Corporate Governance and the Informational Efficiency of Prices

Financial Management, Forthcoming

40 Pages Posted: 16 Mar 2011 Last revised: 11 Nov 2015

See all articles by Choonsik Lee

Choonsik Lee

University of Rhode Island

Kee H. Chung

State University of New York at Buffalo - School of Management

Sean Yang

State University of New York at Buffalo - School of Management

Date Written: March 29, 2015

Abstract

We explore the relation between corporate governance and the informational efficiency of prices (IEP). We find that IEP increases with the quality of corporate governance in a large cross-section of firms. We show that firms with better governance structures file Form 8-K reports more promptly and have more accurate analysts’ earnings forecasts, suggesting that corporate voluntary disclosures and analyst forecasts are channels through which corporate governance affects IEP. The positive relation between IEP and governance quality cannot be attributed to reverse causality or other confounding factors (e.g., analyst following, stock market liquidity, and institutional ownership). On the whole, our results show that better governance structures lead to higher IEP by improving the speed and extent of corporate information disclosures.

Keywords: Corporate governance, Transparency, Market efficiency, Liquidity

JEL Classification: G10, G14, G30

Suggested Citation

Lee, Choonsik and Chung, Kee H. and Yang, Sean, Corporate Governance and the Informational Efficiency of Prices (March 29, 2015). Financial Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1786048 or http://dx.doi.org/10.2139/ssrn.1786048

Choonsik Lee

University of Rhode Island ( email )

Ballentine Hall
7 Lippitt Road
Kingston, RI 02881
United States

HOME PAGE: http://sites.google.com/site/choonsiklee79/

Kee H. Chung (Contact Author)

State University of New York at Buffalo - School of Management ( email )

Buffalo, NY 14260
United States
716-645-3262 (Phone)
716-645-3823 (Fax)

HOME PAGE: http://mgt.buffalo.edu/faculty/academic-departments/finance/faculty/kee-chung.html

Sean Yang

State University of New York at Buffalo - School of Management ( email )

Jacobs Management Center
Buffalo, NY 14222
United States

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