This paper investigates the association between board characteristics and shareholders' assessment of their exposure to economic and agency risks as reflected in the volatility of stock returns. Our hypotheses incorporate prior evidence that small and large firms have 'dramatically' different board structures, reflecting the firms' different monitoring and advising needs. We hypothesize and find evidence that only the shareholders of well-established large firms are able to generate positive net benefits, in the form of lower equity risk, from independent boards and wellconnected independent directors with multiple directorships. We also find professional and formal industry degree qualifications on the board are associated with shareholders' risk assessment for some small firms consistent with the focus of small firms on building growth and scale. While we find evidence that formal industry professional affiliations (weak evidence) and MBAs provide benefits for the shareholders of large firms, there is limited evidence that financial expertise on the board systematically influences shareholders' risk assessments for small or large companies. The key conclusion from the evidence in this paper is that a 'one size fits all' approach to governance in relation to the board of directors may not meet the diverse needs of companies at different stages of economic development.Key words: Board of director characteristics; Economic stage of development; Shareholders' assessment of economic and agency risks; Volatility of stock returns.Recent regulatory pronouncements and professional recommendations on board membership, multiple directorships and board members' qualifications are based on the assumption that 'one size fits all', independent of the economic characteristics of a firm. 1 A number of corporate governance scoring systems developed in the academic literature are also based on the latter assumption. 2 The one size fits all governance recommendations and guidelines contrast with findings in the academic literature that board characteristics are a function of the firms' agency risks and economic stage of development. 3 In this paper, we return to these theoretical roots and proceed on the assumption that shareholders choose their board to meet agency risk and 'stage of development' needs of the firm, culminating in a customized board designed to deliver benefits to shareholders. We propose the following approach to investigate the association between variation in board characteristics and the exposure of shareholders to economic and agency risks. 4 First, we argue that for a board to provide benefits to its shareholders, the board must act in ways that either increase the firm's future cash flows, and/or reduce the risk associated with the realization of expected future cash flows. Second, shareholders are exposed to risk because contracting and monitoring is incomplete, leaving the way open for sub-optimal boards, wealth transfers away from shareholders, thereby reducing the cash flow accruing to shareholders (...

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