Determinants of board size and composition: An empirical study of Danish medium and large firms

Bastian Bergmann & Søren Holt

Student thesis: Master thesis

Abstract

In this paper, “The Determinants of Board Size and Composition”, we give credit to the recently, once again ignited discussion on corporate governance and its most prominent mechanism, the board of directors. Specifically, we follow previous re-search studying factors that have an effect on board size and board composition. We aim to provide insight into the nature of such factors by analyzing various firm-, board-, and industry-specific parameters that can be associated with the size and the composition of a board of directors based on a set of hypotheses, which have been derived from the prevailing research and theories. Our empirical analysis focuses on Danish medium and large companies according to the size criteria by the EU Commission (2005). We rely on extensive and up-to-date data provided by the Experian Group (2012) on approx. 700,000 Danish companies and arrive at our final sample if 1,097 firms. We test our hypotheses on this sample by applying different statistical methods and sub-samples to ensure high consistency and reliability of our results Our study adds value to the existing research in many ways. We examine the asso-ciation between some unique variables, which generally have not been available to other studies, and board size and composition. Among these variables are measures that can account for the complexity of a firm, such as importing and exporting world-wide dummy variables, the number of segments a company is active in, or the num-ber of foreign subsidiaries. Regarding the latest research on board internationaliza-tion, we are able to investigate the effects of foreign ownership on boards. Among our key insights, we find a positive relationship between board size and cer-tain measures of complexity as well as between the presence of workers and women on board. Moreover, our board composition regressions reveal positive associations between various measures of firm complexity, as well as certain industries with a large female employment base, and female presence on board. Additionally, we find support for the notion that diversity drives diversity, as employee directors are found to be positively associated with female directorship on board. We also find strong evidence of a positive association between employee directors and firm complexity as well as firm size. The latter is also positively associated, as is the presence of a foreign parent company with the presence of foreign board members.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2012
Number of pages147