Finding the “Sweet Spot”: Nonlinear effects of board size on firm performance in Vietnam

Abstract

This study investigates the relationship between board size and the financial performance of non-financial firms listed on the Hanoi Stock Exchange (HNX) over the period 2013-2022. To ensure robust estimation, the Feasible Generalised Least Squares (FGLS) method is employed to control for heteroscedasticity and autocorrelation commonly present in panel data. The empirical findings indicate a positive but nonlinear (U-shaped) association between board size and firm performance, as measured by return on assets (ROA) and return on equity (ROE). Specifically, firms with very small boards tend to exhibit weaker performance, whereas performance improves significantly when the board comprises at least four to five members. This result suggests that an adequately sized board can enhance managerial monitoring, enrich expertise diversity, and support more effective strategic decision-making. The study contributes to the corporate governance literature by providing evidence from an emerging market context and offers practical insights for managers and policymakers seeking to design board structures that are better suited to the operational characteristics and governance needs of Vietnamese enterprises.