Corporate governance and risk-taking of Chinese firms: The role of board size

•Smaller boards are associated with higher executive pay-to-performance sensitivity.•Smaller boards are associated with riskier investment and more earnings management.•Firms with smaller boards are more conservative in using debt financing.•Evidence of negative impact of board size on future risk for Chinese firms

The corporate governance reform in China offers an interesting context for investigating the systematic relationship between board size and firm's risky policy choices. Our results indicate that firms with smaller boards experience larger variability in future firm performance. These firms are also associated with higher executive pay-to-performance sensitivity, tend to pursue riskier investment policies, and engage more frequently in earnings management. However, Chinese firms with smaller-sized boards are found to be more conservative in using debt financing. Overall, our Chinese evidence is consistent with the hypothesis that board size has negative impacts on firm risktaking.