European Management Journal 40 (2022) 883–894

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European Management Journal

journal homepage: www.elsevier.com/locate/emj

The effect of board size on shareholder value: Evidence from bank mergers
and acquisitions
Ioannis Tampakoudis a, *, Michail Nerantzidis b, Panagiotis Artikis c, Nikolaos Kiosses d
a
Department of Business Administration, University of Macedonia, 156 Egnatia Street, GR-546 36, Thessaloniki, Greece
b
School of Economics and Business, University of Thessaly, Argonafton & Filellinon, 382 21, Volos, Greece
c
Department of Business Administration, University of Piraeus, 80, M. Karaoli & A. Dimitriou St., 185 34, Piraeus, Greece
d
Department of Accounting and Finance, University of Macedonia, 156 Egnatia Street, GR-546 36, Thessaloniki, Greece

A R T I C L E I N F O A B S T R A C T

JEL classification: This study examines the effect of board size on the economic impact of bank mergers and acquisitions (M&A) in
G14 the US. Using a hand-collected dataset of 508 M&A between 2012 and 2018, we find that board size is negatively
G21 related to acquirer excess returns. In an additional analysis, we show that large boards have positive value
G34
implications for banks that combine the CEO and chairman roles as well as for large banks. Our findings indicate
Keywords: that a “one-size-fits-all” approach to board size is not necessarily in the interests of shareholders; instead, a more
Board of directors
flexible and proactive formulation is needed.
M&A
Banks
Agency theory
Resource-dependence theory

1. Introduction
The board of directors plays an important role in the governance
structure of a business corporation (Fama & Jensen, 1983). The re­
sponsibility of a board is the effective functioning of the firm and the
management of all major business affairs (Jensen, 1933). From a theo­
retical perspective, the board is a crucial internal corporate governance
(CG) mechanism that serves to resolve conflicts of interest between
decision-makers and residual risk bearers. It can also mitigate the
principal–principal agency problems between majority and minority
shareholders, arising from concentrated ownership, family stock­
holdings and business group structures (Young at al., 2008). The board
has fiduciary duties to company shareholders, which implies that its
main responsibility is to protect their interests and create value for them.
In practice, the board is responsible for monitoring management and
providing advice and resources (De Villiers et al., 2011). It also has the
power to fire and hire the CEO and the senior managers, decide on the
dividend policies, and determine the executive compensation. Thus, the
board serves as an essential instrument in promoting good CG, partic­
ularly regarding strategic planning and decision-making.
The primary role of the board of directors is highlighted by the state
and federal laws, regulations and listing rules that form the framework
with respect to the directors’ duties. Specifically, the duties and re­
sponsibilities of board directors are determined by the statutory law of
the state of incorporation, the federal law, the federal securities laws, the
rules and guidance promulgated by the Securities and Exchange Com­
mission, and the listing standards of registered stock exchanges such as
the NYSE and Nasdaq. Furthermore, many independent organizations
publish guidelines and recommendations concerning, inter alia, the role
and structure of public company boards.
The theoretical and practical underpinnings highlight a number of
board characteristics that affect its performance, such as size, expertise,
attendance, independence, and diversity. Regarding board size, the
current legislative and regulatory framework in the US leaves open the
issue as to how many directors should be included in an optimal board
structure. In fact, the number of directors is set by the corporation’s
certificate of incorporation or bye-laws. According to The Conference
Board (2021), the board size records significant variation among firms.
In 2020, 6.9% and 4.5% of firms in Russell 3000 had more than 12 and
less than 6 directors, respectively, while the majority of firms had 9

* Corresponding author.
E-mail addresses: tampakoudis@uom.edu.gr (I. Tampakoudis), nerantzidismike@uth.gr (M. Nerantzidis), partikis@unipi.gr (P. Artikis), nkiosses@uom.edu.gr
(N. Kiosses).

