Does institutional ownership affect information sharing with independent board members?

Research Question: This is an investigation of board independence to determine whether management shares information with the board, or withholds information to retain autonomy. A key contribution is to examine the interaction of institutional ownership with the main test variables to determine whether institutional governance influences the information environment as board independence is increased. Research Findings: The results show that information asymmetry decreases internally and increases externally as board independence increases, yet institutional ownership appears to moderate or reverse this relationship. The following variables are used to explain why managers of firms are likely to have more information than outsiders: sticky SG&A costs, bid-ask spread, and forecast error. Theoretical/Academic Implications: The desired oversight from independent board members appears to be associated with reduced transparency between the firm and investors. Information sharing is lower for increased board independence when the firm's ownership is less sophisticated. Practitioner/Policy Implications: These findings suggest that requiring increased board independence may reflect reduced transparency for firms with less institutional ownership. Further research should be conducted on the influence of institutional ownership on board member selection, and the relationship between management and board members appointed with institutional support.