Effects of board characteristics on information asymmetry: Evidence from the alternative investment market

This study aimed to investigate the effect of board characteristics on information asymmetry as well as examining whether the disclosure environment moderates the association between board structure and the information asymmetry of listed firms in the UK. We primarily focus on six characteristics of board composition (board size, board independence, board financial expertise, board busyness, CEO duality, and board gender diversity) and their impact on the bid-ask spread (employed as a proxy of information asymmetry). This study used the ordinary least squares (OLS) model to examine these associations. Moreover, we used system GMM and lag estimation models to test for endogeneity problems. Using a sample of 5950 observations representing the non-financial firms listed on the Alternative Investment Market (AIM) for 10 years from 2010 to 2019, we found a negative and significant relationship between board size; board independence; and female directors and information asymmetry. However, board busyness and CEO duality are positively related to information asymmetry. Furthermore, we demonstrate that information disclosure moderates the relationship between board characteristics and information asymmetry; that is, board size, independent directors, and female directors mitigate information asymmetry by improving the level of information disclosure. By contrast, busy directors and CEO duality increase the problem of information asymmetry by reducing firms' information disclosure. The results of this study have implications for UK regulators, firm boards of directors, and firm stakeholders.