Abstract

This paper reexamines the relation between firm performance and board size using the data of Japanese companies. We find a significantly positive relation between firm performance and board size when the board size is small, but a significantly negative relation when the board size is large. Our finding is different from major empirical research such as the work by Yermack, Eisenberg et al. and Coles et al. [Yermack, D (1996). Higher market valuation of companies with a small board of directors. Journal of Financial Economics, 40, 185–211; Eisenberg, T, S Sundgren and MT Wells (1998). Larger board size and decreasing firm value in small firms. Journal of Financial Economics, 48, 35–54; Coles, JL, ND Daniel and L Naveen (2008). Boards: Does one size fit all? Journal of Financial Economics, 87, 329–356].The empirical results regarding the relation between firm performance and board size might depend strongly on the characteristics of firms used in a given analysis.