Board Size, Ownership Concentration and Future Firm Risk

Purpose – First purpose of this study is to find out whether the negative relationship between board size and future firm risk persists in China while contemplating all sorts of endogeneity. Secondly, we investigate the role of large shareholders in influencing the managerial decisions of future firm risk via board size. Lastly, we examine whether the moderating role of large shareholders is any different in state owned and non-state owned enterprises in China. Design/methodology/approach – Our sample included all the A-listed firms listed on the Shanghai and the Shenzhen stock exchange over a sample period of 2008 to 2013. We used fixed effect regression and Generalized Method of Moments (GMM) to test our three hypotheses. Findings – We found that board size is negatively associated with future firm risk when measured as volatility in future stock prices and future cash flows. Secondly, large shareholders directly influence the managerial decisions of future firm risk, irrespective of board size. Thirdly, moderating role of ownership concentration is insignificant in both state owned and non-state owned enterprises. Originality/value – To the best of our knowledge, this is the first study which analyzes the role of large shareholders in relationship between board size and future firm risk. This study provides valuable insights, particularly in a developing country context, on the role of large shareholders in influencing the managerial decisions of future firm risk