The Effect of Life Cycle Stage of a Firm on the Relationship between Board Size and Financial Performance

Abstract

Theoretical and empirical evidence regarding the impact of board size on financial performance has been proposed for a positive impact, negative impact or no impact at all. In our view, this reinforces the need for careful studies of the available empirical data in order to distinguish between the differing arguments. Contrary to previous works, it is argued in this paper that firm life cycle moderates the relationship between board size and financial performance. Econometric analysis, using a sample of 84 Egyptian listed firms over the period from 2005 to 2010, provided strong evidence for the applicability of this theme and demonstrated that while board size affects financial performance negatively in the inception stage, it has exerted a positive and significant coefficient on financial performance for those firms that are in the expansion stage, the maturity stage or the revival stage.