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E-MailMarco Ventoruzzo is Full Professor of Business Law and Director of the Department of Law at Bocconi University. This post is based on a recent paper authored by Professor Ventoruzzo; Piergaetano Marchetti, Emeritus Professor of Law at Bocconi University; and Gianfranco Siciliano, assistant professor at Bocconi University. Related research from the Program on Corporate Governance includes Independent Directors and Controlling Shareholders by Lucian Bebchuk and Assaf Hamdani (discussed on the Forum here).
In a recent paper we investigate the correlation between the composition of the board of directors of listed corporations and the quantity and quality of information disclosed to the market, also with respect to the disclosure of privileged, price-sensitive information. This work is a follow up on an empirical analysis that we published last year on dissent (either in the form of negative votes or resignation) by directors of listed corporations, available here.
The question is examined with respect to the Italian Stock Exchange, a case-study that we consider particularly relevant, interesting and useful also for other jurisdictions for several reasons. First of all, while other studies exist on the possible role of outside, non-executive and independent directors on corporate transparency, this line of work has primarily considered Anglo-Saxon jurisdictions and some Asian systems. We therefore offer new insights on a continental, civil-law system, filling a gap in the debate. Additionally, Italian rules and practices on disclosure are similar—when not identical—to other EU countries, especially with respect to rules governing mandatory disclosure of corporate events, which have been strongly harmonized by the Market Abuse Regulation of 2014. In terms of board composition, in addition to rules on independent and non-executive directors, roughly ten years ago Italy adopted “list voting,” a peculiar system designed to facilitate the election of directors appointed by minority shareholders (primarily, institutional investors). Consequently, we can test the impact of minority-appointed directors on decisions to disclose information to the market.
Based on a unique data-set of hand-picked data, we answer the basic research question in the affirmative, finding that independent and minority-appointed directors have a positive impact on the amount and, to some extent, quality of disclosure, in particular if their have specific professional and educational qualifications (“high-skilled directors”). We also tested if the market reacts to the information that is made public, in order to consider the possible objection that outside directors simply require more disclosure of unimportant information. The event studies we conducted indicate abnormal returns in correspondence of the announcements we considered, therefore corroborating the idea that the information released is taken into account by investors.
The Paper is organized as follows. After a brief overview of the existing literature concerning the correlations between board composition and disclosure, we explain the relevant legal framework concerning board composition and disclosure. Third, we illustrate our data and some methodological issues. Finally, we present our empirical results addressing the positive effect of independent directors on corporate disclosure generally, and of minority-appointed directors on disclosure of price-sensitive information. Our conclusions shortly discuss the corporate governance implications of the evidence gathered.
The complete paper is available for download here.
