Corporate governance, firm strategy disclosure, and executive compensation

We empirically investigate the relation between the quality of corporate governance and the propensity of executives to offer investors guidance on firm strategy. Using a hand-collected data set, we demonstrate that companies with lower managerial entrenchment, i.e. better corporate governance, are less likely to disclose strategic information. This result is contrary to the traditional agency argument, but consistent with investor-management disagreement theory (Thakor 2015, Strategic information disclosure when there is fundamental disagreement. Journal of Financial Intermediation, 24 (2), 131–153). Per disagreement theory, better-governed firms have less incentive to disclose such information. By not sharing information pertaining to their strategies, these firms reduce the probability that investors who disagree with their plans will deny them funding. Our empirical results also suggest that executives who do offer guidance on their firm’s strategy receive higher compensation.