Information Asymmetry and Corporate Governance
Forthcoming at Quarterly Journal of Finance
38 Pages Posted: 21 Mar 2008 Last revised: 2 Feb 2016
Date Written: January 30, 2015
We examine the impact of a firm’s asymmetric information on its choice of three mechanisms of corporate governance: the intensity of board monitoring, the exposure to market discipline, and CEO pay-for-performance sensitivity. We find that firms facing greater asymmetric information tend to use less intensive board monitoring but rely more on market discipline and CEO incentive alignment. These results are consistent with the monitoring cost hypothesis. In addition, we find that high information-asymmetry firms that have to substantially increase board monitoring intensity after Sarbanes-Oxley Act suffer poor stock performance. Our evidence therefore suggests that regulators should use caution when imposing uniform corporate governance requirements on all firms.
Keywords: corporate governance, asymmetric information, board monitoring, pay-for performance, anti-takeover provisions
JEL Classification: D82, J33, G30, G32, G38
Suggested Citation: Suggested Citation