Board Size and Corporate Risk Taking: Further Evidence from Japan

Nakano, M; Nguyen, P

Board Size and Corporate Risk Taking: Further Evidence from Japan

Nakano, M Nguyen, P

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Publication Type:: Journal Article
Citation:: Corporate Governance: An International Review, 2012, 20 (4), pp. 369 - 387
Issue Date:: 2012-01-01

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Field	Value	Language
dc.contributor.author	Nakano, M	en_US
dc.contributor.author	Nguyen, P	en_US
dc.date.issued	2012-01-01	en_US
dc.identifier.citation	Corporate Governance: An International Review, 2012, 20 (4), pp. 369 - 387	en_US
dc.identifier.issn	0964-8410	en_US
dc.identifier.uri	http://hdl.handle.net/10453/22659
dc.description.abstract	Manuscript Type: Empirical Research Question/Issue: Due to a greater difficulty to achieve compromise, large decision-making groups tend to adopt less extreme decisions. This implies that larger boards are associated with lower corporate risk taking. We test whether a similar effect applies to the case of Japanese firms. The result is expected to be weaker since Japanese boards form relatively homogeneous groups. We further argue that growth opportunities moderate the relation between board size and risk taking. Research Findings/Results: Our results indicate that firms with larger boards exhibit lower performance volatility as well as lower bankruptcy risk. However, the effect is not as significant as in the US. The low cross-sectional variation in risk taking among Japanese firms is found to play a role. In addition, we show that the effect of board size is less significant when firms have plenty of investment opportunities, but much stronger when firms have fewer growth options. Theoretical Implications: Considering that risk taking contributes to firm performance, our results offer a rationale as to why larger boards might be associated with lower performance. However, they also suggest that this effect should be less detrimental to firms with significant investment opportunities. Practical Implications: Firms should adapt their decision processes to their business environment. In particular, they may need to adjust the size of their boards to the characteristics of their investment opportunity sets. Firms with fewer growth options would gain most by operating with smaller boards. By restricting their ability to take risks, firms could undermine their growth potential and performance. © 2012 Blackwell Publishing Ltd.	en_US
dc.relation.ispartof	Corporate Governance: An International Review	en_US
dc.relation.isbasedon	10.1111/j.1467-8683.2012.00924.x	en_US
dc.title	Board Size and Corporate Risk Taking: Further Evidence from Japan	en_US
dc.type	Journal Article
utslib.citation.volume	4	en_US
utslib.citation.volume	20	en_US
utslib.for	1801 Law	en_US
utslib.for	1503 Business and Management	en_US
utslib.for	15 Commerce, Management, Tourism and Services	en_US
utslib.for	18 Law and Legal Studies	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Strength - CCG - Centre for Corporate Governance
utslib.copyright.status	closed_access
pubs.issue	4	en_US
pubs.publication-status	Published	en_US
pubs.volume	20	en_US

Abstract:

Manuscript Type: Empirical Research Question/Issue: Due to a greater difficulty to achieve compromise, large decision-making groups tend to adopt less extreme decisions. This implies that larger boards are associated with lower corporate risk taking. We test whether a similar effect applies to the case of Japanese firms. The result is expected to be weaker since Japanese boards form relatively homogeneous groups. We further argue that growth opportunities moderate the relation between board size and risk taking. Research Findings/Results: Our results indicate that firms with larger boards exhibit lower performance volatility as well as lower bankruptcy risk. However, the effect is not as significant as in the US. The low cross-sectional variation in risk taking among Japanese firms is found to play a role. In addition, we show that the effect of board size is less significant when firms have plenty of investment opportunities, but much stronger when firms have fewer growth options. Theoretical Implications: Considering that risk taking contributes to firm performance, our results offer a rationale as to why larger boards might be associated with lower performance. However, they also suggest that this effect should be less detrimental to firms with significant investment opportunities. Practical Implications: Firms should adapt their decision processes to their business environment. In particular, they may need to adjust the size of their boards to the characteristics of their investment opportunity sets. Firms with fewer growth options would gain most by operating with smaller boards. By restricting their ability to take risks, firms could undermine their growth potential and performance. © 2012 Blackwell Publishing Ltd.

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http://hdl.handle.net/10453/22659