Governance Quality and Information Asymmetry

Journal of Financial Markets, Institutions and Instrument 24, 2015, pp 127-157

34 Pages Posted: 18 Jan 2010 Last revised: 5 Dec 2016

See all articles by Ahmed Elbadry

Ahmed Elbadry

University of Surrey

Dimitrios Gounopoulos

University of Bath

Frank S. Skinner

Brunel University

Date Written: May 25, 2013

Abstract

This paper explores the relationship between corporate governance and asymmetric information. We find that proxies for governance mechanisms that encourage the monitoring of managers and rewards managers for moderating shirking and perquisite consumption are inversely related to proxies for asymmetric information. Specifically, greater board independence, board activeness, performance related pay schemes and debt financing is significantly and inversely related to the degree of asymmetric information as reflected in bid-ask spreads, volatility of the share price, share trade volumes and market value of shares traded. This implies that corporate governance mechanisms that enhance managerial monitoring and rewards managers for moderating shirking and perquisite consumption can lead to improvements in the market for the firm’s shares.

Keywords: Corporate Governance Mechanisms, Asymmetric Information, Agency Theory

JEL Classification: D8, G3, G34, G38, G30, G32

Suggested Citation

Elbadry, Ahmed and Gounopoulos, Dimitrios and Skinner, Frank S., Governance Quality and Information Asymmetry (May 25, 2013). Journal of Financial Markets, Institutions and Instrument 24, 2015, pp 127-157. Available at SSRN: https://ssrn.com/abstract=1537693 or http://dx.doi.org/10.2139/ssrn.1537693

Ahmed Elbadry

University of Surrey ( email )

Guildford
Guildford, Surrey GU2 5XH
United Kingdom

Dimitrios Gounopoulos

University of Bath ( email )

School of Management,
Wessex House, Claverton Down
Bath, BA2 7AY
United Kingdom

Frank S. Skinner (Contact Author)

Brunel University ( email )

Kingston Lane
Uxbridge, Middlesex UB8 3PH
United Kingdom

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