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Are all outside directors created equal with respect to firm disclosure policy?

Author

Listed:
  • Luminita Enache

    () (University of Calgary)

  • Antonio Parbonetti

    () (University of Padua)

  • Anup Srivastava

    () (University of Calgary)

Abstract

Empirical evidence on the association between outside directors and firms’ voluntary disclosures is mixed and controversial. We hypothesize that the outside directors do not represent a homogeneous group of people as considered in the literature. Using hand-collected data from a sample of biotechnology firms, we find that the aforesaid association differs based on the directors’ professional backgrounds. Our results are consistent with two ideas. First, an outside director’s influence on firm disclosure policy is shaped by her professional background. Second, firms match outside directors’ professional backgrounds with their disclosure policy. We cannot distinguish between the two explanations. Yet, we make an important contribution to the literature. We show that the impact and the selection prospects of outside directors are not as uniform as previously considered in the literature. Thus, the researchers examining financial disclosures must take into account the background characteristics of all outside directors, not just of those in the audit committee. And investor bodies must consider the background characteristics of candidates in their recommendation for outside-director selection.

Suggested Citation

  • Luminita Enache & Antonio Parbonetti & Anup Srivastava, 2020. "Are all outside directors created equal with respect to firm disclosure policy?," Review of Quantitative Finance and Accounting, Springer, vol. 55(2), pages 541-577, August.
  • Handle: RePEc:kap:rqfnac:v:55:y:2020:i:2:d:10.1007_s11156-019-00852-1
    DOI: 10.1007/s11156-019-00852-1
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    Keywords

    Biotechnology firms; Corporate governance; Voluntary disclosures; Proprietary costs; Outside directors;

    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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