Do firms adjust corporate governance in response to economic policy uncertainty? Evidence from board size

Viput Ongsakul, Sirimon Treepongkaruna, Pornsit Jiraporn and Ali Uyar

Finance Research Letters, 2021, vol. 39, issue C

Abstract: Prior research shows that board size has a significant effect on firm performance. Therefore, board size is a crucial aspect of the board of directors. Drawing on institutional theory, we investigate how firms adjust board size in response to economic policy uncertainty (EPU). We find that firms reduce board size in the presence of EPU. In particular, a rise in EPU by one standard deviation reduces board size by 21.61% on average. Our results are consistent with the notion that agency conflicts are more severe in the presence of EPU. Accordingly, firms strengthen their corporate governance by reducing board size.

Keywords: Board size; Economic policy uncertainty; Corporate governance; Board of directors (search for similar items in EconPapers)
JEL-codes: E66 G34 M21 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:39:y:2021:i:c:s1544612320301100

DOI: 10.1016/j.frl.2020.101613

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