Relationship Between Board Size And Firm Performance

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.4 Discussion of Results
The results found in this study suggest that some of the relationships found during the literature review can be confirmed. For example, the literature states that smaller boards of directors reduce the coordination problems that lead to improved firm performance relative to larger boards of directors (Kini et al, 1995; Yermack, 1996; Eisenberg et al, 1998). This study found significant empirical evidence with the sample of FTSE 100 companies that this is the case which supports these findings. It should be noted, that Haleblian and Finkelstein (1993) suggested sensibly that boards of directors that are too small can also be hampered in their ability to monitor management particularly in complex firms such as those
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This study instead found, in some cases when Tobin’s q was used as the measure of firm performance, that there could be a significant negative relationship between the proportion of external directors and firm performance. No such relationship was found when ROA used as the measure of firm performance. These results indicate that the significant relationship found might be spurious.

Also, the review of the literature found evidence that there should be a positive relationship between shareholder concentration in the hands of significant minority shareholders but no such relationship was found in the sample of FTSE 100 companies used in this study. Even after this study attempted to correct for some data problems by removing those companies within the dataset where the shareholding was concentrated in the hands of significant majority shareholders and their related parties, there was no statistically significant relationship between shareholder concentration and firm performance.

There are several possible explanations for the lack of strong relationships in this study. The first concerns the choice of variables to be used as proxies for measuring firm performance. This study chose to use the return on assets and Tobin’s q and found that the results differed significantly depending on the choice
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