Savvy investors try to get their hands on every available statistic they can before making their decisions. But one number that hardly anyone ever looks at is the size of a company's board of directors. A new study from the governance-research organization GMI Ratings suggests that maybe they should.
The study found that corporations with small boards - about nine or ten directors - tended to outperform their peers on shareholder return by 8.5 percentage points. Meanwhile, those firms with large boards - 13 or 14 directors - tended to underperform by 10.85 percentage points. The study looked solely at large-cap firms - those with a market cap of at least $10 billion.
What's the reason for the disparity? Maybe smaller boards are more nimble and decisive. Or maybe larger boards are indicative of a corporate culture that has grown out of control.
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