Director Industry Expertise and Voluntary Corporate Disclosure

Abstract

We examine if firms with directors with related industry expertise (DRIs), or directors that are supply chain partners, exhibit a greater propensity to forecast earnings, and improve the specificity and accuracy of forecasts. Using instrumental variables to mitigate endogeneity, we find that DRIs and supply chain partners possess unique insights which improve managerial forecasts especially when there is greater earnings uncertainty (innovations along the supply chain, poor performance, operating in volatile industries). We use director deaths as exogenous shocks to board composition and confirm results. Results indicate that DRIs play an informational role in enhancing voluntary disclosures and improving corporate transparency.