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
Date Written: June 2003
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: Suggested Citation