Evidence on board size and information asymmetry: A capital markets perspective

Abstract

We examine the relation of board size with market liquidity and adverse selection costs using a sample of Fortune 200 companies. After controlling for firm specifics, equity characteristics, and ratio of insiders, we find a direct relation between board size and equity market liquidity. Our findings indicate that board size is positively and significantly related to dollar depth but has no impact on bid-ask spreads. Furthermore, using the adverse selection component of the bid-ask spread as a proxy for transparency, we find that larger boards reduce information asymmetries, but the ratio of insiders to total board members has no impact on informational asymmetries

Effects of board characteristics on information asymmetry: Evidence from the alternative investment market

“…This means that the larger the size of the board, the lower the information asymmetry. This is in line with the results of [ 34 , 35 ] and is also consistent with the view that larger boards mostly have more resources to control skills and managerial performance so as to form many effectual committees, assign tasks, and allow for greater argument on corporate issues. This may lead to lower information asymmetry and greater transparency [ 32 , 33 ].…”

“…Larger boards are characterised by having the necessary skills to facilitate greater discussion about corporate matters, assign tasks, and form diverse effective committees [ 32 , 33 ]. In this regard, Flaherty et al [ 34 ] and Cai et al [ 35 ] found that larger boards mitigate asymmetric information as well as decreasing opacity [ 36 ]. The second stream argues that boards with more directors may possess some weaknesses that affect their performance and efficiency, such as social loafing and free riding [ 27 , 37 ].…”

“… ☆ Second, after reviewing extant board characteristics and information asymmetry studies, it is apparent that these papers have focused mostly on particular Attributes of board composition, such as board size [ 34 ]; board independence [ 1 ]; CEO duality [ 84 ]; gender diversity [ 91 , 87 ]; board size and board independence [ 112 ]; board size, board independence, and board financial expertise [ 113 ], and board size; and board independence and CEO duality [ [75] , [114] , [115] ] and their impact on information asymmetry. We contribute to the literature by concentrating on a wider range of board characteristics (board size, board independence, board financial expertise, board busyness, CEO duality, and board gender diversity) and their influence on information asymmetry.…”

Moderating Effects of Governance Quality on the Relationship between Stock Liquidity and Dividend in Emerging Market Countries

“…The effect of good governance in providing greater quality of information as well as a greater number of investors should therefore further enhance the level of information brought on by stock liquidity. Furthermore, the quality of governance and its attributes have been studied and found to influence the level of information asymmetry (Elbadry, Gounopoulos & Skinner 2015;Cormier et al 2010;Flaherty, Li & Small 2007). In short, governance quality has been found in past studies to have a significant effect on the level of information asymmetry, increased the number of investors' participation through greater protection, improved the quality of information delivered as well as greater transparency.…”