Is Small and Independent Board a Better Board? An Example of High-Tech Firms

Abstract

This paper examines board structure and the effect of board size and composition on firm value for firms in high technology industries for the period 1995-2008. I find that high-tech firms, generally characterized by asymmetric information and growth opportunities, have board sizes 2.9% smaller and a proportion of insiders 1.7% higher than non high-tech firms. Using Tobin’s Q as a measure of firm value, I document that Tobin’s Q is increasing in board size for high-tech firms. This result is consistent with the argument that transaction costs, such as political pressure from regulators and institutional investors, as well as listing requirements set by the SEC and major stock exchanges, may impede board upsizing for high-tech firms. My findings indicate that a uniform “one size fits all” reform of corporate boards may impair board effectiveness in some types of firms.