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

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Summary

Full Length Research Paper

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)

INTRODUCTION
DATA AND INITIAL EVIDENCE
MOMENTUM PROFITS AND BOARD SIZE
Number of directors
All firms
Sp hp
Size effect
Book to market effect
Findings
Conclusion

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