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Do independent directors cause improvements in firm transparency?

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  • Armstrong, Christopher S.
  • Core, John E.
  • Guay, Wayne R.

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.

Suggested Citation

  • Armstrong, Christopher S. & Core, John E. & Guay, Wayne R., 2014. "Do independent directors cause improvements in firm transparency?," Journal of Financial Economics, Elsevier, vol. 113(3), pages 383-403.
    • Handle: RePEc:eee:jfinec:v:113:y:2014:i:3:p:383-403
    DOI: 10.1016/j.jfineco.2014.05.009
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    More about this item

    Keywords

    Corporate governance; Board of directors; Corporate transparency; Information asymmetry; Board regulations;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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