Do Independent Directors Cause Improvements in Firm Transparency

By Christopher S. Armstrong, John E. Core, W. Guay. 2014

421 citations recorded by the source corpus.

Although recent research documents a positive relation between corporate transparency and the proportion of independent directors, the direction of causality is unclear. We examine a regulatory shock that substantially increased board independence for some firms, and find that information asymmetry, and to some extent management disclosure and financial intermediation, changed at firms affected by this shock. We also examine whether these effects vary as a function of management entrenchment, information processing costs, and required changes to audit committee independence. Our results suggest that firms can alter their corporate transparency to suit the informational demands of a particular board structure.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/0976340edadb6788db8d4257ceeb6d896132f62e

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Citations in the corpus

The Effect of Institutional Ownership on Firm Transparency and Information Production (2015, positive): “The results further complement nascent work such as Balakrishnan et al. (2014) and Armstrong et al. (2014) in using novel settings to help overcome endogeneity problems to make causal inferences regarding the factors influencing the information environment.”
The Role of Bank Monitoring in Borrowers’ Discretionary Disclosure: Evidence from Covenant Violations (2014, neutral): “Prior work suggests that this happens because, unlike banks, independent directors are more effective monitors in transparent information environments (e.g., Linck et al., 2008; Lehn et al., 2008; Armstrong et al., 2013).”
Does increased board independence reduce earnings management? Evidence from recent regulatory reforms (2015, neutral): “To address the potential endogeneity between board independence and information environment (e.g., Linck et al. 2008; Armstrong et al. 2014), we measure the information score in 2000 (i.e., in the pre-regulation period).”
Independent Director Reputation Incentives and Stock Price Informativeness (2017, background): “By contrast, public information is subject to scrutiny by outside parties such as analysts, auditors, regulators and the media (Armstrong, Core and Guay, 2014; Miller, 2006).”
The Monitoring Role of Female Directors Over Accounting Quality (2017, positive): “Consistent with prior evidence (Armstrong et al., 2014; Klein, 2002), we expect that firms with a larger percentage of independent directors will present lower absolute discretionary accruals.”