Board Structure and Price Informativeness

53 Pages Posted: 5 Mar 2008 Last revised: 6 Jan 2009

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)

Daniel Ferreira

London School of Economics - Department of Finance; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Clara C. Raposo

Technical University of Lisbon (UTL) - School of Economics and Management

Multiple version iconThere are 2 versions of this paper

Date Written: December 2008

Abstract

We develop and test the hypothesis that private information incorporated into stock prices (price informativeness) affects the structure of corporate boards. We find a negative relation between measures of price informativeness and measures of board independence. This finding is robust to the inclusion of many firm-level controls - including firm fixed effects - and to the choice of the measure of price informativeness. Consistent with the hypothesis that price informativeness and board monitoring are substitutes, this relationship is particularly strong for firms more exposed to both external and internal governance mechanisms, firms for which firm-specific knowledge is relatively unimportant, and during periods of extreme abnormal stock performance. Our results suggest that firms with more informative stock prices have less demanding board structures.

Keywords: Corporate boards, Independent directors, Price informativeness, Monitoring

JEL Classification: G32, G34

Suggested Citation

Ferreira, Miguel Almeida and Ferreira, Daniel and Raposo, Clara C., Board Structure and Price Informativeness (December 2008). ECGI - Finance Working Paper No. 160/2007; EFA 2008 Athens Meetings Paper. Available at SSRN: https://ssrn.com/abstract=983524 or http://dx.doi.org/10.2139/ssrn.983524

Miguel Almeida Ferreira

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Daniel Ferreira (Contact Author)

London School of Economics - Department of Finance ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
(+44) 20 7955 7544 (Phone)

HOME PAGE: http://personal.lse.ac.uk/FERREIRD/

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Clara C. Raposo

Technical University of Lisbon (UTL) - School of Economics and Management ( email )

R. Miguel Lupi, 20
Lisbon, 1200
Portugal

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