Board meetings dynamics and information diffusion

• Published date: 01 January 2022
• Author: Stefano Bonini,Valentina Lagasio
• Date: 01 January 2022
• DOI: http://doi.org/10.1111/corg.12423

SPECIAL ISSUE ARTICLE

Board meetings dynamics and information diffusion

Stefano Bonini

1

| Valentina Lagasio

2

1

School of Business, Stevens Institute of

Technology, Hoboken, New Jersey, USA

2

Sapienza University, Rome, Italy

Correspondence

Stefano Bonini, School of Business, Stevens

Institute of Technology, 1 Castle, Point on

Hudson, Hoboken, NJ 07030, USA.

Email: sbonini@stevens.edu

Funding information

Stevens Institute of Technology School of

Business, Grant/Award Number: Dean's

Research Funds

Abstract

Research Question/Issue: This paper provides novel evidence on the dynamics of

board meetings and the economic value of their decisions. We exploit a unique regu-

latory requirement of the Italian Stock Exchange that mandates the publication of

board meeting minutes when the board votes on “price sensitive”matters to analyze

detailed data about directors' participation, discussions, voting, and the dissemination

of their decisions to the market.

Research Findings/Insights: In a large, multiyear sample of board meeting minutes,

we show previously unavailable patterns of board meetings participation and discus-

sion and highlight the moderating role of key governance mechanisms that shed

novel light on the effectiveness of boards. Looking at the economic value of board

meetings, we document significant delays in the diffusion of information in the mar-

ket that may be indicative of information leakage.

Theoretical/Academic Implications: We contribute to the theoretical discussion

about the role of boards. Our results are consistent with a supervisory approach

model of boards where consensus is high and dissent is costly. However, they cast

doubt on the efficacy of boards as a counterbalancing mechanism to the power of

executives.

Practitioner/Policy Implications: Boards have grown in size and become increasingly

complex. This study documents the actual discussion, participation, and voting

dynamics of board meetings and provides evidence on the diffusion of information to

market participants, which is valuable in the design of efficient corporate governance

mechanisms.

KEYWORDS

corporate governance, board meetings, information diffusion

1|INTRODUCTION

A large body of literature has addressed the role, composition, and

functioning of boards of directors and their effects on firm value

and strategic direction (see Adams et al., 2010, for a review; Cotter

et al., 1997; Weisbach, 1988). The natural channel through which

boards can exert such influence on firm's strategy and management

is through periodic meetings devoted to discussing managerial

options and taking decisions. However, the activity of boards is one

of the most closely held corporate information as the discussed mat-

ters may have significant impact on the future profitability of firms

and their competitive positioning (see, e.g., Neubauer et al., 2000).

As a result, information on board meetings such as meeting dates,

participants, agendas, and voting outcomes is almost never released

to the public even for listed companies where regulators generally

impose stringent disclosure requirements in the interest of minority

shareholders and price transparency. This lack of data makes board

meetings still a “dark room”for both practitioners and academics

Received: 6 July 2020 Revised: 8 December 2021 Accepted: 9 December 2021

DOI: 10.1111/corg.12423

96 © 2021 John Wiley & Sons Ltd Corp Govern Int Rev. 2022;30:96–119.wileyonlinelibrary.com/journal/corg

(Vafeas, 1999). Only a handful of studies has tried to shed some

light on these questions using the overall frequency of meetings.

Vafeas (1999) and Brick and Chidambaran (2010) investigate the

relationship between stock prices and the frequency of meetings of

US companies. Their findings indicate that board meeting frequency

and firm performance are linked, but it is unclear whether this evi-

dence is the result of increased monitoring or the need to educate

nonexecutive directors. Both studies are unfortunately limited by

the lack of granularity of the independent variable which allows to

capture only one dimension of boards activity. A true understanding

of such transmission channels of corporate governance would

require the direct observation of the inner functioning of boards that

is however very rarely available. In a seminal paper, Schwartz-Ziv

and Weisbach (2013) provide a first view on board meeting activity

from meeting minutes confidentially obtained from a small 1-year

sample of Israeli state-owned enterprises. While the limited sample

size does not allow inferential analyses, their results highlight that

board members appear to devote significant attention to supervision

of executives. Exploiting a regulatory change in China, Jiang

et al. (2015) examined the voting behavior of directors and the

career repercussions of dissenting voting. In support to these results,

Ma and Khanna (2016) argue that dissension is associated with a

breakdown in the social exchange relationship. A few papers have

tried to look at the dynamics of boards in a case study setting.

