Download This PaperThe Limitations of Stock Market Efficiency: Price Informativeness and CEO Turnover
Review of Finance, 21(1), 2017, 153-200.
82 Pages Posted: 27 Apr 2009 Last revised: 9 Nov 2021
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The Limitations of Stock Market Efficiency: Price Informativeness and CEO Turnover
The Limitations of Stock Market Efficiency: Price Informativeness and CEO Turnover
Date Written: February 28, 2013
Abstract
There is a tenuous link between market efficiency and economic efficiency in that stock prices are more informative when the information has less social value. We investigate this link in the context of CEO turnover. Our theoretical model predicts that, when the board’s monitoring intensity and the informed trader’s information decision are jointly endogenized, stock price informativeness is negatively related to the board’s monitoring effort. Our empirical tests provide supporting evidence for this negative effect. Moreover, using the passage of the Sarbanes-Oxley Act (SOX) as a quasi-natural experiment, we find that SOX, while strengthening corporate governance, has a negative effect on stock price informativeness, especially among firms with complex organizational structures.
Keywords: Price informativeness; Monitoring; CEO turnover; SOX
JEL Classification: D82, G18, G34
Suggested Citation: Suggested Citation
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