Corporate Board Governance and Voluntary Disclosure of Executive Compensation Practices

53 Pages Posted: 12 Mar 2008

See all articles by Indrarini Laksmana

Indrarini Laksmana

Kent State University - Department of Accounting

Multiple version iconThere are 2 versions of this paper

Date Written: November 2007

Abstract

This study examines how corporate boards respond to investor demands for information on executive compensation practices and whether certain board and compensation committee characteristics, as proxies for board governance quality, are associated with the extent of board disclosure of compensation practices. A unique feature of this study is the development of a comprehensive checklist of 23 compensation-related items. I validate this index by showing that the disclosure scores are inversely related to two measures of information asymmetry: bid-ask spread and return volatility. This provides evidence that greater compensation disclosure reduces information asymmetry. The study presents some evidence that boards with the power to act independently from management provide more details about executive compensation practices. Moreover, it contributes to the literature on corporate governance and disclosure by showing that greater commitment of directors to perform their duties results in greater transparency.

Keywords: boards of directors, compensation committees, executive compensation, disclosure

JEL Classification: G34, J33, M45, M41, D82, G12

Suggested Citation

Laksmana, Indrarini, Corporate Board Governance and Voluntary Disclosure of Executive Compensation Practices (November 2007). Available at SSRN: https://ssrn.com/abstract=1103717 or http://dx.doi.org/10.2139/ssrn.1103717

Indrarini Laksmana (Contact Author)

Kent State University - Department of Accounting ( email )

P.O. Box 5190
Kent, OH 44242-0001
United States

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