Analyzing the Impact of Board Size on Corporate Performance in China

This essay examines the impact of board size on corporate performance within Chinese firms, considering factors such as corporate governance, the proportion of independent directors, and corporate social responsibility (CSR). It discusses varying perspectives on whether a large or small board size is more beneficial, referencing research that highlights both positive and negative correlations between board size and firm performance. The analysis includes the role of independent directors, the importance of board structure, and the impact of state ownership on the effectiveness of board size. The essay concludes that an optimal board size, typically between 5-9 members, is crucial for effective decision-making and improved corporate performance, ultimately contributing to China's economic growth. Desklib provides access to this document and a wealth of study resources for students.

The Impact of Board Size on
Corporate Performance

Table of Contents
Impact of board size on corporate performance of China...........................................................3
REFERENCES................................................................................................................................7

Impact of board size on corporate performance of China
In regards to board size, it can be said that it refers the total number of directors on the board
of each sample firm, inclusion of chairman and CEO for each accounting year. Corporate
governance refers ways in which board manages as well as directs corporations and focus on
knowing impacts of decision on all stakeholders such as employees, customers, suppliers and
shareholders (DANG and et.al., 2020). It is important to know that whether size of board in
corporate governance should be large or small. Average board size if 9.2 and most boards range
from 3 to 31 members. It is stated that idle members in a board should be 7. Board size of 19
members are acceptable.
China’s corporate governance perform in an effective manner with the cooperation and
collaboration of board members. It is found from research that large boards are associated with
high performance on corporate reputation (Liao, Lin and Zhang, 2018. Corporate board and
corporate social responsibility assurance: Evidence from China). If companies comprise with 5-
9 core members on board then firms are more likely to improve performance. Structure of firm
has great impact of financial performance of companies. In China, it is stated that firms with
large board size with more female directors and separation of chairman and CEO position are
more likely to engage in CSR assurance decision. It is also found that all those companies or
firms that have foreign investors, they are less likely to engage in corporate social responsibility.
There is a positive relationship between board structure, size and performance of firms (Sial and
et.al., 2018).
Board size and corporate performance: It is stated from results of some firms that large
board size is beneficial and helps companies in improving their performance. The reason behind
it is, firms with skilled large size board members can supervise firms with effectiveness but the
over large board size can lead the rise of communication as well as collaboration cost. On the
other hand, some Chinese scholars stated that expansion of board size can have adverse impacts
on corporate development and performance. There are some sectors in China whose results
showed that board size is negatively related to corporate performance. So, on the basis of above
discussion and results found from survey, it can be said that there are different views on the
statement of relationship of board size with corporate governance (Chong, Ong and Tan, 2018).
So, it is still unclear whether large board size is good or small board size is better for corporate

performance in China (Tian and Nie, 2017, Relationship between Board Characteristics and
Corporate Performance of Listed Companies in China).
Some other studies have been conducted in order to know if either independent directors or
dependent directors in board has positive impact on corporate performance on corporate
governance China. From some financial results of listed companies of China, it is found that
increase in the proportion of independent directors increases corporate performance. So, on the
basis of this discussion, it can be said that there is relationship between proportion of
independent directors on performance of firms (Elmagrhi and et.al., 2017). they said that such
independent directors do not increase collaboration cost as they can perform activities as per
their own, they promote interest of operators and maintain interest of minority shareholders.
It is also stated that board size is beneficial as it supervises behaviours of top management level.
Over-small as well as over-large size both have negative impacts on corporate performance as
they limit corporate development. So, it is important for firms to have idle numbers of board of
directors that is 5-9 or 7as board of directors with this number share their knowledge with each
other’s that help companies in improving decision making process (Pucheta-Martínez and
Gallego-Álvarez, 2020). An improved corporate performance is beneficial for economy of
country. Some listed companies of China that has 7-9 board of directors are more likely to
improve economy of China and provide employment opportunities. Policy suggests that board
system of some listed companies in China is not sound enough and it is important for them to
control board size and give attention to supervision function in the board. Proportion of
independent directors in some companies is low and on the basis of above discussion, it is known
that independent directors have positive impact on corporate performance (Haider and Fang,
2018). So, it is suggested to listed companies of China to focus on increasing proportion of
independent directors.
Board size have major impact on the performance of corporates in china. As the board
size which includes board of directors or other people helps firms in the decision making process
(Sial and et.al., 20180. Decision making process which is one of the very important thing for
every firm and effective decision making will only help companies to attain success and survive
for longer period. The positive effect of board size on companies which have higher state
ownership suggest that connections which is given by directors are required for corporations so
that they can access more resources. This is more vital for state owned as compare to non-state

