Are All Independent Directors Created Equal? Do Their Professional Backgrounds Influence Firms’ Financial Disclosures? Evidence From Biotechnology Firms

The empirical evidence on the association between board structure and firms’ voluntary disclosures is mixed and controversial. We extend the literature by arguing that independent directors do not represent a homogeneous group of people, as previously considered. We hypothesize that the professional backgrounds of independent directors shape their assessments of costs and benefits related to disclosure of information that potentially reduces agency costs but also lessens firms’ competitive advantages. Using hand-collected data from a sample of biotechnology firms, we find results consistent with this idea. Particularly, firms whose independent directors provide links to the wider social community, but lack functional or business experience, more frequently disclose proprietary information. We find opposite results for the firms whose independent directors possess significant functional expertise. We conclude that all independent directors are not equal in their influence on firms’ disclosure policies. Our study has several policy implications