Board and auditor interlocks and voluntary disclosure in annual reports

Geert Braam, Lex Borghans
2014 Journal of Financial Reporting & Accounting  
This paper explores the role o f the interlock ties o f the board o f directors and the external auditors in facilitating cross-firm diffusion of voluntary disclosure practices. Using data from 149 companies listed on the Dutch stock exchange, we investigated the relationship between a firm 's voluntary disclosure o f financial and non-financial performance measures in its annual report and the incidence o f disclosure of these performance indicators in annual reports of other companies to
more » ... r companies to which the firm is related via the interlock ties of the executive and supervisory board members and its auditor. To cover a firm 's financial and non-financial aspects of performance, we classified the incidence in the annual report of the different performance m easurement items within the four Balanced Scorecard perspectives o f Kaplan and N orton (1992 and 1996). Our results suggest that firms with board members who also sit on the boards of directors of other firms have a higher probability of voluntarily reporting similar financial and non-financial disclosures in their com panies' annual reports. The experience o f the CEO is relevant for information disclosure about customers, while members o f the supervisory board, especially the chairman, seem to promote additional information about learning and growth. Finally, the experience o f the auditor matters for disclosure of financial performance indicators in the annual report.
doi:10.1108/jfra-11-2012-0054 fatcat:nddi2wpggnedzpcorjjtkx27si