The effect of the monitoring function and advisory function on board structure

This paper analyses board size and composition determinants with reference to boards' two principal functions: the control or monitoring function and the advisory function. It also tackles the endogeneity problem which exists in this type of studies. Using a sample composed of 171 publically traded Spanish corporations spanning the period 2004-2008, the results show that, in Spain, board size is sensitive to advisory needs (using firm complexity as a proxy for them), while board composition depends to a greater extent on the need for control, determined by the organization's stock structure. The evidence shows that the presence of independent members on the boards of directors in Spain basically responds the objective of guaranteeing an adequate representation of the ownership structure of the company rather than in response to a specific need for counselling.