Effects of Firm Complexity on the Adaption of Board Structure: Evidence from U.S. Electric Utilities Following Deregulation

This paper examines the adaptation of board structure in U.S. electric utilities following deregulation, with a new focus on the impact of changes in firm complexity resulting from deregulation. A comparative static approach is used to evaluate changes in the board structure of 92 electric utilities in both pre- and post-deregulation periods. Post-deregulation changes in board size and the number of outside directors are positively related to changes in the complexity of a firm’s operations. These results have an offsetting impact to the overall result of decreased board size after deregulation. Board size is significantly reduced for electric utilities that do not become more complex after deregulation, with fewer outside and inside directors serving on these boards. By contrast, board size does not change for electric utilities that become more complex following deregulation; there are more outsiders but fewer inside directors on these boards after deregulation. We conclude that electric utility boards adapt to deregulation by accommodating for changes in firm complexity in addition to other effects induced by deregulation