https://doi.org/10.1016/j.emj.2022.09.002
Received 3 February 2021; Received in revised form 12 September 2022; Accepted 16 September 2022
Available online 20 September 2022
0263-2373/© 2022 Elsevier Ltd. All rights reserved.
I. Tampakoudis et al.
(18.9%), 8 (16.6%) and 7 (15.2%) directors. The pattern for the number
of directors on the board appears to be similar across the years
2016–2019 in Russell 3000. Contrary to Russell 3000, in the S&P 500
only 0.2% of firms had less than 6 directors, while 16.5% of firms had
more than 12 directors. Also, the highest percentages of firms had 11
(22.6%), 10 (19%) and 12 (18.1%) directors. Across business sectors,
financial institutions record the highest share of boards with more than
12 members (18.5%), followed by utilities (16.7%) and consumer sta­
ples firms (10.5%). Interestingly, with regard to other board attributes
such as age, independence, attendance and gender, the differences
among firms are limited and, in no case, comparable to the variability of
board size. The loose regulatory framework on board size along with the
high variability of board size in practice provides the rationale behind
the need to revisit the impact of the board of directors on organizational
outcomes. It is evident that the determination of an optimal board size
remains unresolved and, thus, we intend to provide useful insights
regarding this issue.
We respond to relevant calls (see De Haan & Vlahu, 2016; Hopt,
2021; John et al., 2016) and further argue that the investigation of the
performance implications of the board of directors in the context of
M&A is particularly important for the following three reasons: First,
prior studies argue that CG mechanisms, such as the board of directors,
play a critical role in long-term strategic planning (Shen & Gentry,
2014). Thus, M&A constitute an ideal setting, since they are important
strategic investments for corporate growth and transformation (Teer­
ikangas & Thanos, 2018; Thanos et al., 2019). Second, M&A trigger
significant and observable implications for the wealth of acquiring
firms’ shareholders. In addition, M&A often occur due to managerial
incentives, causing significant agency costs for shareholders (Papadakis
& Thanos, 2010). Therefore, the market for corporate control is an ideal
laboratory in which to assess the ability of the board of directors to
mitigate agency costs and create shareholder value (Hagendorff &
Keasey, 2012). Third, the regulatory framework in the US banking in­
dustry consists of various agencies which pay particular attention to
bank governance mechanisms and impose additional requirements and
responsibilities when compared to non-financial firms for the following
reasons: First, banks have opaque and complex business activities which
are often characterized by increased information asymmetries and un­
certainty (Levine, 2004). Second, banking is a highly regulated industry
considering the numerous laws, regulations, and related acts with regard
to capital and liquidity requirements that pertain to banks. Third, banks
have highly leveraged capital structures which can lead to excessive
risk-taking behavior (Macey & O’Hara, 2003). All these special aspects
exacerbate the agency problems of banks, while the negative external­
ities of their failure increase the agency costs for the economy.
The literature highlights systematic differences between the gover­
nance of banking and non-financial firms, while significant variations in
board size and composition are further observed (Adams & Mehran,
2003). Empirical evidence yields diverging results regarding the effect
of CG on performance for banks and non-financial firms (De Haan &
Vlahu, 2016), which is indicative of the existence of different mecha­
nisms of governance structures that drive performance. For instance,
several studies suggest a positive effect of board size on bank perfor­
mance, which contrasts with the findings for non-banks (Adams &
Mehran, 2012; Aebi et al., 2012). Similarly, the positive association
between board independence and firm performance does not hold for
banks (Adams & Ferreira, 2007; Harris & Raviv, 2008). Finally,
although the significance of complexity and opacity of banks would lead
us to expect the expertise of board directors to be a crucial factor in
banking, empirical studies yield contradictory results as to the rela­
tionship between expertise and bank performance (Fernandes & Fich,
2009; Taillard, Minton, & Williamson, 2010, July).
We answer the following research questions: a) Does board size bring
about value effects in bank M&A? And, if so, b) Are these effects more
favorable when the board is small or large? To address the latter
research question, we draw on the arguments of Lipton and Lorsch
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European Management Journal 40 (2022) 883–894
(1992) and Jensen (1993) and split our sample into small and large
boards adopting the threshold of nine directors. Both studies suggest
that boards with more than seven or eight directors are less effective,
since they face coordination and process problems, and experience
slower decision-making, while it is easier for the CEO to control them.
We also address a third research question: c) Whether the size of banks
and CEO duality have a moderating role on the relationship between
board size and merger performance. We focus on bank size based on the
theoretical arguments related to the need for greater advising re­
quirements by large, complex firms and those with increased external
financing (Adams & Mehran, 2012; Coles et al., 2008). Finally, we also
include in our analysis the interaction of board size with CEO duality,
considering that the decision of a firm to combine (or not) the CEO and
chairman roles affects the dynamics of the board and specifically its
monitoring activity and decision-making (Lasfer, 2006). It also affects
the selection of board members and the flow of information within the
board (Hardwick et al., 2011).
Against this background, we utilize prior theoretical underpinnings
employed in this field, namely resource dependence and agency theories
to elucidate how board size affects shareholder wealth in the market for
corporate control. The former theory suggests that large boards may
have an increased pool of experienced and qualified directors who are
able to manage various corporate matters effectively. A large board has
more resources available to the firm and, thus, can better perform its
monitoring and advisory roles (Bonn et al., 2004). A merger transaction
is a complex strategic decision with particular risk characteristics that
requires a rigorous assessment of various strategic, financial, and legal
issues. Therefore, a large board has an enhanced ability to implement an
effective screening process, identify the appropriate target firms, eval­
uate the prospects of the deal and, finally, execute the transaction.
Contrary to resource dependence theory, agency theory suggests that
large boards suffer from coordination and free-riding problems, which
hamper their ability to effectively monitor management (Jensen, 1993;
Lipton & Lorsch, 1992). Small boards are thought to be more cohesive
and adaptive to the change of the business environment, and, thus, they
can make value-enhancing strategic decisions (Coles et al., 2008).
Nowadays, firms operate in a fast changing and highly competitive
environment, in which they have to deal with uncertainty and a variety
of challenges and opportunities. In this context, small boards can assist
firms in responding to the prevailing business conditions effectively,
identifying the appropriate targets quickly, performing due diligence,
and completing the merger transaction in a timely manner.
To address the study objectives, we investigate the wealth effects of
M&A after the banking crisis (Laeven & Valencia, 2018) and draw
important conclusions about the announcement period returns con­
cerning board size. We utilize a dataset of 508 M&A bids announced by
US listed banks between 2012 and 2018, for which detailed information
on board size was hand-collected from the annual reports on Form 10-K.
Considering the results of the announcement of M&A, we provide evi­
dence of a negative effect of board size on the wealth gains of acquiring
banks. Furthermore, we show that banks with at least nine directors
present worse results than banks with less than nine board members.
The negative relationship between board size and acquirers’ gains is
consistent with agency theory. Our results support the notion that
smaller boards are more effective at monitoring roles and tend to be
more cohesive and productive, thus, improving firm performance
through the reduction of agency costs. Smaller boards do not have po­
tential communication and coordination problems, and help manage­
ment to make better acquisition decisions.
Considering the interaction of board size with CEO duality, the re­
sults show that the announcement of M&A is associated with gains for
acquiring banks with large boards in case they combine the CEO and
chairman roles. This finding indicates that the combination of the two
internal CG mechanisms can mitigate coordination and information
costs (Li et al., 2019), enhance the quality of decision making (Pham
et al., 2015), and lead to better responses to external events, such as
I. Tampakoudis et al.
M&A (Bange & Mazzeo, 2004). Furthermore, large banks also benefit
from the existence of large boards, suggesting that firms with high
advising requirements derive usefulness from larger boards as they are
more likely to include more experienced and knowledgeable directors
(De Villiers et al., 2011). Therefore, contrary to our main finding
regarding the negative value effect of board size on acquiring banks,
CEO duality and bank size reverse this effect into a performance
enhancement. Our findings are robust to propensity score matching and
alternative methodological specifications concerning control variables,
estimation models, and applied event windows.
We contribute to the existing literature and reshape M&A scholar­
ship on several fronts. First, we extend prior knowledge related to M&A
performance by demonstrating that a major CG mechanism, namely the
board of directors, brings about significant wealth implications for
acquirers. Further, we provide evidence on the applicability of agency
theory by showing that smaller boards represent an efficient means of
CG to enhance the decision-making process in terms of value creation.
Second, we broaden the boundaries of M&A research by showing that
what is usually a success factor, namely board size, may yield contra­
dictory results when the research framework widens, including addi­
tional variables. Third, we provide a detailed examination of the short-
term financial performance of acquirers applying different estimation
models and alternative event windows. Specifically, we use the four-
factor model and the market model and calculate the excess returns of
acquirers in eight event windows lasting from 3 to 41 days. Our meth­
odological approach addresses all concerns related to the limitations of
the short-term event methodology (Thanos & Papadakis, 2012a), while
it also enhances the validity of our main findings. Furthermore,
considering the cross-sectional analysis of acquirers’ gains and the
applied robustness checks, our research framework widens the bound­
aries in measuring M&A performance, responding to relevant calls in the
strategic management literature (Thanos & Papadakis, 2012b). Finally
and more broadly, we contribute to the banking literature and to an
evaluation of the regulatory initiatives on improving the role and
structure of the board of directors. Our study offers a novel, rigorous
response to the fundamental challenge of explicitly determining board
size. It is often unclear to what extent national or/and supranational
organizations should let firms act freely or recommend the lower and
upper limits of board size. We address this challenge, and thereby
demonstrate that the optimal size of a board may be contingent on bank
size and CEO duality, another major CG mechanism, implying that a
“one-size-fits-all” approach to board size would be inappropriate.
The remainder of this paper is organized as follows. Section 2 pre­
