Disclosing Directors

Disclosing Directors

Piergaetano Marchetti, Gianfranco Siciliano, Marco Ventoruzzo

October 29 2018

Practictioners, policy-makers and scholars are engaged in a lively debate on the role and impact of independent directors and minority-appointed directors as a tool for better corporate governance. In the last few years, this discussion has been enriched with a number of empirical studies trying to isolate and measure the contribution of these board members.

In our study we examine the correlations between the presence of independent and minority-appointed directors on corporate disclosure based on a hand-picked dataset that includes disclosure events of over 220 corporations listed on the Italian Stock Exchange in the decade spanning from 2005 through 2015. The Italian case is an interesting one for at least a couple of reasons. First, Italy has quite advanced provisions on the composition of the board, requiring several board members to be non-executive and independent; additionally, the Italian legal system is one of the most advanced in terms of represenation of minority shareholders on the board. A set of rules called "List Voting," in fact, facilitates the appointement of candidates selected by minority investors, especially institutional investors. On the other hand, the legal framework concerning disclosure is similar to the one existing in other European countries, also in light of harmonization at the EU level. The country offers therefore a unique "laboratory" to test the effectiveness of board composition rules vis-à-vis corporate transparency. 

In short, controlling for a significant number of other variables, we found that independent directors positively impact the quantity and - to the extent that it can be verified statistically - the quality (or, more precisely, the detail) of the information made available to the market. Interestingly enough, we also saw a stronger correlation when directors have above-average professional qualifications. We also noted that the higher the number of minority-appointed directors, the higher the amount of information that the corporation labels as "priviledged" under the Market Abuse Regulation regime, and is therefore mandated to disclose. To consider the possible objection that independent and minority-appointed directors force the conservative publication of information that is not really relevant for investors (the "irrelevance hypothesis"), we conducted event studies around the days of the announcements, finding abnormal returns that can be interpreted as a sign of attention of the market to the disclosure events considered. The study contains a number of additional empirical findings on the role of board members with respect to transparency. 

We believe this work sheds new light on the role of independent directors and, even more importantly, directors appointed by minority shareholders. Policy makers and governance experts also in other jurisdictions should take note and considers whether a more diverse board, and a stronger voice of institutional investors in directors' elections, might be beneficial to a more transparent and efficient market. 


Real name:
Gianfranco Siciliano
Research Member, Representative Member
Paolo Baffi Center on Financial Regulation, Bocconi University Law Department