The Effect of Board Independence on Information Asymmetry

Goh, Beng Wee; Lee, Jimmy; Ng, Jeffrey; Yong, Kevin Ow

doi:10.1080/09638180.2014.990477

Cited by 63 publications

(53 citation statements)

References 58 publications

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“…In particular, stocks of larger and more profitable firms and stocks with larger trading volumes and lower return volatility suffer lower adverse selection problems and are more liquid (e.g. Easley et al, 1996;Stoll, 2000;Goh, Lee, Ng, & Yong, 2016). This is consistent with the widely known argument that larger and more profitable firms, and firms whose stocks are more frequently traded, have richer information environment as a consequence of their higher levels of information production and publicly available information.…”

Section: Regression Modelsupporting

confidence: 81%

Real Earnings Management and Information Asymmetry in the Equity Market

Abad

Cutillas-Gomariz

Sánchez‐Ballesta

et al. 2016

European Accounting Review

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The literature suggests that real earnings management (REM) activities can increase adverse selection-risk in capital markets. Due to their opacity and the difficulties in understanding their implications, REM strategies may increase the level of information asymmetry among investors. This paper examines the association between earnings management through real activities manipulation and information asymmetry in the equity market. To estimate the level of adverse selection risk we use a comprehensive index of information asymmetry measures proposed by the market microstructure literature. For a sample of Spanish listed firms, we find that firms' strategies of increasing earnings through REM are associated with higher information asymmetry in those firms that meet last year's earnings. Our findings are consistent with the hypothesis that earnings management through real activities manipulation garbles the market, enhances private information production, and exacerbates information asymmetry in the stock market.

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Section: Regression Modelsupporting

confidence: 81%

Real Earnings Management and Information Asymmetry in the Equity Market

Abad

Cutillas-Gomariz

Sánchez‐Ballesta

et al. 2016

European Accounting Review

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show abstract

“…Only board members listed as “independent” by RiskMetrics are identified as independent, and all other designations are considered not independent for purposes of this study. This definition is consistent with the application of board independence in prior literature (Armstrong, Core, & Guay, ; Byard et al, ; Cai et al, ; Goh et al, ; Lehn et al, ; Linck et al, ). Armstrong et al () explains that directors may be classified as insiders, outsiders, or affiliates, also referred to as “gray” directors.…”

Section: Methodssupporting

confidence: 87%

“…Several researchers have examined the relationship between the characteristics of members of boards of directors and information asymmetry. In previous studies, proxies for information asymmetry represent information shared externally with the market and analysts, for example, bid‐ask spread (Fehle, ; Goh, Lee, Ng, & Ow Yong, ; Kanagaretnam, Lobo, & Whalen, ; Linck et al, ), analyst following (Goh et al, ; Shiah‐Hou, ), and forecast error (Byard et al, ; Goh et al, ). Linck et al () set a combined proxy with bid‐ask spread, R&D costs and market‐to‐book ratio to determine that higher volatility results in less independent boards.…”

Section: Related Literature and Hypothesesmentioning

confidence: 99%

“…Goh et al () use a more recent sample from 1997 through 2006. They extend controls for board independence to include connections with other boards, and they also find lower information asymmetry with increased outside influence on the board.…”

Section: Related Literature and Hypothesesmentioning

confidence: 99%

“…There is no sure way of measuring information asymmetry, consequently prior studies have used various proxies (Byard, Li, & Weintrop, ; Goh et al, ). In this study, the selected proxies for information asymmetry are sales, general, and administrative expenses (SG&A), bid‐ask spread, and analysts' forecast error.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Does institutional ownership affect information sharing with independent board members?

Smith

Meier

Alam

2019

J Corp Accounting Finance

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Research Question: This is an investigation of board independence to determine whether management shares information with the board, or withholds information to retain autonomy. A key contribution is to examine the interaction of institutional ownership with the main test variables to determine whether institutional governance influences the information environment as board independence is increased. Research Findings: The results show that information asymmetry decreases internally and increases externally as board independence increases, yet institutional ownership appears to moderate or reverse this relationship. The following variables are used to explain why managers of firms are likely to have more information than outsiders: sticky SG&A costs, bid-ask spread, and forecast error. Theoretical/Academic Implications: The desired oversight from independent board members appears to be associated with reduced transparency between the firm and investors. Information sharing is lower for increased board independence when the firm's ownership is less sophisticated. Practitioner/Policy Implications: These findings suggest that requiring increased board independence may reflect reduced transparency for firms with less institutional ownership. Further research should be conducted on the influence of institutional ownership on board member selection, and the relationship between management and board members appointed with institutional support. K E Y W O R D Sagency theory, board independence, corporate governance, information asymmetry, sticky costs

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Board gender diversity and environmental, social, and economic value creation: Does family ownership matter?

2019

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Prior literature on firm value creation for stakeholders has oversimplified and narrowed the concept of value down to “economic returns.” Although economic returns are fundamental to a firm's core stakeholders (i.e., shareholders), other legitimate stakeholders want “value” beyond economic returns. We define stakeholder value as the financial and nonfinancial returns a firm can offer to its legitimate stakeholders, and empirically investigate whether board gender diversity (BGD) improves our multidimensional measure of value. Using Thomson Reuters' ASSET4 data for U.K.‐listed firms available from Eikon for the period 2007–2017, we report a significant positive relationship between BGD and stakeholder value creation. In particular, BGD increases social and environmental value creation in addition to economic returns. Furthermore, our results suggest that even though gender‐diverse boards are associated with stakeholder value creation in family firms, this is only conspicuous for environmental value creation. The findings suggest that although female directors cater to the interests of broader stakeholder groups, family ownership causes them to mainly focus on environmental stakeholders. The study provides important implications for regulators, stakeholders, and academic scholars.

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The Effect of Board Independence on Information Asymmetry

Cited by 63 publications

References 58 publications

Real Earnings Management and Information Asymmetry in the Equity Market

Real Earnings Management and Information Asymmetry in the Equity Market

Does institutional ownership affect information sharing with independent board members?

Board gender diversity and environmental, social, and economic value creation: Does family ownership matter?

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