Do the characteristics of the board of directors affect the value relevance of accounting information?

Mishari M. Alfraih, Faisal S. Alanezi and Khalid A. Alanzi

International Journal of Accounting and Finance, 2015, vol. 5, issue 2, 172-187

Abstract: The characteristics of the board of directors that influence the value relevance of accounting information may be different in developed and less-developed countries. This study explores the issue in a less-developed country, Kuwait, which has a particular economic, societal, political, and cultural setting. It provides an insight into how the characteristics of the board of directors shape earnings and book value information available to market participants. Regressions based on Ohlson's (1995) valuation model reveal that how the board is structured can increase the value relevance of accounting information. Specifically, board size and role duality are significantly associated with company value, and suggest that Kuwaiti firms with a smaller board, where the roles of CEO and chairman of the board are split, improve the value-relevance of earnings and book value. Cross directorships show a positive, although insignificant, relationship with company value. These results provide empirical support for the theoretical prediction that the characteristics of the board of directors influence market valuation, and highlight the effectiveness of these characteristics in improving the value relevance of financial reporting.

Keywords: value relevance; board of directors; market valuation; Kuwait; accounting information; board size; role duality; company value; financial reporting. (search for similar items in EconPapers)
Date: 2015
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