IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Board structure and price informativeness

  • Ferreira, Daniel
  • Ferreira, Miguel A.
  • Raposo, Clara C.

We develop and test the hypothesis that stock price informativeness affects the structure of corporate boards. We find a negative relation between price informativeness and board independence. This finding is robust to the inclusion of many firm-level controls, including firm fixed effects, and to the choice of the measure of price informativeness. Consistent with the hypothesis that price informativeness and board monitoring are substitutes, this relation is particularly strong for firms more exposed to both external and internal governance mechanisms and for firms in which firm-specific knowledge is relatively unimportant. Our results suggest that firms with more informative stock prices have less demanding board structures.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/B6VBX-517YNBD-1/2/b7b0bb26279ea24aa69ebf18e360cf01
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 99 (2011)
Issue (Month): 3 (March)
Pages: 523-545

as
in new window

Handle: RePEc:eee:jfinec:v:99:y:2011:i:3:p:523-545
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505576

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Boone, Audra L. & Casares Field, Laura & Karpoff, Jonathan M. & Raheja, Charu G., 2007. "The determinants of corporate board size and composition: An empirical analysis," Journal of Financial Economics, Elsevier, vol. 85(1), pages 66-101, July.
  2. Denis Gromb, 2000. "Public Trading and Private Incentives," FMG Discussion Papers dp347, Financial Markets Group.
  3. Antoine Faure-Grimaud, 2004. "Public Trading and Private Incentives," Review of Financial Studies, Society for Financial Studies, vol. 17(4), pages 985-1014.
  4. Renée B. Adams & Daniel Ferreira, 2007. "A Theory of Friendly Boards," Journal of Finance, American Finance Association, vol. 62(1), pages 217-250, 02.
  5. Renée B. Adams & Heitor Almeida & Daniel Ferreira, 2005. "Powerful CEOs and Their Impact on Corporate Performance," Review of Financial Studies, Society for Financial Studies, vol. 18(4), pages 1403-1432.
  6. Jennifer Dlugosz & Rudiger Fahlenbrach & Paul Gompers & Andrew Metrick, 2004. "Large Blocks of Stock: Prevalence, Size, and Measurement," NBER Working Papers 10671, National Bureau of Economic Research, Inc.
  7. Mohanram, Partha & Rajgopal, Shiva, 2009. "Is PIN priced risk?," Journal of Accounting and Economics, Elsevier, vol. 47(3), pages 226-243, June.
  8. Raheja, Charu G., 2005. "Determinants of Board Size and Composition: A Theory of Corporate Boards," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(02), pages 283-306, June.
  9. Holmstrom, Bengt & Tirole, Jean, 1993. "Market Liquidity and Performance Monitoring," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 678-709, August.
  10. Diane K. Denis & John J. McConnell & Alexei V. Ovtchinnikov & Yun Yu, 2003. "S&P 500 Index Additions and Earnings Expectations," Journal of Finance, American Finance Association, vol. 58(5), pages 1821-1840, October.
  11. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-88, June.
  12. Hermalin, Benjamin E & Weisbach, Michael S, 1998. "Endogenously Chosen Boards of Directors and Their Monitoring of the CEO," American Economic Review, American Economic Association, vol. 88(1), pages 96-118, March.
  13. Michael C. Jensen, 2010. "The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 43-58.
  14. Chen, Xia & Harford, Jarrad & Li, Kai, 2007. "Monitoring: Which institutions matter?," Journal of Financial Economics, Elsevier, vol. 86(2), pages 279-305, November.
  15. Paul A. Gompers & Joy L. Ishii & Andrew Metrick, 2001. "Corporate Governance and Equity Prices," NBER Working Papers 8449, National Bureau of Economic Research, Inc.
  16. Coles, Jeffrey L. & Lemmon, Michael L. & Felix Meschke, J., 2012. "Structural models and endogeneity in corporate finance: The link between managerial ownership and corporate performance," Journal of Financial Economics, Elsevier, vol. 103(1), pages 149-168.
  17. K. J. Martijn Cremers & Vinay B. Nair, 2005. "Governance Mechanisms and Equity Prices," Journal of Finance, American Finance Association, vol. 60(6), pages 2859-2894, December.
  18. David Easley & Soeren Hvidkjaer & Maureen O'Hara, 2002. "Is Information Risk a Determinant of Asset Returns?," Journal of Finance, American Finance Association, vol. 57(5), pages 2185-2221, October.
  19. Canice Prendergast, 2002. "The Tenuous Trade-off between Risk and Incentives," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1071-1102, October.
