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
Date Written: May 25, 2013
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: Suggested Citation