Abstract
PurposeThe purpose of this paper is to investigate the relationship between board size (B-SIZE) and financial and reputational corporate performance in top companies ranked by the Business Monitor of Corporate Reputation – MERCO in Colombia.Design/methodology/approachThis paper conducts correlations and cluster analysis in order to classify firms based on performance and control variables, using a sectional sample of 84 large companies in Colombia over the period 2008-2012.FindingsThis research founds that large boards are associated with high performance on corporate reputation, as stated by the resource dependence theory, and a low-financial performance, as predicted by the agency theory. However, the results indicate that there is no relation between financial and reputational performance.Research limitations/implicationsThis research considered only large companies listed by MERCO. Therefore, the results can only be generalized for top firms in Colombia according to this list. However, results add empirical evidence to theoretical debate between B-SIZE and firm performance considering financial and reputational indicators.Practical implicationsAccording to the OECD manual of good corporate governance practices, the optimal B-SIZE has between five to nine core members. The board structure has a direct impact over the firm’s financial and reputational performance and must be carefully analyzed by shareholders to balance the size according to expected results and firm’s features like family ownership, exportation activities and norms of stock markets.Originality/valueThis paper contributes to the existing literature on the relationship between B-SIZE and corporate performance with the evaluation of financial and reputational results for the case of an emerging economy. In Latin America, this analysis must go beyond OECD recommendations, and shall consider the context of an emerging country based on empirical evidence.
Highlights
The relationship between the size of the board of directors and corporate performance is a fundamental issue in corporate governance (Cheng, 2008)
It is worth noting that 18 out of 21 family businesses (FBs) of the sample presented in Table I have boards of 5-7
board size (B-SIZE) in companies with high Exp. range from 9 to 11 members, just as the companies listed in the Colombian Stock Exchange
Summary
The relationship between the size of the board of directors and corporate performance is a fundamental issue in corporate governance (Cheng, 2008). There are two main opposite theoretical approaches to the relationship between board size (B-SIZE) and corporate performance. From an economic perspective, determines that fewer. © Luis Antonio Orozco, Jose Vargas and Raquel Galindo-Dorado. Published in the European Journal of Management and Business Economics. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode
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