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There has been considerable empirical research which focuses on the effect of board size on a firm’s financial performance. However as Finegold et al. (2007) noted, many CG studies have the size of boards either as part of analysing the insider–outsider ratio or a control variable. The size of boards has predominantly been studied from two dissimilar perspectives (Van den Berghe and Levrau, 2004). To begin with, it has been opined that the number of directors on a board may influence the board

functioning and hence firm financial performance (Van Den Berghe and Carchon, 2002, Hillman and Dalziel, 2003, Nahar Abdullah, 2004, Van den Berghe and Levrau, 2004, Kula, 2005). A key argument in this line of reasoning is rooted in organisation

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theory. The theory opines that if the size of a group or team increases, it becomes very ineffective and difficult to coordinate (Pfeffer, 1972, Pfeffer, 1973). As a result, agency theorists have taken two opposing stands in relation to this reasoning.

Drawing from organisational theory, some agency theorists have argued that smaller boards are more effective and efficient than larger boards in enhancing firm financial performance (Pearce and Zahra, 1992, Lipton and Lorsch, 1992, Jensen, 1993).

Indeed Lipton and Lorsch (1992) argue that while boards organise, plan, control, monitor and direct the firm, board size also has financial cost implications associated with it. Thus, all things being equal, a larger board consumes more financial and non- pecuniary resources of the firm in the form of privileges, bonuses and remuneration than smaller boards. More so, Jensen (1993, p.865) contends that when boards become too large, it is not only challenging and cumbersome to coordinate, it is comparatively very easy for the CEO to dominate and control the operations because directors become ‘free riders’. Thus, it is inferred that there will be cohesiveness and more effective discussions and critical decisions with a smaller board. In fact, Lipton and Lorsch (1992, p.68) contend that smaller boards enable directors to unequivocally express and contribute their thoughts and views within the available limited time. Indeed, the argument is that bigger boards are prone to suffering from higher agency costs and are far less effective to monitor and control management compared to smaller boards.

Contrary to the preceding view, from another angle, some agency theorists and resource dependency theorists have promoted the idea of bigger boards, which are argued to contribute positively to firm financial performance. From a resource point of view, bigger boards are endowed with a greater variety of skills, experience, technical abilities and contacts than smaller boards, which consequently provides a milieu to secure critical resources needed by the firm (Lipton and Lorsch, 1992, Pearce and Zahra, 1992, Erhardt et al., 2003, Hillman and Dalziel, 2003, Kiel and Nicholson, 2003, Kula, 2005). More so, bigger boards are argued to be well positioned to provide access to corporate external environmental resources, which consequently reduces environmental uncertainties and helps in ensuring the safeguarding of critical environmental resources (e.g. finance, raw materials and contracts) (Huse, 2000, Bhagat and Black, 2002, Daily et al., 2003, Erhardt et al.,

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2003, Nahar Abdullah, 2004, Florackis, 2005). Similarly, some agency theorists have contended that bigger corporate boards can monitor and control management. More so, Kiel and Nicholson (2003) opine that boards with a large number of directors with wide-ranging expertise are better placed to scrutinise and monitor managerial

decisions.

While this area has been studied extensively in developed economies, most recently gaining momentum in developing economies, the empirical evidence related to board size and firm performance nexus is mixed (Hillman and Dalziel, 2003, Kiel and Nicholson, 2003, Nahar Abdullah, 2004, Adams and Mehran, 2005, Kyereboah- Coleman and Biekpe, 2006a, Khanchel El Mehdi, 2007). For example, with a sample of 452 large US industrial firms between 1984 and 1991, Yermack (1996) discovered an inverse relationship between the size of boards and firm value. Yermack (1996) study was criticised for using only large US firms, and it was argued that his results were inconsistent when applied to smaller firms. Eisenberg et al. (1998) estimated this construct using data for 1992 to 1994 with a sample of 879 small and medium-size Finnish firms. They also found a negative relationship between board size and firm performance. Similarly, Mak and Kusnadi (2005), using a sample of Singaporean and Malaysian firms, found the same negative results. In same construct, Guest (2009) used a sample of 2,746 UK listed firms covering the period 1981 to 2002 and also reported a negative relationship between the size of the board and firm performance. These studies thus provide empirical evidence that smaller boards may be more prone to effective executive monitoring, candid assessment of management performance and fast, effective and easy decision-making (Lipton and Lorsch, 1992, Pearce and Zahra, 1992, Jensen, 1993).

Contrary to the above studies, some scholars have reported a positive relationship between board size and performance construct. For example, a study by Adams and Mehran (2005) showed a positive relationship between the size of boards and firm performance. Kiel and Nicholson (2003) found similar results in Switzerland. This positive relationship is very visible in the few studies that have been conducted in Africa. For instance, Sanda et al. (2005), using a sample of 93 Nigerian-listed firms for the period 1996–1999, showed a positive relationship between board size and profitability (measured in terms of ROE). Similarly, using Ghanaian firms, Abor

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(2007) showed a statistically significant and positive relationship between board size and firm performance. Recently Ntim et al. (2015b), using 169 South African firms from 2002 to 2011, showed a positive association between board size and firm valuation. In fact Ntim et al. (2015b) suggest that larger boards provide better access to external and internal resources. Following from the preceding arguments and noting that empirical research as discussed is mixed, the null and alternative hypotheses are proposed as follows:

H03: There is a statistically significant positive relationship between board size

and firm financial performance as measured by both ROCE and the Q-ratio.

H13: There is no statistically significant positive relationship between board size

and firm financial performance as measured by both ROCE and the Q-ratio.