Board Size, Crisis, and Firm Performance: Evidence from Banks

  •  Uri Zion    
  •  Garen Markarian    


A large body of research has found conflicting results on the relation between board size and firm performance, where studies indicate that board size is positively, negatively, or is unrelated to firm performance. Using a global sample of 120,000 banks, this study extends the extant literature in a number of important ways: we find that an inverted U-curve characterizes the board size-performance relation, especially for publicly owned non-EU firms. Second, and in contrast, we find that the negative board size-performance correlation is explained by a rational risk-return relation, where small board firms are riskier and follow non-traditional banking strategies. Consequently, we find that banks with small boards performed poorly during the 2008 global credit crisis.

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