We study the relation between independent director attention and the cost of equity capital. Masulis and Mobbs find that a director with multiple directorships distributes her time and effort (i.e., attention) unequally according to the relative prestige of each directorship. We investigate whether a firm's cost of equity capital reflects such unequal distribution of attention by its directors. We find that firms receiving more director attention are associated with a lower cost of equity capital. These firms also have higher accounting information quality. Moreover, the attention from audit committee directors matters more than that from other directors in reducing the cost of equity capital. Robustness checks show that the results are not driven by firm size. Overall, our evidence is consistent with director attention reducing the cost of equity capital through effective monitoring that increases accounting information quality.
|Number of pages
|Journal of Business Finance and Accounting
|Published - Jul 1 2021
Bibliographical noteFunding Information:
The authors thank Brian Rountree (editor), an anonymous reviewer, Brian Bratten, Nicole Jenkins, Jeff Payne, Dan Stone, David Ziebart, and workshop participants at the University of Kentucky for their valuable comments and suggestions.
© 2021 John Wiley & Sons Ltd
- board monitoring
- cost of equity capital
- director attention
- independent director
ASJC Scopus subject areas
- Business, Management and Accounting (miscellaneous)