sents the literature review. Section 3 describes the data and methodol­
ogy. Section 4 provides the empirical results, while Section 5 explores
the robustness tests. Section 6 outlines the main findings and
conclusions.
2. Theoretical framework
2.1. Board size and firm performance
The board is responsible for monitoring management and providing
advice and resources (Denis & McConnell, 2003). Research in this area
has focused on investigating, through different lenses, how board size
can affect firm performance either directly or indirectly. Agency
scholars argue that larger boards are less effective than smaller ones due
to coordination and director free-riding problems (Coles et al., 2008;
Jensen, 1993); thus, they may make value-destroying strategic de­
cisions. Indeed, a large board is believed to be a manifestation of the
agency problem between ownership and control (Aggarwal et al., 2012).
Along the same lines, smaller groups are thought to be more cohesive,
productive, and, therefore, improve firm performance by reducing
agency costs. This implies that smaller boards are more effective at
advising and monitoring roles.
Contrary to agency theory, resource-dependent scholars argue that
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European Management Journal 40 (2022) 883–894
larger boards provide better advice to the management as well as better
environmental links to secure critical resources (Bonn et al., 2004).
Consistently with these arguments, prior studies (Adams & Mehran,
2012; Coles et al., 2008) suggest that large, complex firms and those that
rely more on debt financing have greater advising requirements than
simple firms. Similarly, as firms grow, or simply survive as public en­
tities, their demand for specialized board services increases (Boone
et al., 2007). Larger boards are likely to include more experienced and
knowledgeable directors to manage difficult issues. Therefore, firms that
demand more advice from their board derive greater value from large
board sizes (De Villiers et al., 2011).
Prior empirical studies offer three general conflicting viewpoints
regarding the relationship between board size and firm performance.
More specifically, there is a stream of research that finds a positive
relationship between board size and firm performance (Aggarwal et al.,
2012; Boone et al., 2007), one stream that finds a negative relationship
(Guest, 2009; Kumar & Singh, 2013), and another that finds no rela­
tionship (Beiner et al., 2004; Van Ees et al., 2003). These equivocal re­
sults highlight the complex impact of board size on firm performance as
well as the need to address the interrelationships between different, and
possibly alternative, CG mechanisms.
The above discussion suggests that, although both theories have
different characteristics, their reconciliation suggests that board size
should be a function of the competitive environment and the funda­
mentals of a firm. In other words, it implies that the trade-off between
the costs and benefits of having a large or small board depends on the
firm’s attributes.
2.2. Board size and M&A
The market for corporate control can act as an efficient way for firms
to expand into new markets (Thanos et al., 2020). This illustrates that
M&A could be one of the most important forms of investment and value
creation (Tampakoudis et al., 2018). For this reason, scholars highlight
board attributes, among others, that impact corporate decision-making
and shareholder value creation through M&A (Masulis et al., 2012). A
few studies focus explicitly on the value implications of board size in the
market for corporate control. For instance, Defrancq et al. (2020)
examine 2230 M&A by listed firms in continental Europe and find no
significant effect of board size on acquirer’s excess returns. Masulis et al.
(2012) reveal similar findings based on a sample of 520 cross-border
acquisitions by US firms. Baugess and Stegemoller (2008) analyze
1411 acquisition decisions of S&P 500 firms and argue that firms with
large boards are more likely to acquire and create shareholder value. In
contrast, Amar et al. (2011) suggest that board size is negatively related
to value creation, considering 273 acquisitions by Canadian firms.
Additionally, Carline et al. (2009) focus on 81 domestic deals in the UK
and show a significant negative effect of board size on the post-merger
operating performance of acquirers. Finally, Redor (2016) reviews 51
studies investigating the value implications of board attributes in the
context of M&A and find that smaller boards help management make
better acquisition decisions; however, the author does not conclude on
the relationship between acquirer performance and board size, sug­
gesting that the relationship could be firm specific.
2.3. CEO duality and M&A
Previous studies employed agency and stewardship theories to
examine how CEO duality affects shareholder wealth. Specifically,
agency theory suggests that duality promotes CEO entrenchment by
reducing board-monitoring effectiveness (Finkelstein & D’aveni, 1994).
This illustrates that entrenched CEOs are likely to pursue their own in­
terests, instead of maximizing shareholders’ wealth (Elyasiani & Zhang,
2015). In contrast, stewardship theory argues that the combination of
CEO and chairman roles enhances both the response to external events
and the clear direction of the firm. Thus, CEO duality optimizes the
I. Tampakoudis et al.
Table 1
Sample construction.
Steps
All M&A announcements from Thomson ONE database that satisfy
the following criteria:
- Acquirer is a US bank (SIC code equals to 602, 603 or 6712)
- Acquirer is a public firm listed on NASDAQ, NYSE, or AMEX
- Deal announcement date between 01.01.2012 and 31.12.2018
- Deal is completed before 31.12.2018
- Deal value > $1mil & relative size <1%.
Total
Exclusion of leveraged buyouts, buybacks, exchange offers,
recapitalizations, going-private deals, privatizations, spin-offs, self-
tenders, and reverse takeovers
Exclusion of clustered acquisitions
Deals without available stock market data on Thomson Reuters
Total observations included in the analysis
This table reports the steps for the sample selection procedure.
capabilities and experience of the CEO for better decision-making, re­
duces information transfer costs, and improves the implementation of
strategic decisions (Pham et al., 2015). In the context of M&A, Defrancq
et al. (2020) find that CEO duality is not significantly associated with
acquirer excess returns. Grinstein and Hribar (2004) show that CEOs
who have more power to influence board decisions receive significantly
larger M&A bonuses, engage in larger deals, and create less value for
shareholders. Similarly, Masulis et al. (2007) and Goranova et al. (2010)
find that CEO duality is negatively related to acquirer returns. In
contrast, Pham et al. (2015) demonstrate that acquirers with CEO
duality achieve higher abnormal returns and better post-merger per­
formance. Finally, Redor (2016) finds that CEO duality is beneficial to
target shareholders, but not for bidder shareholders.
3. Data and empirical method
3.1. Merger sample
We extract the M&A dataset from the Thomson ONE database. The
initial sample complies with the following criteria: First, the acquirer is a
US commercial bank or saving institution with three-digit primary
Standard Industrial Classification (SIC) codes equal to 602 and 603,
respectively, or a bank holding company with four-digit primary SIC
codes equal to 6712 (Leledakis & Pyrgiotakis, 2019). Second, the
acquirer is a public firm listed on NASDAQ, NYSE, or AMEX. Third, the
announcement date is between January 1, 2012, and December 31,
2018. Fourth, the deal is completed before the end of the sample period.
Fifth, to avoid the effects of very small transactions (similar to Nguyen &
Phan, 2017) the deal value needs to be at least $1 million and the deal
ratio, measured as the ratio of the deal value to the acquirer market
capitalization, more than 1%. Following these criteria, we end up with
an initial sample of 764 merger deals (see Table 1). Following relevant
literature (i.e., Golubov et al., 2012), we further exclude leveraged
buyouts, buybacks, exchange offers, recapitalizations, going-private
deals, privatizations, spin-offs, self-tenders, and reverse takeovers
from the sample. Overlapping deals are also excluded; that is, clustered
mergers, where an acquirer announced two or more deals within 20 days
(Fuller et al., 2002). Finally, the acquirer must have available stock price
data 270 days before and 20 days after the announcement date on
Thomson Reuters Datastream and have its financial statement infor­
mation at the year end before the announcement available on Thomson
Reuters Worldscope.
Due to limited data availability of CG data in commercial governance
databases, such as RiskMetrics, BoardEx or ExecuComp, detailed infor­
mation on board size for all acquiring banks was hand-collected from the
annual reports on Form 10-K sourced from the website of the US Secu­
rities and Exchange Commission. This process allowed us to examine the
effects of a major governance mechanism on all M&A deals during the
European Management Journal 40 (2022) 883–894
2012–2018 period. The final sample of M&A analyzed in this paper
comprises 508 deals. We summarize the steps that lead to the final
Observations sample in Table 1.
3.2. Methodology
23,309
15,596 3.2.1. Measurement of abnormal returns
1763 We employ the standard event study methodology (Brown & Warner,
1013
764
1985) to estimate the announcement period excess returns to acquirers.
764 We calculate CARs using the four-factor model (Carhart, 1997), as
652 shown in Eq. (1):
( )
̂ it − Rf = ai + βМΚΤ RMKT − Rf + βSMB SMB + βHML HML + βМΟМ MOM
R
599
508
+ εit ,
508 (1)
where R ̂ it is the expected return of firm i at day t ; Rf is the risk-free
return; αi is the model’s intercept; and βMKT, βSMB, βHML, and βMOM are
the coefficients of the factors. RMKT is the return on the market portfolio,
SMB is the size factor, HML is a value factor, MOM is a momentum
factor, and εit is the error term.
As a robustness check, the expected returns of acquirers are also
estimated using the market model, as shown in Eq. (2).
̂ it = ai + βi Rm + εit
R (2)
where R ̂ it is the expected return of firm i at day t, αi and βi are the
model’s intercept and slope, respectively, Rm is the return of the market
portfolio, and εit is the error term as in Eq. (1). We use two proxies for the
market portfolio, namely the Datastream US banks Index (BANKSUS)
and the S&P 500.
The estimation of the coefficients in both models is carried out using
the ordinary least squares (OLS) method for a year of daily trading data
(250-day period), starting 21 days before the announcement day. The
estimated coefficients are replaced in each model (Eqs. (1) and (2)) to
calculate the expected returns for each firm. The abnormal returns are
calculated as shown in Eq. (3).
ARit = Rit − ̂ it
R (3)
where ARit is the abnormal return of firm i on day t, Rit is the realized
return of firm i on day t, and R
̂ it is the expected return of firm i on day t
calculated from Eq. (1) or 2.
The CARs are the sum of the daily abnormal returns over the selected
event window (t1 , t2 ) surrounding the announcement day of the M&A
bid (day 0), as shown in Eq. (4).
∑
t2
CARi(t1 ,t2 ) = ARit (4)
t=t1
We calculate CARs over various event windows to capture the value
effects in different periods relative to the merger announcement day.
Based on prior literature, we apply two pre-announcement event win­
dows (− 20,0) and (− 5,0), four-event windows centered on the
announcement day (− 20,20), (− 5,5), (− 3,3), and (− 1,1), and two post-
announcement event windows (0,20) and (0,5).
The statistical significance of the mean CARs is assessed with the
standardized cross-section test of Boehmer et al. (1991). Furthermore, to
account for the non-normal distribution of the security returns, we test
the statistical significance of the median values by using the rank test of
Corrado and Zivney (1992).1
1
We also apply other parametric and non-parametric tests (i.e., Patell test
and Sign test). The statistical inferences of our results remain unchanged.
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I. Tampakoudis et al. European Management Journal 40 (2022) 883–894

