Financial Accounting Information, Organizational Complexity and Corporate Governance Systems

Abstract

We posit that limited transparency of firms’ operations to outside investors increases demands on governance systems to alleviate moral hazard problems. We investigate how ownership concentration, directors’ and executive’s incentives, and board structure vary with: 1) earnings timeliness, and 2) organizational complexity measured as geographic and/or product line diversification. We find that ownership concentration, directors’ and executives’ equity-based incentives, and outside directors’ reputations vary inversely with earnings timeliness, and that ownership concentration, and directors’ equity-based incentives increase with firm complexity. However, board size and the percentage of inside directors do not vary significantly with earnings timeliness or firm complexity.

Keywords: Corporate governance, corporate transparency, earnings timeliness, organizational complexity, diversification

JEL Classification: G30, M41, J33