The structure of corporate boards and private benefits of control: Evidence from the Russian stock exchange

• Published in: International review of financial analysis 2014-07, Vol.34, p.247-261
• Main Authors: Muravyev, Alexander, Berezinets, Irina, Ilina, Yulia
• Format: Article
• Language: English
• Subjects: Board independence; Board size; Boards of directors; Corporate governance; Dual-class stock companies; Outside directors; Private benefits of control; Regression analysis; Russia; Securities trading; Stock exchanges; Studies
• ISSN: 1057-5219; 1873-8079
• DOI: 10.1016/j.irfa.2014.03.008

This paper revisits the role of board size and composition in corporate governance, employing a measure of private benefits of control (PBC) as an indicator of governance problems in firms. We calculate PBC using the voting premium approach for a sample of dual class stock companies traded on the Russian stock exchange between 1998 and 2009. Using fixed-effects regressions, we find a quadratic relationship between PBC and board size, implying the optimality of medium-sized (about 11 directors) supervisory boards. This result is substantially stronger for PBC than traditional measures of corporate performance. There is also some evidence that director ownership helps to mitigate governance problems. Most remarkably, we find that non-executive/independent directors are associated with larger PBC and thus do not seem to help improve corporate governance. In contrast, regressions with accounting performance measures as dependent variables tend to suggest a positive role of these directors in corporate governance. •This paper revisits the role of board size and composition in corporate governance.•Key novelty is the use of private benefits of control to measure governance problems.•Medium-sized boards perform better (higher profitability and lower control benefits).•Director ownership helps mitigate governance problems.•Independent directors are associated with larger (!) control benefits.