Table 2
Summary statistics.
Unit Definition N Mean Q1 Median Q3 Std.
Dev.

Panel A. Board Characteristics

Board Size N The number of directors on the board 448 11.478 10 11 13 2.794
Banks with at least 1/0 Dummy variable that is assigned a value of 1 if the board consists of at 448 0.867 1 1 1 0.341
nine directors least nine directors and 0 otherwise
CEO Duality 1/0 Dummy variable that is assigned a value of 1 if the titles of CEO and 439 0.301 0 0 1 0.459
chairman are vested in the same individual and 0 otherwise
Panel B. Firm-level Characteristics
Age Natural Natural logarithm of the days between the acquisition announcement 448 8.536 8.446 8.807 9.086 0.968
Logarithm date and the first date of the company’s first record in Datastream
Return on Equity % Acquirers’ return on equity ratio 448 8.768 6.695 8.425 10.268 4.504
Total Loans to Total Ratio Acquirers’ ratio of total loans to total assets 402 66.562 61.323 68.650 75.005 12.421
Assets
Total Debt to Ratio Acquirers’ ratio of total debt to common equity 448 85.457 41.433 72.880 111.945 64.100
Common Equity
Panel C. Deal-related Variables
Deal Value Natural Natural logarithm of the deal value 448 4.302 3.382 4.175 5.158 1.365
Logarithm
Relative Deal Size % Ratio of deal value to acquirers’ market capitalization twenty-one days 448 0.229 0.054 0.125 0.279 0.315
before the announcement date
Geographic Focus 1/0 Dummy variable that is assigned a value of 1 for intrastate acquisitions 448 0.556 0 1 1 0.497
and 0 for interstate ones
Activity Focus 1/0 Dummy variable that is assigned a value of 1 for focused deals and 0 for 448 0.859 1 1 1 0.348
diversified ones
Listed Target 1/0 Dummy variable that is assigned a value of 1 if the target is listed and 448 0.263 0 0 1 0.441
0 otherwise
Cash Deals 1/0 Dummy variable that is assigned a value of 1 for cash-only deals and 448 0.210 0 0 0 0.408
0 otherwise
Panel D. Financial & Government Environment
Financial % Ratio of stock market capitalization to GDP at year-end preceding the 448 133.558 128.708 141.286 146.209 16.201
Development deal announcement
Governance Index Arithmetic mean of all dimensions of governance included at the 448 1.249 1.235 1.246 1.260 0.015
Worldwide Governance Indicator: voice and accountability; political
stability and absence of violence; government effectiveness; regulatory
quality; rule of law; control of corruption

This table reports the descriptive statistics at firm level. Hence, firms with multiple deals within one year are considered once. All firm-level characteristics are
measured at the end of the prior fiscal year.

3.2.2. Cross-sectional analysis

∑
m
To further examine the effect of board size and CEO duality on CARi(t1 ,t2 ) = a + β1i Board Size + β2j Xij + εi i = 1…N (5)
announcement period abnormal returns of the US acquiring banks, we j=1

control for several factors related to bank and deal-specific features as

well as external environment characteristics that are known to affect where the dependent variable, CARi(t1 ,t2 ) , is the announcement period’s
acquirers’ returns. We do so by estimating Eq. (5) as follows: CAR of the acquiring bank from deal i for the period (t1 , t2 ) as estimated
in Eq. (4). Board Size is the acquirer’s total number of directors, Xij is a

Table 3
Correlation matrix.
Board CEO Age Return Total Total Debt to Deal Relative Geographic Activity Listed Cash
Size Duality on Equity Loans to Common Value Deal Size Focus Focus Target Deals
Total Equity
Assets

Board Size 1
CEO Duality 0.035 1
Age 0.042 0.074c 1
Return on − 0.032 0.079c 0.091b 1
Equity
Total Loans to 0.102b − 0.111b − 0.136a − 0.078c 1
Total Assets
a a
Total Debt to − 0.032 0.002 0.130 0.118 − 0.186a 1
Common
Equity
Deal Value 0.310a 0.154a 0.181a 0.044 − 0.073 0.074c 1
Relative Deal 0.021 0.007 − 0.143a − 0.053 0.033 − 0.013 0.407a 1
Size
Geographic − 0.087b − 0.062 − 0.066 − 0.046 0.053 − 0.051 − 0.129a 0.023 1
Focus
c c b b
Activity Focus − 0.045 − 0.077 0.015 0.077 0.065 − 0.110 − 0.094 0.017 0.033 1
Listed Target 0.136a − 0.027 0.067 0.003 0.015 0.034 0.410a 0.280a − 0.082c 0.095b 1
Cash Deals − 0.071 0.040 − 0.088b − 0.025 − 0.041 − 0.032 − 0.312a − 0.075c − 0.030 − 0.088b − 0.201a 1

This table reports the results for the pairwise Pearson correlation. The superscripts a, b and c denote significance at 1%, 5% and 10% levels, respectively.

