Boards of Directors Independence and Information Asymmetry

This study is an investigation of information asymmetry from the focal point of independent board members. We evaluate the quality of information shared with respect to management, institutional owners, analysts, and investors. Our results show that information asymmetry increases as board independence increases. We use the following variables to explain why managers of firms are likely to have more information than the board of directors: sticky SG&A costs, bid-ask spread, analyst following, and forecast error. In addition, we use institutional ownership as an interaction with our key test variables to examine whether institutional governance increases board independence. Our results show that institutional ownership and investment in sticky SG&A costs is associated with increased board independence. In addition, lower analyst forecast error moderated by institutional ownership increases board independence.