Determinants and consequences of board size: conditional indirect effects

Abstract

Purpose Board size is an important dimension of corporate governance. The purpose of this study is to propose and test indirect effects of organization size on organizational performance via board size, in the context of industry. Design/methodology/approach The study’s predictions were tested in 288 medium and large organizations listed on the Australian Securities Exchange using archival data. Findings The findings of this study suggest the following: organization size is positively associated with board size and this relationship is stronger in manufacturing organizations; board size is positively associated with performance and this relationship is conditional on industry; and organization size has an indirect effect on performance via board size, and this indirect effect is also conditional on industry. Research limitations/implications The results provide some support for the resource dependency theory, agency theory and contingency theory. Practical implications The findings suggest that directors should take into account the effects of board size and industry to provide a more precise assessment of the board’s performance. Originality/value It predicts and tests the pioneering moderating effect of industry (manufacturing vs services) on the organization size–board size, board size–organizational performance and organization size–board size–organizational performance relationships.