The purpose of this study is to explore whether interlock ties between the board of directors and the external auditors facilitate the cross-firm diffusion of voluntary disclosures in annual reports.
Using a sample of 149 non-financial companies publicly listed on the New York Stock Exchange (NYSE) Euronext Amsterdam, we use ordinary least squares (OLS) regression analysis to examine the relationships between the incidence of financial and non-financial voluntary disclosures in the focal firms’ annual reports and the annual reports of other companies to which the firms are related via the interlock ties of its board members and external auditor.
The results show significant associations between financial and non-financial voluntary disclosures in the focal and related firms’ annual reports when there were board interlocks. Differences in the diffusion of specific types of disclosures are found depending on the type of interlocking director. The results also show that interlock ties of the external auditors positively influence the associations with voluntary financial disclosures in the annual reports.
We find clear indications that board and auditor interlocks form important sources of inter-organisational information exchange that can drive changes in voluntary disclosure practices in annual reports. The networks of social relationships between firms may play a significant incremental role in the cross-firm diffusion of corporate voluntary disclosure practices, particularly in complex and ambiguous situations.
This paper is the first empirical study to investigate how board and external auditor interlock ties are related to the levels of financial and non-financial voluntary disclosures in the focal and related firms’ annual reports.
The authors are grateful for the helpful comments and suggestions provided by Jos Benders, Mahmoud Ezzamel, Paul Hendriks, Margaret Milner, Abdul Rehman, Clare Roberts, Laura Spira, Paula van Veen, Koos Wagensveld, Pauline Weetman, Thomas van Zanten, two anonymous reviewers and the seminar participants of the 2010 Financial Reporting and Business Communication Conference 2010 (Bristol) and the 2011 RACC conference (Nijmegen). The authors also thank Annelien Arnouts, Andy Defares and Mehment Akpolat for their research assistance.
Braam, G. and Borghans, L. (2014), "Board and auditor interlocks and voluntary disclosure in annual reports", Journal of Financial Reporting and Accounting, Vol. 12 No. 2, pp. 135-160. https://doi.org/10.1108/JFRA-11-2012-0054Download as .RIS
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