Download this Paper Open PDF in Browser

Information Asymmetry and Corporate Governance

Forthcoming at Quarterly Journal of Finance

38 Pages Posted: 21 Mar 2008 Last revised: 2 Feb 2016

Jie Cai

Drexel University

Yiming Qian

University of Iowa - Department of Finance

Yixin Liu

University of New Hampshire

Miaomiao Yu

Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration

Date Written: January 30, 2015

Abstract

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

Cai, Jie and Qian, Yiming and Liu, Yixin and Yu, Miaomiao, Information Asymmetry and Corporate Governance (January 30, 2015). Forthcoming at Quarterly Journal of Finance. Available at SSRN: https://ssrn.com/abstract=1082589 or http://dx.doi.org/10.2139/ssrn.1082589

Jie Cai (Contact Author)

Drexel University ( email )

LeBow College of Business
Philadelphia, PA 19104
United States
215-895-1755 (Phone)
215-895-2955 (Fax)

HOME PAGE: http://faculty.lebow.drexel.edu/CaiJ/

Yiming Qian

University of Iowa - Department of Finance ( email )

S382 Pappajohn Building
Iowa City, IA 52242
United States
319-335-0934 (Phone)
319-335-3690 (Fax)

Yixin Liu

University of New Hampshire ( email )

Durham, NH 03824
United States
603-862-3357 (Phone)

Miaomiao Yu

Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration ( email )

LA 70803-6308
United States

Paper statistics

Downloads
1,616
Rank
8,197
Abstract Views
5,393