Higher Valuation of Companies with a Small Board of Directors
David Yermack
Journal of Financial Economics 40, 185-211, 1996

This study presents evidence for a sample of 452 large U.S. industrial corporations between 1984 and 1991, which suggests that small boards are more effective. Using Tobin’s Q as an approximation of firm value, the study finds a strong inverse relationship between board size and firm value. The result holds even after controlling for company size, industry membership, inside stock ownership, growth opportunities and alternate corporate governance structures. In addition, the study also finds that firms with smaller board size have more favorable financial ratios, and provide stronger incentives from compensation and the threats of dismissal.


Larger Board Size and Decreasing Firm Value in Small Firms
Theodore Eisenberg, Stefan Sundgren and Martin T. Wells
Journal of Financial Economics 48, 35-54, 1998

This study extends the results of the study by David Yermack described above to a class of 900 small Finnish firms. It draws similar conclusions despite differences in institutional settings and firm sizes. This suggests that the relationship between board size and corporate performance is not spurious and appears to have serious economic implications.