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Corporate Boards and SEOs: The Effect of Certification and Monitoring

Published online by Cambridge University Press:  29 July 2016

Miguel Ferreira  and
Paul Laux
Miguel Ferreira
Affiliation:
miguel.ferreira@novasbe.pt, Nova School of Business and Economics, Lisbon 1099-032, Portugal
Paul Laux*
Affiliation:
laux@udel.edu, University of Delaware, Lerner College of Business and Economics, Newark, DE 19716.
*
*Corresponding author: laux@udel.edu
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Abstract

In a sample of underwritten seasoned equity offerings (SEOs), issuers with boards dominated by independent directors experience higher abnormal announcement returns than issuers with boards dominated by insiders. Firm size, transparency, and other governance characteristics do not explain the effect of board independence. The positive relation between board independence and SEO returns is more pronounced for firms with lower monitoring costs and more severe financial constraints. The evidence suggests that independent directors have a positive effect because of their role in controlling both shareholder–manager conflicts (monitoring the use of funds) and current–new shareholder conflicts (certification of the issue’s value).

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 51 , Issue 3 , June 2016 , pp. 899 - 927
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2016 

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