Board of directors and financial transparency and disclosure. Evidence from Italy

Abstract

Purpose

The purpose of this paper is to examine the link between board of directors’ composition (independent directors’ ratio, board size, CEO-duality) and financial transparency and disclosure (T&D).

Design/methodology/approach

The paper analyzes board composition and financial T&D of Italian listed companies using multiple linear regression analysis.

Findings

The results of this paper show a significant link between board composition and the level of financial T&D. In particular, the authors found a positive and significant relationship between the independent directors’ ratio and the level of financial T&D and a negative relationship between board size and the level of financial T&D.

Research limitations/implications

While this paper focuses on a sample of 100 Italian listed companies, the authors acknowledge the importance of extending the results to other national context and to other type of firms (e.g. non-listed firms or SMEs). Moreover, while this paper concerns the amount of information disclosed by firms, it does not look at the quality or accuracy of disclosure.

Practical implications

This paper reveals the importance of evaluating the effectiveness of corporate governance mechanisms (such as board composition) in enhancing the level of financial T&D. Indeed, the authors provide some indications to firms to improve their internal governance mechanisms (e.g. the importance of high proportion of independent directors and of small- and medium-sized boards of directors).

Originality/value

This paper provides interesting insights to firms which are under pressure to improve the level of information to stakeholders. Moreover, has the level of information that is not legally required vary among companies and countries, the authors shed light on a context characterized by high level of ownership concentration, where firms can experience different types of conflict of interests.

Citation

Torchia, M. and Calabrò, A. (2016), "Board of directors and financial transparency and disclosure. Evidence from Italy", Corporate Governance, Vol. 16 No. 3, pp. 593-608. https://doi.org/10.1108/CG-01-2016-0019