Piekkari et al. (2015) exploit privileged access to nine boards, and

through repeated interviews, they investigate how foreign board

members in highly international firms influence the work processes

of boards in particular with regards to language diversity. Using a

similar approach, Bezemer et al. (2018) analyze video recordings of

nine board meetings at three anonymous companies to try and shed

light on the process through which the chairman of the board

exerts their influence on board decisions. Banerjee, Nordqvist, and

Hellerstedt (2020) also explore the role of the chairman of the board

that includes planning and leading board directors meetings and con-

tributing to the engagement of the outside directors to work closely

with the top management of a company (Krause, 2017; Withers &

Fitza, 2017).

Despite the insights provided by these contributions, the dynamic

of board meetings and the value of board decisions remain largely

unknown.

In this paper, we contribute to filling this gap by exploiting a

unique feature of the Italian regulation that requires mandatory publi-

cation of board meeting minutes if the item discussed is classified as

“price sensitive”according to the stock market regulator. This require-

ment allows to identify a large set of important features such as: the

matters discussed, the extent and duration of the discussion, the

voting outcome, the rate and form of participation, and the behavior

of auditors. This information is obtained at the single meeting and

individual director/executive level and allows us to address more

directly long-standing questions related to directors' inattention and

effectiveness. Additionally, given that minutes report exact dates and

timestamps of meetings and the subsequent release to the public, we

can explore in detail the economic effects of the diffusion of board

meeting information in financial markets.

Looking at 884 board meeting minutes from 2004 to 2016, this

paper provides several novel contributions. First, using multiple

proxies and a factor-model-based synthetic metric, we test existing

theories on directors' (in)attention and highlight that directors'

attention is a function of board size, directors' busyness, and the form

of participation. This translates in shorter meeting discussions and

very limited voting dissent. These results may suggest the risk of a

potentially limited effectiveness of board meetings. Alternatively,

they could signal that some decisions are taken outside of the

boardroom,

1

something though that would raise substantial issues

with regard to the efficacy of boards as a counterbalancing mecha-

nism to the power of executives. For example, if the content of meet-

ings were discussed outside the board, what would be the degree of

informativeness of directors given that documentation is generally

distributed shortly before the meeting? And what would the extent of

directors' accountability be if discussions took place outside the

boardroom?

Turning to the economic value of board meetings, we docu-

ment a large and significant delay in the information diffusion in

markets as documented by the statistically significant abnormal

returns following both the event date and the publication date. This

troubling result seems limitedly affected by board meeting and cor-

porate governance characteristics but is indicative of possible issues

with the diffusion of privileged and price sensitive information in

the market.

Overall, our results provide insights on the dynamics of board

meetings, which can contribute to the global ongoing debate on the

effectiveness and functioning of boards as a governance mechanism.

The remainder of the paper is structured as follows: Section 2

outlines our research questions; Section 3 discusses the data

collection process; Section 4 presents the methodology and results on

inattention and efficacy; Section 5 analyzes information diffusion;

Section 6 discusses and concludes.

2|BACKGROUND LITERATURE AND

RESEARCH QUESTIONS

We develop our paper around three research questions related to

board inattention, meetings efficacy, and the diffusion of board-

meeting related information.

2.1 |Directors' inattention

Boards are commonly described as a monitor of management on

behalf of dispersed shareholders (Burkhart et al., 2017). Looking at

firms as a nexus of contracts (Jensen & Meckling, 1976), entrench-

ment of top management is a primary concern that appropriate

board design is supposed to mitigate (Fama & Jensen, 1983;

BONINI AND LAGASIO 97