Board characteristics

This group of variables is concerning with the board characteristics that may enhance\ alleviate the monitoring role of the board. These variables include: board size, board composition, board meetings, and role duality.

3.4.2.1 Board size

The board of directors represents the total number of executive and non-executive directors on the board. It plays an important role in the corporate governance of publicly listed companies. Healy and Palepu (2001) stated that electing a board of directors that acts on behalf of investors, is an efficient mechanism that affects mangers’ voluntary disclosure decisions and controls the agency problem. However, it was claimed that UK boards have a much weaker monitoring role as a result of soft CG

regulations in the UK, which allow firms to choose the board size that is most appropriate for their own needs (Guest, 2008). Wang and Hussainey (2013) claimed that larger boards’ effectiveness is negatively affected by the presence of problems regarding communication and coordination.

In turn, some studies have indicated that larger boards incorporate a variety of expertise which results in greater effectiveness in terms of the boards’ monitoring role (e.g. Singh et al., 2004, Abdel Fattah, 2007). One can argue that directors serving on larger boards would have more incentive to signal their role in performance improvement to various parties. It was argued that talented managers are motivated by their desire to signal themselves to make voluntary disclosures (Graham et al., 2005). Furthermore, it was reported that this incentive is more important for managers of smaller and high growth firms (Graham et al., 2005). Thus, based on signalling theory, a positive association between board size and KPI reporting could be expected.

Some previous studies found a positive association between board size and voluntary disclosure (e.g. Laksamana, 2008; Hussainey and Al-Najjar, 2011). Others found there to be no significant impact in terms of board size on corporate disclosure (e.g. Lakhal, 2005; Cheng and Courtenay, 2006).

Based on these mixed results, the fourth hypothesis is formulated as:

H3. A significant relationship exists between KPI reporting quantity\ quality and board size.

3.4.2.2 Board composition

Board composition refers to the proportion of non-executive directors (NEDs) on the board. Non-executive directors are expected to provide independent advice to executive

more effective in performing a monitoring role, and thereby having a positive effect on accounting reporting quality, as they may aim to signal their competence to potential employers (Fama and Jensen, 1983).

Previous studies which have examined the relationship between board composition and disclosure have provided mixed findings. Some studies found no statistically significant association between them (e.g. Ho and Wong, 2001; Haniffa and Cooke, 2002; Mangena and Pike, 2005; Lakhal, 2005). However, Tauringana and Mangena (2009) found that the proportion of NEDs is associated negatively with KPI reporting. On the other hand, a positive relationship has been reported between the proportion of NEDs and the level of corporate disclosure in many studies (e.g. Forker, 1992; Cheng and Courtenay, 2006, Abraham and Cox, 2007; Li et al., 2008; Laksamana, 2008; Wang and Hussainey, 2013). Following these studies, a stronger monitoring role would be expected from boards with a higher proportion of non-executive directors. Hence, a positive relationship between the proportion of non-executive directors on the board and KPI reporting will be hypothesised:

H4. There is a positive relationship between board composition and KPI reporting quantity\ quality.

3.4.2.3 Board meetings

Frequent board meetings are important as a CG mechanism, because they enable the directors to control the company effectively. Thus, it can be argued that active boards – those with more frequent meetings - are more likely to monitor financial reporting. On the other hand, a positive association between board meetings and KPI reporting is expected in accordance with signalling theory. Active boards’ members will tend to signal their performance to potential employers. There is limited literature on the association between frequent board meetings and corporate disclosure in the UK.

Laksamana (2008) reported a positive association between board meetings and the transparency of compensation disclosure. In turn, Nelson et al. (2010) found no association between board meetings and the amount of executive stock options made by Australian companies.

The current study aims to provide evidence with regard to the influence of effective boards using data from UK firms. The following hypothesis is formulated:

H5. A significant association exists between board meetings and KPI reporting quantity\ quality.

3.4.2.4 Role duality

Role duality occurs if the chief executive officer (CEO) holds the chairman position at the same time. According to agency theory, effective control over management performance will only exist if the two roles are separated (Jensen and Meckling, 1976; Haniffa and Cooke, 2002). Concentration of decision-making power resulting from role duality could result in opportunistic behaviour on the part of the CEO (Wang and Hussainey, 2013). Moreover, this may impair the board's governance role regarding disclosure policies (Li et al., 2008).

It is important to investigate the impact of role duality on KPI reporting because the results of previous studies that examined the relationship between role duality and corporate disclosure are mixed. For instance, some studies found an insignificant influence in terms of duality on CVD (e.g. Ho and Wong, 2001; Cheng and Courtenay, 2006; Ghazali and Weetman, 2006). Other studies reported a significant and negative relationship between role duality and CVD (Forker, 1992; Haniffa and Cooke, 2002; Abdelsalam and Street, 2007; Wang and Hussainey, 2013). Thus, the following hypothesis is formulated:

H6. A significant association exists between role duality and KPI reporting quantity\ quality.