Are Large Boards Poor Monitors? Evidence from CEO Turnover

Abstract

This paper examines the relation between a board's size and its monitoring effectiveness by exploring how board size affects different aspects of the CEO replacement process. I find that the probability of CEO turnover is significantly negatively related to board size, and that the abnormal return accompanying turnover announcements decreases with board size. I also find that larger boards are less likely to appoint an outsider to succeed the terminated CEO. These results suggest that a large size hinders the board's ability to perform its monitoring functions, and lends additional support to the current drive toward smaller boards.