Corporate Governance and the Informational Efficiency of Prices
Financial Management, Forthcoming
40 Pages Posted: 16 Mar 2011 Last revised: 11 Nov 2015
Date Written: March 29, 2015
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: Suggested Citation