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Table 4 equity. We also control for the age of the acquirer (Moeller et al., 2007).
VIF and Tolerance level. Based on prior merger literature we control for deal-specific factors.
Collinearity Statistics Thus, we control for the deal value (Barbopoulos & Wilson, 2016) and
the relative size of the deal (Alexandridis et al., 2017). Furthermore, we
Variable VIF Tolerance
include a set of dummy variables to control for intrastate deals (Gupta &
Age 1.13 0.88 Misra, 2007); focused deals (Hankir et al., 2011); listed targets (Lele­
Return on Equity 1.05 0.95
Total Loans to Total Assets 1.10 0.91
dakis et al., 2017); and the method of payment (Hagendorff et al., 2008).
Total Debt to Common Equity 1.09 0.92 Finally, we control for financial development (Ellis et al., 2011) and for
Deal Value 1.84 0.54 governance at national level using the Worldwide Governance In­
Relative Deal Size 1.35 0.74 dicators (WGI) published by the World Bank (Beltratti & Paladino,
Geographic Focus 1.05 0.95
2013). Table 2 presents the summary statistics of all variables employed.
Activity Focus 1.07 0.94
Listed Target 1.29 0.78
Cash Deals 1.18 0.85 3.2.3. Addressing multicollinearity
Board Size 1.14 0.88 Before proceeding to the multivariate analysis, we quantify the
CEO Duality 1.06 0.95 severity of multicollinearity testing through a correlation matrix and
Mean VIF 1.19 additionally using the variance inflation factors (VIFs) of all explanatory
This table reports the collinearity statistics. variables. Table 3 reports the pairwise Pearson’s correlation coefficients
for all variables, suggesting that multicollinearity is not an issue in this
study since the pairwise correlations among the explanatory variables
vector that includes a set of explanatory variables, and εi is the error
are generally low (less than 0.41).
term.
Further, the absence of multicollinearity is confirmed by the VIF
We follow extant literature on bank mergers and control for bank-
results and tolerance values (Table 4). The VIF score of all variables
specific characteristics that influence the excess returns of acquirers.
varies at very low levels; specifically, the minimum and maximum
Thus, we include three variables to control for bank profitability, asset
values are 1.05–1.84, respectively, with an average value of 1.19 (lower
quality, and leverage (Beltratti & Paladino, 2013; Hagendorff et al.,
than the conventional threshold of 10). In addition, no variable’s
2008; Hankir et al., 2011). Profitability is measured by the return on
tolerance is less than the rule of thumb range of 0.40. Once again, we can
equity ratio, asset quality is measured by the ratio of total loans to total
argue that multicollinearity is not a serious problem in our analysis.
assets, and leverage is measured by the ratio of total debt to common

Table 5
The effect of the size of board and CEO duality on acquiring banks’ returns.
(1) (2) (3) (4) (5) (6)

Age − 0.103b − 0.094b − 0.098b − 0.090c − 0.104b − 0.095b

(-2.25) (-2.09) (-2.12) (-1.95) (-2.29) (-2.11)
Return on Equity 0.140c 0.135c 0.141c 0.136c 0.133c 0.129c
(1.91) (1.87) (1.93) (1.89) (1.80) (1.79)
Total Loans to Total Assets − 0.045 − 0.043 − 0.050 − 0.047 − 0.043 − 0.044
(-0.54) (-0.53) (-0.61) (-0.58) (-0.52) (-0.54)
Total Debt to Common Equity − 0.051 − 0.043 − 0.054 − 0.044 − 0.042 − 0.036
(-0.97) (-0.81) (-1.02) (-0.82) (-0.79) (-0.66)
Deal Value 0.026 0.002 0.015 − 0.009 0.031 0.004
(0.36) (0.03) (0.20) (-0.12) (0.42) (0.05)
Relative Deal Size 0.025 0.040 0.031 0.047 0.028 0.046
(0.46) (0.75) (0.58) (0.88) (0.51) (0.86)
Geographic Focus 0.035 0.045 0.032 0.044 0.031 0.040
(0.75) (0.98) (0.69) (0.95) (0.66) (0.87)
Activity Focus − 0.012 − 0.006 − 0.006 − 0.001 − 0.008 − 0.003
(-0.26) (-0.13) (-0.14) (-0.02) (-0.19) (-0.07)
Listed Target − 0.279a − 0.279a − 0.275a − 0.276a − 0.281a − 0.280a
(-4.76) (-4.77) (-4.73) (-4.75) (-4.81) (-4.79)
Cash Deals − 0.016 − 0.022 − 0.016 − 0.023 − 0.015 − 0.021
(-0.30) (-0.41) (-0.30) (-0.43) (-0.27) (-0.38)
Stock market capitalization % GDP − 0.062 − 0.028
(-0.96) (-0.44)
Domestic credit provided by the financial sector % GDP − 0.012 0.019
(-0.20) (0.32)
Governance Index − 0.023 0.012 0.007 0.038
(-0.43) (0.22) (0.12) (0.74)
Board Size − 0.098b − 0.155a − 0.097b − 0.155a − 0.097b − 0.149a
(-2.02) (-2.80) (-2.01) (-2.80) (-1.98) (-2.67)
CEO Duality − 0.967c − 0.995b − 0.924c
(-1.96) (-2.02) (-1.88)
CEO Duality × Board Size 1.028b 1.056b 0.981b
(2.11) (2.17) (2.01)

Year Dummies No No No No Yes Yes

N 458 451 458 451 458 451
F-Stat 4.85a 4.62a 4.67a 4.54a 4.00a 3.90a
R2 0.1297 0.1432 0.1277 0.1430 0.1449 0.1575

This table reports the results of the cross-sectional OLS regression analysis with robust standard errors for announcement period (3-days) excess returns of acquirers
estimated using the four-factor model. Standardized betas are reported and t-statistics are presented in parentheses. The Huber-White robust standard errors are used to
calculate t-statistics in all models. The superscripts a, b and c denote significance at 1%, 5% and 10% levels, respectively.

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Table 6 of board size highlights the inefficiencies and coordination problems of

