Abstract
This paper establishes a link between momentum profitability and board size. We use stocks listed on the Taiwan Stock Exchange (TWSE) to show that momentum profits are derived mainly from firms with small and medium board size, but it is nonexistent among large board size firms. The momentum profitability across small and medium board size firms does not represent for system risk based on the Fama-French three-factor model. After controlling by firm size, book-to-market value, our findings are still robust. This board size effect on momentum profits may be due to group decision process and an incentive to engage in risk-reduction activities for more powerful chief executive officers (CEOs). Key words: Momentum strategy, board size, corporate governance.
Highlights
Jegadeesh and Titman (1993) document that past winners on average, continue to outperform past losers, so that based on the price momentum strategy, buying winners and selling losers, investors earn statistically and economically significant payoffs
This paper establishes a link between momentum profitability and board size
We show that momentum profits are derived mainly from firms with small and medium board size
Summary
Business Administration Department, National Central University, Taiwan, R.O.C. This paper establishes a link between momentum profitability and board size. We use stocks listed on the Taiwan Stock Exchange (TWSE) to show that momentum profits are derived mainly from firms with small and medium board size, but it is nonexistent among large board size firms. The momentum profitability across small and medium board size firms does not represent for system risk based on the Fama-French three-factor model. After controlling by firm size, book-to-market value, our findings are still robust. This board size effect on momentum profits may be due to group decision process and an incentive to engage in risk-reduction activities for more powerful chief executive officers (CEOs)
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