  20. Amihud, Yakov, 2002. "Illiquidity and stock returns: cross-section and time-series effects," Journal of Financial Markets, Elsevier, vol. 5(1), pages 31-56, January.
  21. Warfield, Terry D. & Wild, John J. & Wild, Kenneth L., 1995. "Managerial ownership, accounting choices, and informativeness of earnings," Journal of Accounting and Economics, Elsevier, vol. 20(1), pages 61-91, July.
  22. Easley, David & O'Hara, Maureen & Paperman, Joseph, 1998. "Financial analysts and information-based trade," Journal of Financial Markets, Elsevier, vol. 1(2), pages 175-201, August.
  23. Weisbach, Michael S., 1988. "Outside directors and CEO turnover," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 431-460, January.
  24. Klein, April, 2002. "Audit committee, board of director characteristics, and earnings management," Journal of Accounting and Economics, Elsevier, vol. 33(3), pages 375-400, August.
  25. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-77, December.
  26. Ronald W. Masulis & Cong Wang & Fei Xie, 2007. "Corporate Governance and Acquirer Returns," Journal of Finance, American Finance Association, vol. 62(4), pages 1851-1889, 08.
  27. Vafeas, Nikos, 2000. "Board structure and the informativeness of earnings," Journal of Accounting and Public Policy, Elsevier, vol. 19(2), pages 139-160, June.
  28. Anil Shivdasani & David Yermack, 1999. "CEO Involvement in the Selection of New Board Members: An Empirical Analysis," Journal of Finance, American Finance Association, vol. 54(5), pages 1829-1853, October.
  29. Bushman, Robert & Chen, Qi & Engel, Ellen & Smith, Abbie, 2004. "Financial accounting information, organizational complexity and corporate governance systems," Journal of Accounting and Economics, Elsevier, vol. 37(2), pages 167-201, June.
  30. French, Kenneth R. & Roll, Richard, 1986. "Stock return variances : The arrival of information and the reaction of traders," Journal of Financial Economics, Elsevier, vol. 17(1), pages 5-26, September.
  31. James Dow & Clara C. Raposo, 2005. "CEO Compensation, Change, and Corporate Strategy," Journal of Finance, American Finance Association, vol. 60(6), pages 2701-2727, December.
  32. Alex Edmans, 2009. "Blockholder Trading, Market Efficiency, and Managerial Myopia," Journal of Finance, American Finance Association, vol. 64(6), pages 2481-2513, December.
  33. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
  34. Easley, David & Kiefer, Nicholas M & O'Hara, Maureen, 1997. "One Day in the Life of a Very Common Stock," Review of Financial Studies, Society for Financial Studies, vol. 10(3), pages 805-35.
  35. Brickley, James A. & Lease, Ronald C. & Smith, Clifford Jr., 1988. "Ownership structure and voting on antitakeover amendments," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 267-291, January.
  36. Steven Petra, 2007. "The Effects of Corporate Governance on the Informativeness of Earnings," Economics of Governance, Springer, vol. 8(2), pages 129-152, February.
  37. Art Durnev & Randall Morck & Bernard Yeung, 2004. "Value-Enhancing Capital Budgeting and Firm-specific Stock Return Variation," Journal of Finance, American Finance Association, vol. 59(1), pages 65-105, 02.
  38. Mathias Dewatripont & Patrick Bolton, 2005. "Contract theory," ULB Institutional Repository 2013/9543, ULB -- Universite Libre de Bruxelles.
  39. Borokhovich, Kenneth A. & Parrino, Robert & Trapani, Teresa, 1996. "Outside Directors and CEO Selection," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(03), pages 337-355, September.
  40. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-83, June.
  41. Stuart L. Gillan & Laura T. Starks, 2007. "The Evolution of Shareholder Activism in the United States," Journal of Applied Corporate Finance, Morgan Stanley, vol. 19(1), pages 55-73.
  42. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-28, March.
  43. James Dow & Gary Gorton, 1995. "Stock Market Efficiency and Economic Efficiency: Is There a Connection?," NBER Working Papers 5233, National Bureau of Economic Research, Inc.
  44. Laura Casares Field & Jonathan M. Karpoff, 2002. "Takeover Defenses of IPO Firms," Journal of Finance, American Finance Association, vol. 57(5), pages 1857-1889, October.
  45. Coles, Jeffrey L. & Daniel, Naveen D. & Naveen, Lalitha, 2008. "Boards: Does one size fit all," Journal of Financial Economics, Elsevier, vol. 87(2), pages 329-356, February.
  46. Vidhi Chhaochharia & Yaniv Grinstein, 2007. "Corporate Governance and Firm Value: The Impact of the 2002 Governance Rules," Journal of Finance, American Finance Association, vol. 62(4), pages 1789-1825, 08.
