The Effect of Board Independence on the Information Environment and Information Asymmetry

• Main Authors: NG, Jeffrey, GOH, Beng Wee, OW YONG, Kevin
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2012
• Subjects: Accounting; Corporate Finance
• Online Access: https://ink.library.smu.edu.sg/soa_research/1006; http://aaahq.org/AM2012/abstract.cfm?submissionID=1916
• Institution: Singapore Management University

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.