owned companies in the economic period of china. As per researches it is proved that problems
related to decision making increases and damages firms performance when there is increment in
the number of board of directors. As per the resource dependence theory board of directors are
very important to ant organisation because it provides advice of the corporates and also counsel
them (Li and Chen, 2018). If corporates have maximum number of board of directors which is
seven than companies will enjoy more diversity in regards of expertise, knowledge,
understanding, education. So it is said that firms are better when they have maximum number of
boards. Firms of china value the advices which is given by board of directors because they know
that board of directors are experienced person.
If firm will listen to their directors than there are more chanced that they will attain
success with improved performance. It is expected that board size need proper balancing
between advices and benefits of connections with directors as the costs arises with free riding
problems which are connected with larger board (Mustapa and Malak, 2019). Board of directors
have links with shareholders in order to monitoring the management. Board size have also
connection with the corporate governance. When the size of board is good and also includes
talented directors than that results in higher corporate performance. Larger board size means
many directors and directors plays major role when it comes to shareholders because they
safeguard the interest of shareholders and monitor and control the firm in such a manner that it
achieves growth and its performance increases. In china large board size is encouraged because
large board helps organisation to provide scarce resources as they have connections with the
people of same industry and if firm get scarce resources than no one can stop them to perform
better. It is also observed that very firm does not require large board size because when firms are
small than they require smaller board size to control and monitor its managers (Yasser, Al
Mamun and Rodrigs, 2017). Some studies have also proved that if the number of board of
directors increases and becomes more than 10 than it is the difficult condition for directors in
regards of expressing their views and opinions. Corporate governance is very important and also
contribute in firm’s sustainable development (Khan and et.al., 2021). As it is the management
strategies which helps in determining investment and make sure that investors will get fair return
for their investment.
Board structure plays important role in corporate governance which increases the
financial performance of the corporates and as a result it will increases investors wealth. It is said

that there is optimistic relationship between board size and higher level of corporate
performance. There are many reasons that why larger board is required. When company will
have large board size then they will have more knowledgeable, experienced and skilled people.
As a result, they will make such decisions for the company which will save them from
uncertainty. Strong board also helps corporates to beat their competitors (Zhuang, Chang and
Lee, 2018). As experienced board of directors have understanding and knowledge of how to fight
with competitors. As every director have different abilities and they contribute in firms so that its
performance can be increased. In the listen Chinese firms, it is mandatory for them that board
must have minimum of 3 directors and it should not less than 3. Board monitors the managerial
actions of the company. As board of directors participate in the management of the company. So
they very well know that what is happening in the company. So if they find out that something is
going wrong in the company than they can take immediate actions so that company may not get
any harm (Shao, 2019). Board of directors provides advice to the corporate executives so that
decision making activities can be monitored of the managers.
Overall, on the basis of different views of Chinese scholars and results of Chinese firms, it
can clearly be said that there is a relationship between board size and corporate performance and
idle size should be 7 or 5-9.

REFERENCES
Books and journals
Chong, L.L., Ong, H.B. and Tan, S.H., 2018. Corporate risk-taking and performance in
Malaysia: the effect of board composition, political connections and sustainability
practices. Corporate Governance: The international journal of business in society.
DANG, H.N. and et.al., 2020. Effects of corporate governance and earning quality on listed
Vietnamese firm value. The Journal of Asian Finance, Economics, and Business. 7(4).
pp.71-80.
Elmagrhi, M.H. and et.al., 2017. Corporate governance and dividend pay-out policy in UK listed
SMEs: The effects of corporate board characteristics. International Journal of
Accounting & Information Management.
Haider, J. and Fang, H.X., 2018. CEO power, corporate risk taking and role of large
shareholders. Journal of Financial Economic Policy.
Khan, F.U. and et.al., 2021. Does privatization matter for corporate social responsibility?
Evidence from China. Eurasian Business Review. 11(3). pp.497-515.
Li, H. and Chen, P., 2018. Board gender diversity and firm performance: The moderating role of
firm size. Business Ethics: A European Review. 27(4). pp.294-308.
Mustapa, I.R. and Malak, S.S.D.A., 2019. EMPLOYING ORGANIZATIONAL CAPACITY
COMPONENTS IN ENHANCING CORPORATE PERFORMANCE. Humanities &
Social Sciences Reviews. 7(5). pp.174-182.
Pucheta-Martínez, M.C. and Gallego-Álvarez, I., 2020. Do board characteristics drive firm
performance? An international perspective. Review of Managerial Science. 14(6).
pp.1251-1297.
Shao, L., 2019. Dynamic study of corporate governance structure and firm performance in
China: Evidence from 2001-2015. Chinese Management Studies.
Sial, M.S. and et.al., 2018. Corporate social responsibility, firm performance and the moderating
effect of earnings management in Chinese firms. Asia-Pacific Journal of Business
Administration.
Sial, M.S. and et.al., 2018. Does firm performance influence corporate social responsibility
reporting of Chinese listed companies?. Sustainability. 10(7). p.2217.
Yasser, Q.R., Al Mamun, A. and Rodrigs, M., 2017. Impact of board structure on firm
performance: evidence from an emerging economy. Journal of Asia Business Studies.
Zhuang, Y., Chang, X. and Lee, Y., 2018. Board composition and corporate social responsibility
performance: Evidence from Chinese public firms. Sustainability. 10(8), p.2752.
Online

Liao, L., Lin, T.P. and Zhang, Y., 2018. Corporate board and corporate social responsibility
assurance: Evidence from China. [Online]. Available through: <
https://link.springer.com/article/10.1007/s10551-016-3176-9>
Tian, X. and Nie, W., 2017. Relationship between Board Characteristics and Corporate
Performance of Listed Companies in China. [Online]. Available through: <
file:///C:/Users/user/Downloads/25876883.pdf>