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    Corporate Board Governance and Voluntary Disclosure of...
    research summary posted May 7, 2012 by The Auditing Section, last edited May 25, 2012, tagged 13.0 Governance, 13.05 Board/Audit Committee Oversight 
    Corporate Board Governance and Voluntary Disclosure of Executive Compensation Practices
    Practical Implications:

    Consistent with prior corporate governance research, this study concludes that more independent boards of directors are associated with better shareholder representation in disagreements with management.  Moreover, the results highlight the importance of the board governance process for effective decision making. This study documents that having less time to meet as a group and having fewer directors serving on the board can lead to reduced transparency. Frequent board meetings would facilitate greater information sharing among directors and more directors serving on boards would allow better workload distribution and committee assignments.


    Laksmana, I. 2008. Corporate board governance and voluntary disclosure of executive compensation practices.  Contemporary Accounting Research 25 (4): 1147-1182.

    Board of directors, corporate governance, executive compensation, voluntary disclosure
    Purpose of the Study:

    Recent corporate scandals focused considerable public attention on the role of boards of directors in corporate governance. The purpose of this study is to assess whether higher quality boards voluntarily disclose more information about their compensation practices. The U.S. SEC requires a report justifying the compensation policies, but does not specify the items to be disclosed or the reporting format to be followed. Compensation-related disclosures are particularly important because boards of directors have a responsibility to report the basis of their actions for determining executive compensation in the companies’ proxy statements.

    Unlike other disclosure studies, the present study examines disclosures as the outcomes of board decisions rather than the assumed effect of boards on management decisions. Below are the two primary objectives that the author addresses in this study:

    • Examine whether boards of directors’ time and resource commitments are associated with the extent of compensation practice disclosures.
    • Examine whether more independent boards and compensation committees are more likely to make objective decisions by supporting greater disclosures.
    Design/Method/ Approach:

    This study selects publicly traded firms in nonregulated industries listed on the Standard & Poor’s (S&P) 500 as of December 31, 1992. The author examines the compensation disclosures in proxy statements of those firms filed in 1993 and in 2002. 

    • Boards reported more compensation-related disclosures in 2002 (most recent year) than they did in 1993 (first response to new SEC rules). 
    • More independent boards and compensation committees have more transparent compensation practice disclosures.
    • Meeting frequency and board size are both important factors for increased compensation disclosures.  The board/committee must be of adequate size to distribute workload and meet frequently enough to make decisions. 
    Board/Audit Committee Oversight
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