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Do independent directors cause improvements in firm transparency?

Authors
Journal
Journal of Financial Economics
0304-405X
Publisher
Elsevier
Identifiers
DOI: 10.1016/j.jfineco.2014.05.009
Keywords
  • Corporate Governance
  • Board Of Directors
  • Corporate Transparency
  • Information Asymmetry
  • Board Regulations

Abstract

Abstract 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.

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