Insider Entrenchment, Board Leadership Structure and Informativeness of Earnings

This paper uses US data to provide evidence regarding the relationship between earnings informativeness and different levels of insider shareholding including insider entrenchment. At medium levels of insider shareholding (convergence of interests e.g., 5 percent and 25 percent), there is a positive association between earnings informativeness and increase in shareholding. At high levels of insider shareholding (insider entrenchment e.g., more than 25 percent), there is a negative association between earnings informativeness and increase in shareholding. In addition, we show that non-CEO duality is viewed by the market as a way of reducing agency costs for insider-entrenched firms. In other words, the association between informativeness of earnings and different levels of insider ownership depends on the board's leadership structure. Finally, we show that there is a negative (positive) association between increase in insider shareholding and discretionary accruals only for firms with CEO duality at medium (high) levels of insider shareholding