The effect of board size with at least nine directors, squared board size and CEO large boards and is in line with agency theory.
duality on acquiring banks’ returns. The estimated coefficients of CEO duality are negative and statisti­
(1) (2) (3) (4) (5) (6) cally significant. However, the interaction between CEO duality and
Boards with − 0.113b − 0.143b
board size has a positive and statistically significant impact on share­
at least (-2.18) (-2.31) holder wealth. This finding implies that, when a bank separates the CEO
nine and chairman roles, the functioning of a large board creates shareholder
directors value in the market for corporate control. This is in line with steward­
Boards with − 0.063
ship theory, implying that the combination of the two roles can mitigate
at least ten (-1.27)
directors the coordination costs of large boards and improve their decision-
Boards with − 0.060 making capabilities for complex strategic tasks such as M&A. Consid­
at least (-1.27) ering the effect of CEO duality (column 6), the results suggest that a one
eleven standard deviation increase in board size is generally associated with a
directors
Boards with − 0.046
decrease in acquirer CARs (about 0.49%); however, for acquirers with
at least (-1.03) CEO duality there is an increase in CARs that equals 0.65%.
twelve To provide precise quantification of the effect of board size on
directors acquirer returns, we introduce a dummy variable that was assigned a
CEO Duality − 0.105 0.050
value of 1 if the board consisted of at least nine directors at the year-end
(-0.67) (1.09)
CEO Duality 0.168 preceding the deal announcement and 0 otherwise. With this, we intend
× Boards (1.02) to obtain comparable results for banks with relatively larger boards and
with to determine a threshold of the number of directors, after which the size
at least of the board is associated with lower shareholder value in the context of
nine
M&A. To enhance the validity of the selected threshold, we introduce
directors
Board Size − 1.148c three dummy variables for other thresholds, namely ten, eleven and
(-1.74) twelve directors. We also introduce in our analysis the squared term of
Board Size × 1.060 board size to examine whether the relationship between board size and
Board Size (1.63)
abnormal returns is non-linear. Table 6 reports the results concerning
Firm-level Yes the relationship between the dummy variable(s), the squared term, and
controls the selected control variables, with acquirer excess returns. The results
Deal-related Yes
controls
are similar to those in Table 5, showing a negative effect of boards with at
Year Yes least nine directors on the wealth effects of acquiring banks. This is
Dummies consistent with Lipton and Lorsch (1992) and Jensen (1993), who argue
N 458 451 451 458 458 458 that the most effective board size is around seven or eight. We also find
F-Stat 3.91a 3.84a 3.73a 3.81a 3.93a 3.84a
no evidence for a non-linear relationship between board size and
R2 0.1487 0.1557 0.1547 0.1404 0.1399 0.1386
abnormal returns, and no statistical significance for the estimated co­
This table reports the results of the cross-sectional OLS regression analysis with efficients of the additional dummy variables. Thus, based on the results
robust standard errors for announcement period (3-days) excess returns of of the above two tables, we concluded that there is a significant rela­
acquirers estimated using the four-factor model. All specifications include firm- tionship between board size and acquirer gains for the examined period.
level controls and deal-related controls as in Table 5. Standardized betas are
reported and t-statistics are presented in parentheses. The Huber-White robust
standard errors are used to calculate t-statistics in all models. The superscripts a,
4.2. Event study results concerning the number of board directors
b and c denote significance at 1%, 5% and 10% levels, respectively.
Table 7 reports the CARs concerning the number of board directors
across multiple event windows upon the merger announcement. The
4. Results
abnormal returns for acquirers are positive and statistically significant in
most event windows with both estimation models, indicating that M&A
4.1. Cross-sectional analysis of acquirers’ gains
are value-enhancing strategic decisions for the US banks (Panels A & B).
Nevertheless, the abnormal returns for banks with less than nine di­
Table 5 reports the results of various specifications of the cross-
rectors are higher compared to banks with more board members, while
sectional regression model as described in Eq. (5). All model specifica­
the mean differences between the two groups are statistically significant
tions examine the effect of board size and CEO duality on the
in several event windows as well (Panel C). In summary, the results of
announcement of abnormal returns of acquirers along with several
the univariate analysis confirm that a relatively small board (less than
control variables that are known to affect acquirers’ returns. To enhance
nine directors) is significantly more likely to create shareholder value for
the robustness of the results, we winsorized at the 1% and 99% levels to
acquiring banks.
reduce the effect of possibly spurious outliers and quantify the severity
of multicollinearity using the VIFs.
4.3. The effect of bank size on acquirers’ gains
The first four models use two country-specific control variables,
namely stock market capitalization % GDP (models 1 & 2) or Domestic
Prior empirical evidence suggests that large, complex firms and those
credit provided by the financial sector % GDP (models 3 & 4) and gover­
that rely on more external financing, have greater need for advice and
nance index, while models 5 & 6 include firm-related and deal-related
specialized skills and knowledge, and, thus, it is possible to have larger
variables only. The estimated coefficients of board size are in all
boards (De Villiers et al., 2011). Considering that banks have opaque
models negative and statistically significant, suggesting negative value
and complex business activities, while they also rely extensively on debt
implications of the size of the board for acquiring banks. The economic
financing, we further examine the interaction of board size with the
interpretation of the impact of board size on acquirer CARs (column 5)
bank size. Following relevant studies (i.e., DeYoung et al., 2018; Lele­
suggests that, assuming all other independent variables are fixed at their
dakis & Pyrgiotakis, 2019) and the Dodd-Frank Act, we adopt the
average levels, a one standard deviation increase in board size is asso­
threshold of $50 billion assets and introduce a dummy variable assigned
ciated with a − 0.32% decrease in the acquirer CARs. The negative effect
a value of 1 for large banks (>$50 billion assets) and 0 otherwise.

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 I. Tampakoudis et al.
Table 7
Event study results.
Panel A: Boards with at least nine directors (N = 447) Panel B: Boards with less than nine directors (N = 61) Panel C: Test for differences

Mean Median Std. Dev. % Pos. BMP Corrado Mean Median Std. Dev. % Pos. BMP Corrado Mean Median t-test MWU

Four-Factor Model
Pre-announcement
(− 20 … 0) 0.13 − 0.14 5.87 49 − 0.088 0.181 0.16 − 0.22 6.21 49 0.401 0.393 − 0.04 0.08 − 0.046 − 0.152
(− 5 … 0) 0.11 − 0.03 3.88 49 − 0.181 0.903 0.12 − 0.16 3.59 48 − 0.305 − 0.451 − 0.01 0.13 − 0.023 − 0.201
Announcement
(− 20 … 20) 0.88b 0.49c 8.40 53 1.985 1.853 1.68b 2.99 8.11 61 2.132 1.411 − 0.80 − 2.49 − 0.703 − 0.910
(− 5 … 5) 1.01a 0.59a 5.33 57 3.389 4.359 1.80a 1.31b 6.01 59 2.749 2.390 − 0.79 − 0.72 − 1.064 − 0.972
(− 3 … 3) 0.87a 0.67a 4.68 57 3.220 5.058 1.91a 0.78b 5.15 61 2.932 2.518 − 1.04 − 0.11 − 1.612 − 0.620
(− 1 … 1) 0.26 0.30a 3.95 55 0.794 3.130 1.22b 0.75b 3.86 64 2.572 2.003 − 0.96c − 0.45 − 1.779 − 1.479
Post-announcement
(0 … 20) 0.64c 0.43b 6.79 53 1.853 2.312 1.91a 1.47c 6.83 61 2.870 1.759 − 1.27 − 1.04 − 1.371 − 1.419
890

(0 … 5) 0.80a 0.52a 4.87 56 2.856 4.819 2.08a 1.29a 5.85 67 3.739 4.025 − 1.28c − 0.77c − 1.877 − 1.937

Market Model
Pre-announcement
(− 20 … 0) 0.00 − 0.68 5.88 46 − 0.719 − 0.158 − 0.03 − 0.28 6.04 48 0.362 0.417 0.03 − 0.40 0.042 − 0.230
(− 5 … 0) − 0.05 − 0.29 3.81 46 − 1.309 − 0.261 0.25 − 0.24 3.45 49 0.240 0.197 − 0.30 − 0.05 − 0.589 − 0.482
Announcement
(− 20 … 20) 0.47 − 0.07 8.32 49 0.755 0.959 1.28c 2.03 8.53 56 1.787 1.097 − 0.81 − 2.10 − 0.710 − 0.781
(− 5 … 5) 0.77b 0.20a 5.33 54 2.131 3.162 2.03a 2.29a 5.75 61 3.319 2.761 − 1.26c − 2.10c − 1.718 − 1.883
(− 3 … 3) 0.69b 0.65a 4.63 57 2.020 3.644 1.99a 0.62b 4.95 57 3.325 2.531 − 1.30b 0.03 − 2.039 − 1.060
(− 1 … 1) 0.22 0.30a 3.89 55 0.252 2.619 1.17a 0.81c 3.83 62 2.786 1.896 − 0.95c − 0.51 − 1.789 − 1.612
Post-announcement
(0 … 20) 0.30 − 0.10 6.52 49 0.542 1.186 1.75a 1.34 6.55 62 2.724 1.385 − 1.45 − 1.44 − 1.624 − 1.641
(0 … 5) 0.65b 0.46a 4.84 55 1.983 3.957 2.21a 1.37a 5.56 66 4.110 4.046 − 1.56b − 0.91b − 2.324 − 2.214

