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The Relationship between Voluntary Disclosure and Independent Directors in the Presence of a Dominant Shareholder

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  • Lorenzo Patelli
  • Annalisa Prencipe
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    Abstract

    Differently from prior studies that examine the role of stand-alone control systems within the relationship between owners and managers, our study investigates the correlation between two control mechanisms - voluntary disclosure and independent directors - in companies characterized by the presence of a dominant shareholder that is supposed to mitigate the classical agency problem. Based on agency theory, we hypothesize that the two mechanisms tend to coexist, since the presence of either one reduces the costs of introducing the other. Two further effects - the reputation and the domino effect - contribute to determine a positive relationship between the two mechanisms. We carried out the empirical analysis on 175 non-financial Italian listed companies, all controlled by a dominant shareholder. Voluntary disclosure is measured through three alternative disclosure indexes. Independent directors are identified not only according to a formal/legal definition, but also through stricter criteria. The empirical test is based on a multivariate analysis controlling for size, residual ownership diffusion, leverage, profitability and labour pressure. Results support our hypothesis and are robust to alternative criteria to identify dominant shareholders. Our study contributes to a better understanding of the relationship between different control mechanisms in particular agency settings.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/09638180701265820
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal European Accounting Review.

    Volume (Year): 16 (2007)
    Issue (Month): 1 ()
    Pages: 5-33

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    Handle: RePEc:taf:euract:v:16:y:2007:i:1:p:5-33

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    Web page: http://www.tandfonline.com/REAR20

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    Cited by:
    1. Norhani Aripin & Greg Tower & Grantley Taylor, 2011. "Insights on the diversity of financial ratios communication," Asian Review of Accounting, Emerald Group Publishing, vol. 19(1), pages 68-85, May.
    2. Marco Allegrini & Giulio Greco, 2013. "Corporate boards, audit committees and voluntary disclosure: evidence from Italian Listed Companies," Journal of Management and Governance, Springer, vol. 17(1), pages 187-216, February.
    3. Chiraz Ben Ali & Frédéric Teulon, 2014. "CEO Monitoring and board effectiveness - Resolving CEO compensation issue," Working Papers 2014-045, Department of Research, Ipag Business School.
    4. Ruth Hidalgo & Emma García-Meca & Isabel Martínez, 2011. "Corporate Governance and Intellectual Capital Disclosure," Journal of Business Ethics, Springer, vol. 100(3), pages 483-495, May.
    5. Andrea Melis & Silvia Carta & Silvia Gaia, 2012. "Executive remuneration in blockholder-dominated firms. How do Italian firms use stock options?," Journal of Management and Governance, Springer, vol. 16(3), pages 511-541, August.
    6. Roshayani Arshad Author_Email: roshayani@salam.uitm.edu.my & Rohaya Md Nor & Nur Adura Ahmad Noruddin, 2011. "Ownership Structure And Interaction Effects Of Firm Performance On Management Commentary Disclosures," 2nd International Conference on Business and Economic Research (2nd ICBER 2011) Proceeding 2011-332, Conference Master Resources.
    7. Roshayani Arshad & Rohaya Md Nor & Nur Adura Ahmad Noruddin, 2011. "Ownership Structure And Interaction Effects Of Firm Performance On Management Commentary Disclosures," Journal of Global Management, Global Research Agency, vol. 2(2), pages 124-145, July.
    8. André Habisch & Lorenzo Patelli & Matteo Pedrini & Christoph Schwartz, 2011. "Different Talks with Different Folks: A Comparative Survey of Stakeholder Dialog in Germany, Italy, and the U.S," Journal of Business Ethics, Springer, vol. 100(3), pages 381-404, May.
    9. Wan-Hussin, Wan Nordin, 2009. "The impact of family-firm structure and board composition on corporate transparency: Evidence based on segment disclosures in Malaysia," The International Journal of Accounting, Elsevier, vol. 44(4), pages 313-333, December.
    10. Romilda Mazzotta & Stefania Veltri, 2014. "The relationship between corporate governance and the cost of equity capital. Evidence from the Italian stock exchange," Journal of Management and Governance, Springer, vol. 18(2), pages 419-448, May.
    11. Stefanescu Cristina Alexandrina, 2013. "How do board of directors affect corporate governance disclosure? – the case of banking system," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 16(47), pages 127-146, March.
    12. Rihab Guidara & Younes Boujelbene, 2014. "R&D-Based Earnings Management and Accounting Performance Motivation," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 4(2), pages 85-97, April.
    13. Dr. Madan Lal Bhasin, 2012. "Voluntary Corporate Governance Disclosures: Evidence From A Developing Country," Far East Journal of Psychology and Business, Far East Research Centre, vol. 9(2), pages 10-31, November.
    14. Chiraz Ben Ali, 2014. "Corporate Governance, Principal-Principal Agency Conflicts, and Disclosure," Working Papers 2014-125, Department of Research, Ipag Business School.
    15. Marra, Antonio & Mazzola, Pietro & Prencipe, Annalisa, 2011. "Board Monitoring and Earnings Management Pre- and Post-IFRS," The International Journal of Accounting, Elsevier, vol. 46(2), pages 205-230, June.
    16. Loukil, Nadia & Yousfi, Ouidad, 2010. "Firm's information environment and stock liquidity: evidence from Tunisian context," MPRA Paper 28699, University Library of Munich, Germany, revised Feb 2011.

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