Abstract
Independent directors are valuable because they do not suffer from the agency coststhat afflict executive directors. Independent directors also operate at an informationaldisadvantage compared with executive directors, which makes it hard for them to carryout their duties of advising and monitoring, and thus affects their value. I test theimpact of the cost of information acquisition on board structure by exploiting a change inan accounting standard that forced US public firms to be more transparent about theiroperations. Analysts’ forecasts subsequently became more precise and less dispersedfor the firms more affected, suggesting that the cost of information acquisition hasdecreased. Consistent with independent directors’ greater value, I document an increasein appointed independent directors. Cross-sectional tests suggest that independentdirectors are more valuable because of their improved monitoring capacity, as opposed totheir advising capacity. Robustness tests using alternative data sources do not confirmthe findings. Implications are discussed.