Corporate governance and generalist CEOs: evidence from board size

• DOI: https://doi.org/10.1108/CG-02-2021-0058
• Published date: 16 August 2021
• Date: 16 August 2021
• Pages: 148-158
• Subject Matter: Strategy,Corporate governance
• Author: Pattanaporn Chatjuthamard,Viput Ongsakul,Pornsit Jiraporn,Ali Uyar

Corporate governance and generalist

CEOs: evidence from board size

Pattanaporn Chatjuthamard, Viput Ongsakul, Pornsit Jiraporn and Ali Uyar

Abstract

Purpose –The purpose ofthis study is to contribute to the debate in the literatureabout generalist CEOs

by exploring the effect of boardgovernance on CEO general managerial ability, focusing on oneof the

most crucial aspects of the board of directors, board size. Prior research shows that smaller boards

constitutea more effective governance mechanismand therefore are expectedto reduce agency costs.

Design/methodology/approach –The authors estimate the effect of board size on CEO general

managerial ability, using a fixed-effects regression analysis, propensity score matching, as well as an

instrumental-variable analysis. These techniques mitigate endogeneity greatly and make the results

much more likelyto show causality.

Findings –The results show that firms with smaller board size are more likely to hire generalistCEOs.

Specifically, a declinein board size by one standard deviation raises CEOgeneral managerial ability by

15.62%. A lack of diverse experiencesin a small board with fewer directors makes it more necessary to

hire a CEO with a broad range of professional experiences. Furthermore, the agency costs associated

with generalist CEOs are greatly diminished in firms with a smaller board. Hence, firms with a smaller

board are more inclinedto hire generalist CEOs.

Originality/value –Although prior researchhas explored the effects of board size on various corporate

outcomes, strategies and policies, this study is the first to investigate the effect of board size on CEO

general managerial ability.This study contributes to the literature both in corporate governanceand on

CEO generalmanagerial ability.

Keywords CEO general managerial ability, Board size, Corporate governance, Generalist CEOs,

Specialist CEOs, CEO general managerial skills, Board of directors

Paper type Research paper

1. Introduction

CEO managerial ability has been the focus of several recent studies. Recent research finds

that CEO managerial ability contributes to more efficient investment decisions (Gan, 2019),

lowers credit risk (Chen et al.,2017) and increases CSR performance (Yuan et al., 2019).

However, as one of the most common measures of board quality, board size has not been

investigated as one of the potential determinants of CEO managerial ability yet. Hence, this

study aims to fill this existinggap in the literature.

The board of directors is regarded as the paramount governance mechanism. Not

surprisingly, a massive volume of research has been conducted on the role of the board of

directors. The two most common attributes of the board that have been most frequently

investigated in the literature are board size and board independence. We contribute to the

literature on corporate boards by exploring the effect of board size on CEO general

managerial ability. Prior research shows that smaller boards constitute a more effective

governance mechanism (Yermack, 1996;Eisenberg et al., 1998)[1]. However, given the

two principal functions of boards such as monitoring and advising (Garner et al.,2017),

smaller boards may fall short in advising, although they are effective at monitoring as board

advising requires broader expertise and diversity and connections with the external

Pattanaporn Chatjuthamard

is based at the Center of

Excellence in Management

Research for Corporate

Governance and

Behavioral Finance, Sasin

School of Management,

Chulalongkorn University,

Bangkok, Thailand. Viput

Ongsakul is based at the

NIDA Business School,

National Institute of

Development

Administration (NIDA),

Bangkok, Thailand and The

Securities and Exchange

Commission of Thailand,

Bangkok, Thailand. Pornsit

Jiraporn is based at Great

Valley School of Graduate

Professional Studies,

Pennsylvania State

University, Malvern,

Pennsylvania, U.S.A. Ali

Uyar is based at CERIIM,

Excelia Business School,

France.

Received 4 February 2021

Revised 1 June 2021

Accepted 26 July 2021

The research was funded by

Chulalongkorn University under

the Ratchadapisek Sompoch

Endowment Fund through

Center of Excellence (CE) in

Management Research for

Corporate Governance and

Behavioral Finance and Sasin

School of Management through

SASIN Major Grant for a

research program.

PAGE 148 jCORPORATE GOVERNANCE jVOL. 22 NO. 1 2022, pp. 148-158, ©EmeraldPublishing Limited, ISSN 1472-0701 DOI 10.1108/CG-02-2021-0058