Stock Price Informativeness and Corporate Governance: An International Study

Authors


  • I would like to thank Sudipto Dasgupta (the editor), the anonymous referee(s), Philip Brown, Sie Ting Lau, Lilian Ng, Bohui Zhang, and other seminar participants at the Nanyang Technological University, the University of Western Australia, and the 2008 annual meeting of the FMA for their helpful comments. I gratefully acknowledge the financial support by the Nanyang Business School and the UWA Business School.

Jing Yu

Department of Accounting and Finance

University of Western Australia

35 Stirling Highway

Perth

WA 6009

Australia

jing.yu@uwa.edu.au

Abstract

This study investigates the cross-country relationship between firm-level corporate governance and stock price informativeness. Using firm-level data from 22 developed countries, we find that stock price informativeness, as measured by firm-specific stock return variation and future earnings response coefficients, increases with the quality of a firm's corporate governance. Further analyses show that all mechanisms except board-related governance relate positively to stock price informativeness. Finally, firm-level corporate governance plays a more significant role in strengthening the stock return–earnings associations for firms in countries with strong institutional environments. This evidence highlights the role of country-level legal investor protections in shaping the relationship between firm-level corporate governance and stock price informativeness.

Ancillary