Corporate Boards and SEOs: The Effect of Certification and Monitoring

Ferreira, Miguel A.; Laux, Paul A.

doi:10.2139/ssrn.1031249

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Corporate Boards and SEOs: The Effect of Certification and Monitoring

Journal of Financial and Quantitative Analysis (JFQA), Forthcoming

47 Pages Posted: 22 Mar 2008 Last revised: 6 Dec 2015

See all articles by Miguel A. Ferreira

Miguel A. Ferreira

Nova School of Business and Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Paul A. Laux

University of Delaware - Alfred Lerner College of Business and Economics

Date Written: August 24, 2014

Abstract

In a sample of underwritten seasoned equity offerings (SEOs), issuers with boards dominated by independent directors experience higher abnormal announcement returns than issuers with boards dominated by insiders. Firm size, transparency, and other governance characteristics do not explain the effect of board independence. The positive relation between board independence and SEO returns is more pronounced for firms with lower monitoring costs and more severe financial constraints. The evidence suggests that independent directors have a positive effect because of both their role in controlling shareholder-manager conflicts (monitoring the use of funds) and current-new shareholder conflicts (certification of the issue's value.

Keywords: Equity offerings, Corporate boards, Announcement returns, Monitoring

JEL Classification: G14, G32, G34

Suggested Citation: Suggested Citation

Ferreira, Miguel Almeida and Laux, Paul A., Corporate Boards and SEOs: The Effect of Certification and Monitoring (August 24, 2014). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: https://ssrn.com/abstract=1031249 or http://dx.doi.org/10.2139/ssrn.1031249