Board independence and private information-based trading: evidence from Malaysia

Jiunn-Shyan Khong, Chee-Wooi Hooy and Chun-Teck Lye

International Journal of Managerial Finance, 2021, vol. 18, issue 3, 466-487

Abstract: Purpose - This study investigates the effect of board independence on private information-based trading (PIBT) events. This study also examines the interaction effects of firm's disclosure quality and the statutory and demographic roles of independent directors and board diversity attributes, respectively, on the relationship between board independence and PIBT. Design/methodology/approach - This study uses panel data of 811 non-financial public listed companies in Bursa Malaysia for the sample period 2009–2017. The dynamic general method of moments (DGMM) is used for the dynamic panel data estimation and to address the potential endogeneity problem. Findings - The results show that board independence has a negative effect on PIBT and the effect could be strengthened by firm's disclosure quality, women independent directors and board gender diversity, but attenuated by CEO duality. The overall result suggests that apart from independent audit committee, the statutory and demographic attributes of independent directors and board diversity, and firm's disclosure quality are complementary to board independence in preventing persistent PIBT. Originality/value - This study augments the existing corporate governance and information-based trading literature from the perspectives of firm's disclosure quality, and the statutory and demographic roles of independent directors and board diversity attributes, by examining their effects on the relationship between board independence and PIBT.

Keywords: Board independence; Statutory and demographic role of independent directors; Statutory and demographic board diversity; Disclosure quality; Private information-based trading; G14; G34 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijmfpp:ijmf-09-2020-0469

DOI: 10.1108/IJMF-09-2020-0469

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