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