European Management Journal 40 (2022) 883–894

This table reports the cumulative abnormal returns (CARs) upon M&A announcements during the period 2012–2018. Panels A and B present the results for banks with at least nine directors and for banks with less than
nine directors, respectively. Panel C reports the mean and median differences of CARs between the two subgroups. The superscripts a, b and c denote significance at 1%, 5% and 10% levels, respectively.
I. Tampakoudis et al. European Management Journal 40 (2022) 883–894

Table 8 5. Robustness analysis

The effect of bank size on acquiring banks’ returns.
(1) (2) (3) 5.1. Cross-sectional analysis with different estimation models and
c a a alternative event windows
Board Size − 0.085 − 0.167 − 0.167
(-1.71) (-3.00) (-2.99)
CEO Duality 0.068 − 1.318a − 1.007c The results of the multivariate analysis were based on CARs esti­
(1.46) (-2.61) (-1.94) mated on a 3-day announcement period (− 1,1) using the four-factor
CEO Duality × Board Size 1.404a 1.085b model. To enhance the robustness of our results, we apply alternative
(2.78) (2.09)
Large Banks − 0.155b − 0.190a − 1.382b
event windows as well as different estimation models. More specifically,
(-2.23) (-2.80) (-2.28) we use three-event windows lasting from 6 to 11 days, and the market
Large Banks × Board Size 1.202b model with two different proxies for the market portfolio, the BANKSUS
(2.05) and the S&P 500. Table 9 reports the results concerning board size and
Firm-level controls Yes CEO duality after different specifications of the regression model. Our
Deal-related controls Yes findings confirm the negative relationship between board size and
Year Dummies Yes excess returns for acquirers, irrespective of the event window and the
N 451
F-Stat 3.76a 4.03a 4.07a
estimation model used. Regarding CEO duality, the estimated co­
R2 0.1669 0.1826 0.1931 efficients exhibit the patterns of the initial specifications; that is, the
coefficient is significantly negative when acquiring banks combine the
This table reports the results of the cross-sectional OLS regression analysis with
CEO and chairman roles, but it becomes significantly positive when CEO
robust standard errors for announcement period (3-days) excess returns of
acquirers estimated using the four-factor model. All specifications include firm-
duality interacts with the size of the board. Similarly, the results for
level controls and deal-related controls as in Table 5. Standardized betas are acquiring banks concerning their size remain unaltered, suggesting
reported and t-statistics are presented in parentheses. The Huber-White robust negative effects for large banks. However, M&A made by large banks
standard errors are used to calculate t-statistics in all models. The superscripts a, with large board sizes are associated with gains to acquirers’
b and c denote significance at 1%, 5% and 10% levels, respectively. shareholders.

Table 8 reports the results regarding the effect of bank size on excess
returns. The estimated coefficients of large banks are negative and sta­
tistically significant, suggesting the inability of large banks to create
shareholder value in the market for corporate control. However, the
interaction between large banks and board size has a positive and sta­
tistically significant effect on acquirer gains. Therefore, large banks with
complex operations can benefit from larger boards, as they are more
likely to include more experienced and knowledgeable directors, which
is consistent with resource-dependence theory (Boone et al., 2007).
Considering the effects of both bank size and CEO duality, the results
(column 3) suggest that, assuming all other independent variables are
fixed to their mean levels, a one standard deviation increase in board
size is associated with − 0.59% decrease in acquirer CARs; however, for
acquirers with CEO duality and for large acquirers, a one standard de­
viation increase in board size increases the acquirer CARs by about
0.60% and 2.78%, respectively.
5.2. Propensity score matching
It is possible that an endogenous relationship exists between board
size and other control variables, which may result in sample self-
selection bias. Following relevant studies (Alexandridis et al., 2017;
Leledakis & Pyrgiotakis, 2019), we addressed such concerns using pro­
pensity score matching (PSM). The PSM method allows us to match
merger deals announced by banks with less than nine board members
(treated group) with deals announced by banks with at least nine board
members (controlled group) with otherwise similar characteristics, and
then compare the abnormal returns between the two groups. The dif­
ference in abnormal returns between the treated and controlled groups
is referred to as the average treatment effect on the treated (ATT). Panel
A of Table 10 presents the logit regression model used to estimate the
propensity scores. Based on the estimated propensity scores, we used the
nearest neighbor matching approach through which merger deals

Table 9
Cross-sectional analysis with alternative event windows and estimation models.
Panel A: Panel B: Panel C:
Four-factor Model Market model (Banksus) Market model (S&P 500)

CARi(− 5,5) CARi(− 3,3) CARi(0,5) CARi(− 5,5) CARi(− 3,3) CARi(0,5) CARi(− 5,5) CARi(− 3,3) CARi(0,5)
Board Size − 0.141b − 0.174a − 0.137b − 0.114c − 0.131b − 0.140b − 0.127b − 0.155b − 0.149a
(-2.41) (-2.82) (-2.52) (-1.90) (-2.12) (-2.54) (-2.12) (-2.53) (-2.67)
CEO Duality − 0.997b − 1.376a − 0.635 − 0.470 − 0.845c − 0.528 − 0.900c − 1.349a − 0.602
(-2.02) (-2.84) (-1.10) (-0.93) (-1.75) (-0.95) (-1.81) (-2.84) (-1.09)
CEO Duality × Board Size 1.025b 1.391a 0.695 0.513 0.855c 0.599 0.933c 1.354a 0.672
(2.09) (2.88) (1.21) (1.03) (1.78) (1.08) (1.88) (2.85) (1.22)
Large Bank − 1.150b − 1.262b − 1.341b − 1.297b − 1.495a − 1.149b − 1.039b − 1.181b − 1.113b
(-2.18) (-2.52) (-2.50) (-2.40) (-2.75) (-2.22) (-2.13) (-2.44) (-2.59)
Large Bank × Board Size 1.022b 1.088b 1.229b 1.179b 1.350a 1.041b 0.922b 1.004b 1.015b
(2.01) (2.25) (2.39) (2.31) (2.62) (2.10) (1.98) (2.16) (2.43)

Firm-level controls Yes Yes Yes

Deal-related controls Yes Yes Yes
Year Dummies Yes Yes Yes
N 451 451 451
F-Stat 3.47a 3.72a 4.22a 4.03a 3.74a 4.62a 3.00a 3.33a 4.16a
R2 0.1580 0.1722 0.1862 0.1653 0.1731 0.1946 0.1404 0.1536 0.1773

This table reports the results of the cross-sectional OLS regression analysis with robust standard errors for various announcement periods excess returns of acquirers
estimated using the four-factor model (Panel А) and the market model using the Banksus (Panel B) and the S&P 500 (Panel C). All specifications include firm-level
controls and deal-related controls as in Table 5. Standardized betas are reported and t-statistics are presented in parentheses. The Huber-White robust standard er­
rors are used to calculate t-statistics in all models. The superscripts a, b and c denote significance at 1%, 5% and 10% levels, respectively.

