Board and auditor interlocks and voluntary disclosure in annual reports

This paper explores the role o f the interlock ties of the board of directors and the external auditors in facilitating cross-firm diffusion of voluntary disclosure practices. Using data from 149 companies listed on the Dutch stock exchange, we investigated the relationship between a firm ’s voluntary disclosure of financial and non-financial performance measures in its annual report and the incidence of disclosure of these performance indicators in annual reports of other companies to which the firm is related via the interlock ties of the executive and supervisory board members and its auditor. To cover a firm ’s financial and non-financial aspects of performance, we classified the incidence in the annual report of the different performance measurement items within the four Balanced Scorecard perspectives of Kaplan and Norton (1992 and 1996). Our results suggest that firms with board members who also sit on the boards of directors of other firms have a higher probability of voluntarily reporting similar financial and non-financial disclosures in their companies’ annual reports. The experience o f the CEO is relevant for information disclosure about customers, while members of the supervisory board, especially the chairman, seem to promote additional information about learning and growth. Finally, the experience of the auditor matters for disclosure of financial performance indicators in the annual report. Geert Braam, Nijmegen Center for Economics (NiCE), Institute for Management Research, Radboud University Nijmegen, P.O. Box 9108, 6500 HK Nijmegen, The Netherlands, g. braam@fm. ru. nl. Lex Borghans, Department of Economics, Faculty of Economics and Business Administration Maastricht University, P.O. Box 616, 6200 MD Maastricht, The Netherlands, [email protected]