  47. Jin, Li & Myers, Stewart C., 2006. "R2 around the world: New theory and new tests," Journal of Financial Economics, Elsevier, vol. 79(2), pages 257-292, February.
  48. Chan, Kalok & Hameed, Allaudeen, 2006. "Stock price synchronicity and analyst coverage in emerging markets," Journal of Financial Economics, Elsevier, vol. 80(1), pages 115-147, April.
  49. Cotter, James F. & Shivdasani, Anil & Zenner, Marc, 1997. "Do independent directors enhance target shareholder wealth during tender offers?," Journal of Financial Economics, Elsevier, vol. 43(2), pages 195-218, February.
  50. Miguel A. Ferreira & Paul A. Laux, 2007. "Corporate Governance, Idiosyncratic Risk, and Information Flow," Journal of Finance, American Finance Association, vol. 62(2), pages 951-989, 04.
  51. Rajesh K. Aggarwal & Andrew A. Samwick, 1999. "The Other Side of the Trade-off: The Impact of Risk on Executive Compensation," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 65-105, February.
  52. Duarte, Jefferson & Young, Lance, 2009. "Why is PIN priced?," Journal of Financial Economics, Elsevier, vol. 91(2), pages 119-138, February.
  53. Ambrose, Brent W. & Megginson, William L., 1992. "The Role of Asset Structure, Ownership Structure, and Takeover Defenses in Determining Acquisition Likelihood," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(04), pages 575-589, December.
  54. Jay C. Hartzell & Laura T. Starks, 2003. "Institutional Investors and Executive Compensation," Journal of Finance, American Finance Association, vol. 58(6), pages 2351-2374, December.
  55. Vega, Clara, 2006. "Stock price reaction to public and private information," Journal of Financial Economics, Elsevier, vol. 82(1), pages 103-133, October.
  56. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
  57. Brickley, James A. & Coles, Jeffrey L. & Terry, Rory L., 1994. "Outside directors and the adoption of poison pills," Journal of Financial Economics, Elsevier, vol. 35(3), pages 371-390, June.
  58. Andres Almazan & Sanjay Banerji & Adolfo De Motta, 2008. "Attracting Attention: Cheap Managerial Talk and Costly Market Monitoring," Journal of Finance, American Finance Association, vol. 63(3), pages 1399-1436, 06.
  59. Coles, Jeffrey L., 2008. "Disclosure policy: A discussion of Leuz, Triantis and Wang (2008) on "going dark"," Journal of Accounting and Economics, Elsevier, vol. 45(2-3), pages 209-220, August.
  60. Artyom Durnev & Randall Morck & Bernard Yeung & Paul Zarowin, 2003. "Does Greater Firm-Specific Return Variation Mean More or Less Informed Stock Pricing?," Journal of Accounting Research, Wiley Blackwell, vol. 41(5), pages 797-836, December.
  61. Ryan, Harley Jr. & Wiggins, Roy III, 2004. "Who is in whose pocket? Director compensation, board independence, and barriers to effective monitoring," Journal of Financial Economics, Elsevier, vol. 73(3), pages 497-524, September.
  62. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
  63. Denis, David J. & Sarin, Atulya, 1999. "Ownership and board structures in publicly traded corporations," Journal of Financial Economics, Elsevier, vol. 52(2), pages 187-223, May.
  64. Blume, Lawrence & Easley, David & O'Hara, Maureen, 1994. " Market Statistics and Technical Analysis: The Role of Volume," Journal of Finance, American Finance Association, vol. 49(1), pages 153-81, March.
  65. Linck, James S. & Netter, Jeffry M. & Yang, Tina, 2008. "The determinants of board structure," Journal of Financial Economics, Elsevier, vol. 87(2), pages 308-328, February.
  66. Leuz, Christian & Triantis, Alexander & Yue Wang, Tracy, 2008. "Why do firms go dark? Causes and economic consequences of voluntary SEC deregistrations," Journal of Accounting and Economics, Elsevier, vol. 45(2-3), pages 181-208, August.
  67. Vafeas, Nikos, 1999. "Board meeting frequency and firm performance," Journal of Financial Economics, Elsevier, vol. 53(1), pages 113-142, July.
  68. Cheng, Shijun, 2008. "Board size and the variability of corporate performance," Journal of Financial Economics, Elsevier, vol. 87(1), pages 157-176, January.
  69. Core, John & Guay, Wayne, 1999. "The use of equity grants to manage optimal equity incentive levels," Journal of Accounting and Economics, Elsevier, vol. 28(2), pages 151-184, December.
  70. Aslan, Hadiye & Easley, David & Hvidkjaer, Soeren & O'Hara, Maureen, 2011. "The characteristics of informed trading: Implications for asset pricing," Journal of Empirical Finance, Elsevier, vol. 18(5), pages 782-801.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:jfinec:v:99:y:2011:i:3:p:523-545. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.