Corporate Boards and SEOs: The Effect of Certification and Monitoring
47 Pages Posted: 22 Mar 2008 Last revised: 6 Dec 2015
Date Written: August 24, 2014
In a sample of underwritten seasoned equity offerings (SEOs), issuers with boards dominated by independent directors experience higher abnormal announcement returns than issuers with boards dominated by insiders. Firm size, transparency, and other governance characteristics do not explain the effect of board independence. The positive relation between board independence and SEO returns is more pronounced for firms with lower monitoring costs and more severe financial constraints. The evidence suggests that independent directors have a positive effect because of both their role in controlling shareholder-manager conflicts (monitoring the use of funds) and current-new shareholder conflicts (certification of the issue's value.
Keywords: Equity offerings, Corporate boards, Announcement returns, Monitoring
JEL Classification: G14, G32, G34
Suggested Citation: Suggested Citation