Corporate Governance and Conditional Skewness in the World's Stock Markets

Asian Institute of Corporate Governance at Korea University Working Paper

47 Pages Posted: 24 Jul 2003

See all articles by Kee-Hong Bae

Kee-Hong Bae

York University - Schulich School of Business

K.C. John Wei

Hong Kong Polytechnic University

Chan-Woo Lim

Korea University Business School (KUBS)

Date Written: June 2003

Abstract

We investigate why emerging stock market returns tend to be more positively skewed than developed stock market returns. We argue that differences in the quality of corporate governance matter for return skewness. There are two reasons. First, poorly governed economies facilitate risk sharing among affiliated firms. Second, lack of mechanisms to govern managerial discretion in poorly governed economies allows managers to have a wider scope to hide bad news. Using data from 38 countries around the world, we find that positive skewness is most profound in stock markets with poor corporate governance. Further analysis of the firm-level data from the Korean equity market corroborates the evidence from the cross-country analysis.

Keywords: skewness, risk sharing, discretionary disclosure

JEL Classification: G14, G34

Suggested Citation

Bae, Kee-Hong and Wei, Kuo-Chiang (John) and Lim, Chan-Woo, Corporate Governance and Conditional Skewness in the World's Stock Markets (June 2003). Asian Institute of Corporate Governance at Korea University Working Paper. Available at SSRN: https://ssrn.com/abstract=421343 or http://dx.doi.org/10.2139/ssrn.421343

Kee-Hong Bae (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext) 20248 (Phone)
416-736-5687 (Fax)

Kuo-Chiang (John) Wei

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

Chan-Woo Lim

Korea University Business School (KUBS) ( email )

Anam-Dong, Seongbuk-Gu
Seoul 136-701, 136701
Korea

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