The Effect of Board Independence on the Information Environment and Information Asymmetry
Our paper examines how the independence of a firm’s board affects its information environment in terms of earnings quality, management forecast frequency, analyst coverage, and information asymmetry among investors. Using board connections (defined as the fraction of directors who also sit on at lea...
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| Main Authors: | , , |
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| Format: | text |
| Language: | English |
| Published: |
Institutional Knowledge at Singapore Management University
2012
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| Subjects: | |
| Online Access: | https://ink.library.smu.edu.sg/soa_research/1006 http://aaahq.org/AM2012/abstract.cfm?submissionID=1916 |
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| Institution: | Singapore Management University |
| Language: | English |
| Summary: | Our paper examines how the independence of a firm’s board affects its information environment in terms of earnings quality, management forecast frequency, analyst coverage, and information asymmetry among investors. Using board connections (defined as the fraction of directors who also sit on at least one other firm’s board that has a majority of independent directors) as our instrument of board independence, we show that greater board independence leads to higher earnings quality, greater management forecast frequency, and broader analyst coverage. We also show that these outcomes mediate the effect of board independence in reducing information asymmetry among investors in the equity markets. |
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