Middle Eastern Finance and Economics ISSN: 1450-2889 Issue 14 (2011) © EuroJournals Publishing, Inc. 2011 http://www.eurojournals.com/MEFE.htm The Effect of Board Size on Firm Performance: Evidence from Turkey Mehmet Sabri Topak Department of Business Administration, Faculty of Economics Istanbul University, 34452, Beyazıt, stanbul, Turkey E-mail: msabri@istanbul.edu.tr Tel: +90-212-440 00 00 (11612); Fax: +90-212-440 01 69 Abstract This paper examines the relationship between the board size and the financial performance of the Turkish firms. As an emerging market Turkey has some unique features such as ownership structure, social culture and legal system. This study employs panel data techniques to measure the relation between board size and firm performance for a sample of 122 Turkish firms for the period of 2004-2009. Unlike the findings of various studies made on the topic this study exhibits that there is no relation between the board size and the firm performance for Turkey. Keywords: Firm performance, board size, corporate governance, JEL Classification Codes: G30, G34 1. Introduction In today’s global business environment characterized by an increased competition the effectiveness of corporate governance in protecting shareholders’ interests has become more vital than ever. Corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment. The term corporate governance basically represents a set of mechanisms by which small investors protect themselves against expropriation by both managers and controlling shareholders (Shleifer and Vishny, 1996; La Porta et al, 1999). A vast amount of corporate governance literature exists on the effectiveness of boards of directors. Corporate boards play a central role in the corporate governance of companies, understanding this relationship is crucial to our understanding of corporate governance (Guest, 2009). The two basic functions of the board of directors are advising and monitoring (Raheja, 2005). The advisory function involves the providing expert advice to the CEO (Fama and Jensen, 1983). Second function of the board of directors is to hire the CEO (Chief Executive Officer) and other top executives and evaluate their performance and to ensure that managers pursue the interest of shareholders (Hermalin and Weisbach, 1998). The executives are replaced incase if their performance is unsatisfactory. Performance, which shows if the resources of the firm are used efficiently to fulfill the goals of the firm (Daft, 1997), is crucial in evaluating the overall success of the firm (Parker, 2000). For performance evaluation firms employ both financial and nonfinancial performance criteria. Financial performance measures are the starting point for most organizations’ performance measures systems (Bloxham, 2002).