How Supervisory Board Size Impacts Corporate Performance in China

This essay examines the impact of supervisory board size on corporate performance, particularly within the context of Chinese companies. It discusses how a well-structured and skilled supervisory board, adhering to corporate governance principles, can positively influence company success. The essay also explores the benefits of board diversity, including gender representation, on improving company performance by fostering better decision-making and employee motivation. However, it also acknowledges potential negative impacts, such as conflicts arising from larger board sizes, which can hinder strategy formulation and overall company effectiveness. The analysis concludes that the size and composition of the supervisory board can have both positive and negative effects, depending on factors like diversity and the potential for internal conflicts.

The Impact of Supervisory
board size on Corporate
Performance

TABLE OF CONTENTS
MAIN BODY...................................................................................................................................3
REFERENCES................................................................................................................................6

MAIN BODY
The supervisory board also known as supervisory committee is a group of people being
chosen by the shareholders of company in order to manage the operations of business. for the
success of the company it is essential that a proper and good supervisory board is being selected
by the business (Farag and Mallin, 2019). the major role of supervisory board is to make the
policies and strategies which the company need to follow in order to complete the operations of
company. these rules and regulations created by the supervisory board is generally known as
corporate governance. The corporate governance is being defined as the different rules,
regulation and different practices which companies have to follow.
The size of the board involves the number of people which must be present within the
committee. The success of the company is majorly dependent over the number of people present
within the supervisory board (Chen and Hamilton, 2020). This is particularly because of the
reason that when the supervisory board will involve highly skilled people then the performance
of company will be good. On the contradictory note, in case the people within the board are not
highly skilled and capable then this will negatively impact the working and operations of the
company.
The major role of supervisory board is to guide and direct the working of the employees
in the direction of attaining goals of the business (Shan, 2019). thus, the size of the supervisory
board has a great impact over the performance of companies in China. With respect to the
secondary study it was evaluated that after controlling and analysing the different A- listed
companies in China it was identified that gender, education and foreign national diversity is
being improved with the company. this in turn resulted in improving the performance of the
companies in Chinese market. This is particularly because of the reason that when the
supervisory board is made up with respect to all the regulations under the companies act and
other regulation then this provides a positive impact over performance of the companies (Yeung,
2018).
The reason underlying this fact is that when the demographic characteristics of board are
good and effective then this always results in improving the performance of the companies. This
is particularly because of the reason that when the board is capable and efficient then they will
form good and effective policies which in turn will improve the working of the company
(Agyemang and et.al., 2020).

Hence, as a result of this, it can be implied that size of board impacts the performance of
the company (Mutlu and et.al., 2018). in addition to this, when the size of board reflects good
gender diversity then it creates a positive impact over performance of the company. the reason
pertaining to the fact that when the females are also including in the supervisory board then this
will motivate the employees of the company in performing in good and effective manner. Also,
this inclusion of females in supervisory board will also stimulate and encourage other females
within the company to perform better so that they are also included in board. On the other hand,
if the females are not given preference at time of making the supervisory board then this can
demotivate other employees working within the company. hence, as a result of this the working
and performance of the overall company will reduce (Nomran, Haron and Hassan, 2018).
Moreover, the presence of women in supervisory board and top management, motivates
other people to work in proper and effective manner (The effect of board diversity on firm
performance: evidence from Chinese Listed companies, 2021). Also it attracts the other people to
join the company and it will result in improving the performance of the company within China.
Further with the other secondary source it was evaluated that in context to China when the board
comprises of three or more females then performance of company is deemed to be better in
comparison when there is no or less female. This is particularly because of the reason that
including females improves the decision making and strategy formulation. Hence, as a result of
this, the overall performance of the company is improved (Li, Chan and Ma, 2020).
On the other hand, some secondary sources evaluated the fact that supervisory board size
can also cause some negative impact over the working of company and its performance (Pavić
Kramarić, Aleksic and Pejic-Bach, 2018). the reason underlying this fact is that in case the size
of supervisory board is large then there is possibility of conflicts being arising. This is
particularly because of the reason that when the composition of board is large then there is
possibility for conflicts. Hence, this might negatively affect the performance of the companies in
China. The reason underlying this fact is that when the strategies and discussion is being taken
place in the board, then this might result in conflict arising among the board members. This
might be because of the reason that there may be difference in the perception and thinking level
of people and this might result in problem at time of strategy formulation or decision making.
Hence, this can negatively affect the working of the company and the employees to a great extent
(Liao, Lin and Zhang, 2018).

With the above analysis it can be stated that size of supervisory board has both positive
and negative impact over the working of the companies (Molnar, Wang and Chen, 2017). The
reason underlying this fact is that the size of board can be both beneficial and not good for the
company. this depends on the company that how they have framed the board. The reason
underlying this fact is that if the board involve a diverse workforce like females, young and
experienced employees then this will result in effective attainment of the objectives of business.
hence, as a result of this, the overall performance of the company will improve. Thus, it can be
stated that diversity within the size of supervisory board creates both positive and negative
impact over the performance of the company (Sarfraz and et.al., 2020).

REFERENCES
Books and Journals
Agyemang, A. O., and et.al., 2020. Impact of board characteristics on environmental disclosures
for listed mining companies in China. Environmental Science and Pollution Research.
27(17). pp.21188-21201.
Chen, Z. and Hamilton, T., 2020. What is driving corporate social and environmental
responsibility in China? An evaluation of legacy effects, organizational characteristics, and
transnational pressures. Geoforum. 110. pp.116-124.
Farag, H. and Mallin, C., 2019. Monitoring corporate boards: evidence from China. The
European Journal of Finance. 25(6). pp.524-549.
Li, X., Chan, K. C. and Ma, H., 2020. Communist party direct control and corporate investment
efficiency: evidence from China. Asia-Pacific Journal of Accounting & Economics. 27(2).
pp.195-217.
Liao, L., Lin, T. P. and Zhang, Y., 2018. Corporate board and corporate social responsibility
assurance: Evidence from China. Journal of Business Ethics. 150(1). pp.211-225.
Molnar, M., Wang, B. and Chen, W., 2017. Corporate governance and firm performance in
China.
Mutlu, C. C., and et.al., 2018. Corporate governance in China: A meta‐analysis. Journal of
Management Studies. 55(6). pp.943-979.
Nomran, N. M., Haron, R. and Hassan, R., 2018. Shari’ah supervisory board characteristics
effects on Islamic banks’ performance: Evidence from Malaysia. International Journal of
Bank Marketing.
Pavić Kramarić, T., Aleksic, A. and Pejic-Bach, M., 2018. Measuring the impact of board
characteristics on the performance of Croatian insurance companies. International Journal
of Engineering Business Management. 10. p.1847979018765864.
Sarfraz, M., and et.al., 2020. Contemplating the impact of the moderators agency cost and
number of supervisors on corporate sustainability under the aegis of a cognitive CEO.
Frontiers in Psychology. 11. p.965.
Shan, Y. G., 2019. Do corporate governance and disclosure tone drive voluntary disclosure of
related-party transactions in China?. Journal of International Accounting, Auditing and
Taxation. 34. pp.30-48.
Yeung, J. C., 2018. Nonlinear effect of board size on corporate performance: impact of the
cultural backgrounds of directors in Hong Kong. Asia‐Pacific Journal of Financial Studies.
47(1). pp.107-131.
Online
The effect of board diversity on firm performance: evidence from Chinese Listed companies.
2021. [Online]. Available through: <
https://journals.sagepub.com/doi/full/10.1177/0974686220923793>