The Effect of Board Independence on Information Asymmetry

50 Pages Posted: 23 Sep 2008 Last revised: 14 Jan 2015

See all articles by Beng Wee Goh

Beng Wee Goh

Singapore Management University - School of Accountancy

Jimmy Lee

Singapore Management University - School of Accountancy

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance

Kevin Ow Yong

Singapore Institute of Technology

Date Written: November 1, 2014

Abstract

Boards have an important role in ensuring that investors’ interests are protected. Our paper first examines whether the independence of a firm’s board affects information asymmetry among investors. We provide evidence that greater board independence leads to lower information asymmetry. Next, we provide evidence that more voluntary disclosure and greater analyst coverage are two underlying mechanisms via which greater board independence reduces information asymmetry. Of the two mechanisms, we find that analyst coverage is more significant in influencing how board independence affects information asymmetry. Overall, our paper contributes to a better understanding of the effect of board independence on information asymmetry.

Keywords: Corporate governance, board independence, management forecasts, analysts, information asymmetry

JEL Classification: D82, G34, M41

Suggested Citation

Goh, Beng Wee and Lee, Jimmy and Ng, Jeffrey and Yong, Kevin Ow, The Effect of Board Independence on Information Asymmetry (November 1, 2014). European Accounting Review, Forthcoming, Singapore Management University School of Accountancy Research Paper No. 2015-23, Available at SSRN: https://ssrn.com/abstract=1267508 or http://dx.doi.org/10.2139/ssrn.1267508

Beng Wee Goh

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

Jimmy Lee

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore, 178900
Singapore
(65) 6808 5234 (Phone)

Jeffrey Ng (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

Kevin Ow Yong

Singapore Institute of Technology

10 Dover Drive
Singapore, 138683
Singapore

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