Abstract
We analyze a simple model of board voting and find that in comparison to boards with an even number of directors (even boards), those with an odd number of directors (odd boards) improve voting efficiency by better aggregating directors’ information. Consistent with the model’s implications, our empirical analysis reveals that firms with an odd board derive higher Tobin’s Q, deliver better operating performance, exhibit stronger Chief Executive Officer (CEO) turnover-performance sensitivity, and have lower CEO compensation but higher CEO pay-performance sensitivity, than do firms with an even board. Furthermore, these even-odd effects diminish as board size increases. Overall, our findings are consistent with the even-odd characteristic of board playing an important role in influencing board voting efficiency and thus the quality of board decisions.
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