Disclosure on Financial Key Performance Indicators, Board Characteristics and Information Asymmetry between Shareholders and Creditors

This paper analyzes the information asymmetry between owners/managers and creditors. More specifically, the research investigates the role of both disclosure on financial key performance indicators (FKPIs) and different corporate governance mechanisms in reducing the agency costs of debt. The findings show that the presence of independent directors sitting on the board mitigates the agency conflicts between borrowers and lenders when the ownership concentration is low. The results also document that the audit committee independence reduces the agency costs of debt. Moreover, the study shows that the board independence and the disclosure on FKPIs act as complementary mechanisms. However, when the ownership concentration is low, the presence of independent directors in the board is considered to be a mechanism alternative to the disclosure on FKPIs. Con-sidered together, previous findings suggest that independent directors are considered to be an useful mechanism in reducing the agency costs of debt, but only when the ownership is diffused. This means that the concentration of power in the hands of few controlling shareholders reduces the effectiveness of the monitoring role played by independent directors, so increasing the information asymmetry between borrowers and lenders