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Rev Account Stud (2014) 19:10861119 DOI 10.1007/s11142-014-9280-0
Ye Cai Dan S. Dhaliwal Yongtae Kim Carrie Pan
Published online: 14 March 2014 Springer Science+Business Media New York 2014
Abstract We examine whether board connections through shared directors inuence rm disclosure policies. To overcome endogeneity challenges, we focus on an event that represents a signicant change in rm disclosure policy: the cessation of quarterly earnings guidance. Our research design allows us to exploit the timing of director interlocks and therefore differentiate the director interlock effect on disclosure policy contagion from alternative explanations, such as endogenous director-rm matching or strategic board stacking. We nd that rms are more likely to stop providing quarterly earnings guidance if they share directors with previous guidance stoppers. We also nd that director-specic experience from prior guidance cessations matters for disclosure policy contagion. The positive effect of interlocked directors on the likelihood of quarterly earnings guidance cessation is particularly strong for rms with interlocked directors who experienced positive outcomes from prior guidance cessation decisions. Overall, our evidence is consistent with interlocked directors serving as conduits for information sharing that leads to the spread of corporate disclosure policies.
Keywords Disclosure policy Board interlocks Board networks Social
networks Earnings guidance Corporate governance
Y. Cai Y. Kim (&) C. Pan
Santa Clara University, 500 El Camino Real, Santa Clara, CA 95053, USA e-mail: [email protected]
Y. Caie-mail: [email protected]
C. Pane-mail: [email protected]
D. S. Dhaliwal
University of Arizona and Korea University, McClelland Hall, PO Box 210108, Tuckson, AZ 85721, USAe-mail: [email protected]
Board interlocks and the diffusion of disclosure policy
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Board interlocks and the diffusion 1087
JEL Classication G34 M41
1 Introduction
Prior studies show that corporate practices spread through director networks. Bizjak et al. (2009), for example, report that rms with boards interlocked to backdating rms are more likely to backdate employee stock options. Brown (2011) shows that rms are more likely to adopt corporate-owned life insurance as a tax shelter if they have boards linked to other rms that have adopted such shelters. More recently, Chiu et al. (2013) nd evidence of earnings management contagion in rms with interlocked boards. These studies support the notion that social networks, such as board interlocks, facilitate the exchange of information and the spread of corporate practices across rms....