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Independent director attention and the cost of equity capital

Author

Listed:
  • Henry He Huang
  • Chong Wang
  • Hong Xie
  • Jian Zhou
Abstract
We study the relation between independent director attention and the cost of equity capital. Masulis and Mobbs find that a director with multiple directorships distributes her time and effort (i.e., attention) unequally according to the relative prestige of each directorship. We investigate whether a firm's cost of equity capital reflects such unequal distribution of attention by its directors. We find that firms receiving more director attention are associated with a lower cost of equity capital. These firms also have higher accounting information quality. Moreover, the attention from audit committee directors matters more than that from other directors in reducing the cost of equity capital. Robustness checks show that the results are not driven by firm size. Overall, our evidence is consistent with director attention reducing the cost of equity capital through effective monitoring that increases accounting information quality.

Suggested Citation

  • Henry He Huang & Chong Wang & Hong Xie & Jian Zhou, 2021. "Independent director attention and the cost of equity capital," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(7-8), pages 1468-1493, July.
    • Handle: RePEc:bla:jbfnac:v:48:y:2021:i:7-8:p:1468-1493
    DOI: 10.1111/jbfa.12522
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    References listed on IDEAS

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    3. Liu, Julia Junxia & Liu, Yu, 2023. "Multiple directorships and firm performance: Evidence from independent director effort allocation in Hong Kong," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).

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