Economic Policy Review
Boards of Directors as an Endogenously Determined Institution:
A Survey of the Economic Literature
April 2003 Volume 9, Number 1
JEL classification: G3, D2, L2

Authors: Benjamin E. Hermalin and Michael S. Weisbach

The authors identify the primary findings of the empirical literature on boards of directors. Typically, these studies have sought to answer one of the following questions: How are the characteristics of the board related to profitability? How do these characteristics affect boards' observable actions? What factors affect board makeup and evolution? Across these studies, a number of regularities have emerged—notably, the fact that board composition does not seem to predict corporate performance, while board size has a negative relationship to performance. The authors note, however, that because there has been little theory to accompany these studies, it is difficult to interpret the empirical results, particularly with respect to possible policy prescriptions.

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