Determinants of the Size and Structure of Corporate Boards: 1935-2000 Kenneth Lehn a , Sukesh Patro a and Mengxin Zhao b November, 2003 Abstract In both the scholarly literature on boards of directors and the public debate over corporate governance, there is little explicit recognition that the size and structure of boards have evolved endogenously over time. We argue that the size and structure of boards are determined by tradeoffs involving the incremental information that directors bring to boards versus the incremental coordination costs and free rider problems engendered by their additions to boards. Our hypotheses lead to predictions that firm size and growth opportunities are important determinants of the size and structure of boards. Using a unique sample of 81 publicly traded U.S. firms that survived over the period of 1935 through 2000, we find strong support for the hypotheses. Board size is directly related to firm size and inversely related to proxies for growth opportunities, whereas insider representation is inversely related to firm size and directly related to proxies for growth opportunities. The results validate the perspective that board size and structure are endogenously determined in ways consistent with value maximization, which casts doubt on papers that purportedly document a causal relation between board characteristics and firm performance. JEL Classification code: G32, G34 Key words: Board Size, Board Composition, Endogeneity, Firm Size, Growth Opportunities and Tangibility of Assets. Corresponding author: Kenneth Lehn Katz Graduate School of Business University of Pittsburgh Pittsburgh, PA 15260 Phone: 412-648-2034 Fax: 412-624-2875 E-mail: lehn@katz.pitt.edu a Katz Graduate School of Business, University of Pittsburgh, Pittsburgh, PA 15260; b McCallum Graduate School of Business, Bentley College, Waltham, MA 02452