Volume 18, No. 6, 2021

The Relationship Between Information Asymmetry And Board Characteristics Evidence From Pakistanís Textile Industry


Dr. Maryam Jabeen , Faiza Faiz Malik , Saima Zaib , Dr. Afia Saleem , Aisha Jabeen

Abstract

The present study attempts to explore the association between the corporate board and information asymmetry on a total sample of 60 textile companies of Pakistan for the period 2012 to 2018. The degree of asymmetric information has been estimated by using three proxies: Tobinís Q, Return Volatility, and Trading Volume. The independent variables include board diligence, family ownership, board independence, ownership concentration, size of the board, and the proportion of female directors on the corporate board. Firm size, firm age, and leverage represent the control variables. Panel data econometric techniques have been employed in the validation of the theories and outcomes in relevance to the characteristics of the directors of the board and information asymmetry. The findings suggest that the presence of family owners on the corporate board decreases the level of asymmetric information as it is negatively related to the volatility of stock returns and Tobinís Q and is directly related to trading volume. Widely held firms in Pakistan are owned by business groups or families where a significant portion of the total shares is held by the managers. In our country, where families own and manage the majority of the businesses, the problems related to the asymmetric distribution of information are significantly low. The evidence for independent directors shows that it has a positive relationship with Tobinís Q and return volatility and the association with trading volume is negative. However, the significance of the relationship is confirmed only for stock volatility. The positive sign of the coefficient for independent directorsí advocates that their presence in family businesses may lead to an increase in information asymmetry. Empirical findings suggest that in businesses owned by families, the proportion of independent directors is inversely interrelated to the level of disclosure of information. Overall, the findings of the study facilitate not only the policymakers and regulatory bodies in understanding the essential determinants of board composition firms operating in the textile sector of Pakistan but also provide some interesting directions for future empirical research on other firm-level characteristics and information asymmetry.


Pages: 7033-7055

Keywords: Information asymmetry, independent directors, family ownership, female directors, leverage, ownership concentration, agency theory.

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