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I. Tampakoudis et al. European Management Journal 40 (2022) 883–894

Table 10 Table 11
Propensity score matching analysis. Cross-sectional analysis with alternative firm-level control variables.
Panel A: Logit estimation results Board Size = Natural Board Size = 1 if the
logarithm of the total board consists of at
Constant − 0.472
number of directors least nine directors and
(-0.24)
0 otherwise
Age 0.087
(0.47) (1) (2) (3) (4)
Return on Equity − 0.034
Age − 0.068 − 0.064 − 0.070 − 0.065
(-0.93)
(-1.51) (-1.45) (-1.58) (-1.48)
Total Loans to Total Assets − 0.004
Return on Assets 0.153c 0.154b 0.165b 0.160b
(-0.30)
(1.95) (2.02) (2.09) (2.06)
Total Debt to Common Equity 0.002
Invested Assets to Total Assets − 0.117b − 0.110b − 0.102c − 0.104c
(1.03)
(-2.17) (-2.02) (-1.93) (-1.93)
Deal Value − 0.575a
Total Assets to Common Equity − 0.075 − 0.074 − 0.076 − 0.070
(-3.29)
(-1.57) (-1.55) (-1.55) (-1.46)
Relative Deal Size 1.118b
Board Size − 0.114b − 0.167a − 0.111b − 0.142b
(2.00)
(-2.19) (-2.91) (-1.98) (-2.18)
Geographic Focus 0.286
CEO Duality − 0.862 − 0.109
(0.85)
(-1.59) (-0.61)
Activity Focus 0.043
CEO Duality × Board Size 0.903c 0.154
(0.09)
(1.68) (0.85)
Listed Target − 0.217
(-0.47) Deal-related controls Yes Yes
Cash Deals 0.049 Year Dummies Yes Yes
(0.13) N 439 435 439 435
CEO Duality 0.058 F-Stat 4.76 4.53 4.72a 4.38a
(0.16) R2 0.175 0.183 0.175 0.179
N 451
LR Chi2 30.77b This table reports the results of the cross-sectional OLS regression analysis with
Pseudo R2 0.0993 robust standard errors for announcement period (3-days) excess returns of
acquirers estimated using the four-factor model. All specifications include deal-
Panel B: ATTs for 3-day CARs (four-factor model)
related controls as in Table 5. Standardized betas are reported and t-statistics are
Boards with less than nine directors 0.016
Boards with at least nine directors − 0.001 presented in parentheses. The Huber-White robust standard errors are used to
Difference 0.017b calculate t-statistics in all models. The superscripts a, b and c denote significance
at 1%, 5% and 10% levels, respectively.
Panel C: ATTs for 3-day CARs (market model using BANKSUS)
Boards with less than nine directors 0.014
Boards with at least nine directors − 0.001 6. Discussion and conclusions
Difference 0.016b

Panel D: ATTs for 3-day CARs (market model using S&P 500)
Boards with less than nine directors 0.014
Boards with at least nine directors − 0.003
Difference 0.018b
This table reports the outcome of the PSM analysis for bank M&A announced
during the period 2012–2018. Panel A presents the results of a Logit model used
to estimate the propensity scores. Panels B, C and D present the ATT using CARs
estimated with the four-factor model, the market model with BANKSUS and with
S&P 500, respectively. The superscripts a, b and c denote significance at 1%, 5%
and 10% levels, respectively.
announced by banks with less than nine directors are matched with
deals announced by banks with at least nine directors. Panels B, C, and D
of Table 10 report the estimated ATT using the four-factor model, the
market model with BANKSUS, and the market model with S&P 500,
respectively. In all cases, the ATT is statistically significant at the 5%
level after adjusting the standard errors according to Abadie and Imbens
(2006). This effect is consistent with the results of the univariate and
multivariate analyses.
5.3. Other robustness checks
We further investigated the validity of our results by using different
control variables for firm-level characteristics on a full-time basis.
Following related studies (Adams & Mehran, 2012; Leledakis et al.,
2017), we use return on assets as a proxy for profitability, invested assets
to total assets as a proxy for asset quality and total assets to common
equity as a proxy for leverage. Panels A and B of Table 11 present the
results of the board size and the dummy variable, respectively, using the
3-days CARs of acquirers estimated with the four-factor model. The re­
sults confirm the significantly negative effect of board size on acquirer
returns. Once again, our main inferences remain unaltered.
This study seeks to advance the discussion on the effects of board size
on shareholder value in the context of a complex corporate strategy.
M&A provide an interesting setting for the examination of the perfor­
mance implications of a crucial CG mechanism, namely the board, for
the wealth of acquiring bank shareholders. We employ a hand-collected
sample of M&A announced by US banks over the period 2012–2018 to
examine whether the board size is associated with value effects in the
market for corporate control. Our key conclusion is that there is a
negative relationship between the size of the board and the excess
returns of acquiring banks. This basic result proves robust to alternative
model specifications concerning different estimation models and alter­
native event windows. Furthermore, we provide evidence that the
optimal board size lies below nine since the excess returns for banks with
less than nine members are higher than returns of banks with at least
nine directors. This result holds using the PSM analysis to address self-
selection bias. Our findings are consistent with the arguments in favor
of small boards derived from agency theory, citing problems of coordi­
nation and free riders that undermine the effectiveness of large groups.
To further examine the dynamics of the board, we consider its size in
conjunction with CEO duality. We find that large boards are positively
related to acquiring returns when banks combine the CEO and chairman
roles. This finding suggests that CEO duality mitigates the coordination
and communication problems of large boards, while it improves the flow
of information and the quality of decision-making of the board. The
combination of the two roles can improve the decision-making capa­
bilities of the board for complex strategic tasks such as M&A. Firms with
large boards can benefit from an increased pool of directors and create
value through merger deals under a stronger and more unified leader­
ship. The positive value implications of the interaction of board size with
CEO duality highlights the importance of effective cooperation not only
among the board members but also between the board and the CEO.
Hence, we conclude that overcoming coordination of a large board is

892
I. Tampakoudis et al.
more important than the distorting effects of oversized boards and/or
increased personal power. We also examine the size of the board con­
cerning the size of the acquiring banks, suggesting a positive effect of
large boards for banks with total assets greater than $50 billion (i.e.,
large banks according to the Dodd-Frank Act). Large boards are likely to
include more experienced and better-qualified directors who can deal
with complex corporate issues more effectively and, thus, lead to value-
enhancing corporate decisions.
Overall, our research provides useful insights regarding board size
and its value implications in the market for corporate control and is,
therefore, of interest to managers, regulators, and investors. It indicates
that any regulatory rules or guidelines aiming to determine an optimal
board size are unlikely to enhance shareholder value. In line with Redor
(2016) and Coles et al. (2008), our findings challenge the “one-size-­
fits-all” approach to board composition, indicating that the ideal board
size is dependent on a firm’s specific needs. The board’s resource pro­
vision abilities, in terms of monitoring and advisory roles, are affected
by the opportunities, risks, and advising requirements of each firm. The
ideal board size is also determined by another CG mechanism, namely,
the decision of a firm to combine the CEO and chairman roles. This
finding highlights the need for firms to identify an optimal board size
considering the dynamics between board size and CEO duality.
Although the study’s findings are robust, some limitations should be
acknowledged. First, our study focuses on the banking industry due to
the distinctive characteristics of bank governance. However, this choice
limits the generalizability of our results. Future research should inves­
tigate the relationship between board size and wealth gains from merger
deals between firms from other industries. Moreover, our study in­
vestigates the dynamics between two major CG mechanisms; the optimal
board size may depend on other board characteristics such as gender,
age, and ethnic diversity, and the fraction of independent directors.
Another limitation of our study is that it does not control for board M&A
expertise. Considering the complexity of M&A transactions, the board’s
expertise could play a crucial role in the relationship between its size
and shareholder wealth. Finally, our study does not address the endo­
geneity problem related to board size as the data provide no reliable
instruments; hence, future studies should define an appropriate instru­
ment for board size.
Data availability statement
Data available on request.
Financial Support
This research did not receive any specific grant from funding
agencies in the public, commercial, or not-for-profit sectors.
Declaration of competing interest
The authors declare no potential conflicts of interests.
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