Director capital and corporate disclosure quality |
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Authors: | David M. Reeb Wanli Zhao |
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Affiliation: | 1. School of Accounting, Nanjing Audit University, Nanjing, China;2. University of Edinburgh Business School, University of Edinburgh, 29 Buccleuch Place, Edinburgh EH8 9JS, UK;3. IESEG School of Management, 1 Parvis de La Défense - 92044 Paris La Défense Cedex, France;4. Warwick Business School, University of Warwick, Coventry CV4 7AL, UK;5. Management School, University of Liverpool, Liverpool L69 3BX, UK;1. NIDA Business School, National Institute of Development Administration (NIDA), Bangkok, Thailand;2. The Securities and Exchange Commission (SEC) of Thailand, Thailand;3. Pennsylvania State University, Great Valley School of Graduate Professional Studies, Malvern, PA 19355, United States |
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Abstract: | Conventional wisdom regarding board effectiveness emphasizes the role of board composition and incentives in alleviating conflicts of interest. We argue that board capital, however, may be a more important aspect of board efficacy since directors are the highest level agents of shareholders, meet infrequently, and shareholders have limited recourse for poor decision-making. In contrast, shareholders and the SEC can sue/prosecute directors for conflicts of interest or bias. One role of the board involves determining the depth and degree of the firm’s financial disclosures. To test the idea that high capital boards seek to provide greater disclosure quality to investors, we manually collect data on director attributes and apply factor analysis to measure the networking, educational, and experience capital of the board. The results indicate that board capital is positively related to disclosure quality, with differing key attributes for inside and outside directors. These results are robust to 2SLS and difference-in-difference approaches. |
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