Do Boards with Different Compositions Face Different Organizational Information Contexts?

Responding to recent calls in the literature to examine the organizational context of boards of directors, this study investigates whether different board compositions are associated with different organizational information contexts. The results of this study may shed light on the findings of the extant empirical governance literature, revealing that boards with outsiders are more effective in monitoring, despite outside directors’ information asymmetry compared to inside directors. In this study the organizational information context is measured in terms of the availability of management control information in the firm. Our results provide evidence that outsider presence on the board is significantly associated with a more formal and objective information context characterized by a higher availability of formal planning, budgeting and variance analysis information within the firm. Given this available information, which allows comparisons between planned and actual company performance, outside directors’ information seeking behaviour is likely to be productive and to result in a reduction of outside directors’ information asymmetry.