Board meetings and the information gap between managers and independent directors

• Main Author: Jiang, Yijing
• Other Authors: Brochet, Francois
• Language: en_US
• Published: 2021
• Subjects: Accounting; Board meetings; Corporate governance; Independent directors; Information asymmetry; Insider trading
• Online Access: https://hdl.handle.net/2144/43115

This study examines board meetings’ role in reducing the information gap between managers and independent directors. Using abnormal returns to insider trades as a proxy for insiders’ information level, I find no association between board meetings and the manager-director information gap for the pre-2003 period. However, in the post-2003 period, board meetings significantly increase directors’ information level relative to that of managers. I next identify that board meetings’ informational role is driven by the 2003 NASDAQ and NYSE board independence requirements. Further analyses support a causal link between board meetings and the smaller manager-director information gap post-2003. Furthermore, board meetings’ information role is more pronounced for directors who are relatively new to the firm, diverse directors, directors with outside connections, and directors sitting on certain committees. Lastly, using a subsample of firms that voluntarily disclose disaggregated information on board meetings, I find that the form of board meetings also matters: in-person board meetings reduce the manager-director information gap, while remote board meetings do not. Overall, board meetings’ informational efficacy depends on mandatory board independence, independent directors’ characteristics, and board meetings’ organizational forms.