Independent Director Attention and the Cost of Equity Capital

Journal of Business Finance & Accounting, Forthcoming

46 Pages Posted: 18 Feb 2021

See all articles by Henry He Huang

Henry He Huang

Yeshiva University - Sy Syms School of Business

Chong Wang

The Hong Kong Polytechnic University

Hong Xie

University of Kentucky - Von Allmen School of Accountancy

Jian Zhou

University of Hawaii at Manoa

Date Written: February 2, 2021

Abstract

We study the relation between independent director attention and the cost of equity capital. Masulis and Mobbs (2014; 2017) find that a director with multiple directorships distributes her time and effort (i.e., attention) unequally according to the relative prestige of each directorship. We investigate whether a firm’s cost of equity capital reflects such unequal distribution of attention by its directors. We find that firms receiving more director attention are associated with a lower cost of equity capital. These firms also have higher accounting information quality. Moreover, the attention from audit committee directors matters more than that from other directors in reducing the cost of equity capital. Robustness checks show that the results are not driven by firm size. Overall, our evidence is consistent with director attention reducing the cost of equity capital through effective monitoring that increases accounting information quality.

Keywords: Independent director, director attention, board monitoring, cost of equity capital

JEL Classification: M41; G34

Suggested Citation

Huang, Henry and Wang, Chong and Xie, Hong and Zhou, Jian, Independent Director Attention and the Cost of Equity Capital (February 2, 2021). Journal of Business Finance & Accounting, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3778335

Henry Huang

Yeshiva University - Sy Syms School of Business ( email )

New York, NY 10033
United States
8322763834 (Phone)

Chong Wang

The Hong Kong Polytechnic University ( email )

Hong Kong
Hong Kong

Hong Xie (Contact Author)

University of Kentucky - Von Allmen School of Accountancy ( email )

Lexington, KY 40506
United States
(859) 257-4648 (Phone)
(859) 257-3654 (Fax)

Jian Zhou

University of Hawaii at Manoa ( email )

Honolulu, HI 96822
United States

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