Who Cares About Director Independence?

Abstract

In this article we have expanded the analysis of the new dataset we created in Santella, Paone, Drago (2005) which analysed and quantified corporate disclosure on directors formally identified as independent by the forty Italian Blue Chips. We find here a general low level of compliance with independence requirements for both financial and non-financial companies, particularly with regard to the two key independence criteria of not having too many concurring commitments and not having business relationships with the company or an associated company. We also find that financial companies show a lower level of compliance than non-financial ones and are connected with each other and with a few non-financial companies through networks of cross-directorships: two directors (one independent and one executive) who also sit at the same time on another company board. Finally, those non-financial companies that have a relatively fragmented shareholder structure tend to be characterised by higher levels of compliance and disclosure (but not always by lower levels of not compliance) than tightly-controlled non-financial companies, presumably because of sensitivity to a larger pool of small shareholders. Peculiarly, financial companies with fragmented shareholder structure tend to be characterised by low disclosure levels, although such companies are also subject to strong financial supervision.

Board of directors characteristics and performance in family firms and under the crisis

“…3. There are relevant problems and differences in measuring this level of compliance, which can have an impact on the firm performance. In this sense, Santella et al , (2007) and Crespí-Cladera and Pascual-Fuster (2014) suggest measuring the board independence as the number of the independent directors weighted by their level of compliance of being independent, instead of the number of the total independent directors.…”

Financial Interlocks and Earnings Management: Evidence from Italy

“…A possible explanation is that in the non-transparent Italian context, the presence of an audit committee serves only as a lip service to proper governance functions (a more suggestive explanation would be that defunct audit committees serve as a front for managers to extract rents). Given that our governance variables are not significant, results can be explained by a lack of independence, i.e., directors are formally independent but in reality are not because of personal ties with executives (Santella et al 2007), or to their low relevance. This low relevance is a potential explanation because only 34% of the directors are independent, in effect, not enough for a In Model (3) we examine a different benchmark, that of where current year pre-managed earnings is negative.…”

Optimal board independence with gray independent directors

“…Other research focuses on formal requirements of independence to detect gray independent directors. For a sample of Italian firms, Santella et al (2006Santella et al ( , 2007 find that the information disclosed is not sufficient to prove compliance with formal independence requirements. Crespí-Cladera and Pascual-Fuster (2014) check a set of eight formal independence requirements in Spanish listed firms to reveal gray independent directors.…”