Board Size and Corporate Risk Taking: Further Evidence from Japan


  • Makoto Nakano,

  • Pascal Nguyen

Address for correspondence: Pascal Nguyen, Finance Discipline Group, University of Technology Sydney, PO Box 123, Broadway NSW 2007, Australia. Tel: +61 2 9514 7718; Fax: +61 2 9514 7722; E-mail:


Manuscript Type


Research Question/Issue

Due to a greater difficulty to achieve compromise, large decision-making groups tend to adopt less extreme decisions. This implies that larger boards are associated with lower corporate risk taking. We test whether a similar effect applies to the case of Japanese firms. The result is expected to be weaker since Japanese boards form relatively homogeneous groups. We further argue that growth opportunities moderate the relation between board size and risk taking.

Research Findings/Results

Our results indicate that firms with larger boards exhibit lower performance volatility as well as lower bankruptcy risk. However, the effect is not as significant as in the US. The low cross-sectional variation in risk taking among Japanese firms is found to play a role. In addition, we show that the effect of board size is less significant when firms have plenty of investment opportunities, but much stronger when firms have fewer growth options.

Theoretical Implications

Considering that risk taking contributes to firm performance, our results offer a rationale as to why larger boards might be associated with lower performance. However, they also suggest that this effect should be less detrimental to firms with significant investment opportunities.

Practical Implications

Firms should adapt their decision processes to their business environment. In particular, they may need to adjust the size of their boards to the characteristics of their investment opportunity sets. Firms with fewer growth options would gain most by operating with smaller boards. By restricting their ability to take risks, firms could undermine their growth potential and performance.