Corporate governance and the divergence of learning channels

Ming Yan William Cheung, Adrian Lei, Libin Tao

Research output: Contribution to journalArticle

Abstract

We study the relation between corporate governance, market liquidity and stock price informativeness. Firms with more informative stock prices are associated with larger transaction volume, larger bid-ask spread and better corporate governance. Thisliquidity-informativeness relation is significant for firms with high antitakeover provision (bad corporate governance). However, bid-ask spread is insignificantly associated withprice informativeness for firms with less antitakeover provision (good corporate governance). This supports that firm-specific return variation better measures stock price informativeness when firm has strong corporate governance framework. Our results suggest that (i) more (less) informed trading activities associated with weak (strong) corporate governance, and (ii) corporate governance explains the cross-sectional variation in information efficiency of stock prices. Our results are consistent with theories in financial market learning that investor learn from informed trading activities associated with weak governance firms and informative disclosure from strong governance firms.

Original languageEnglish
Pages (from-to)9-15
Number of pages7
JournalCorporate Ownership and Control
Volume8
Issue number3 A
Publication statusPublished - 2011
Externally publishedYes

Fingerprint

Divergence
Corporate governance
Stock prices
Price informativeness
Trading activity
Antitakeover provisions
Informed trading
Bid/ask spread
Governance
Informativeness
Financial markets
Disclosure
Market liquidity
Information efficiency
Investors

Keywords

  • Bid-ask spread
  • Corporate governance
  • Market liquidity
  • Stock price informativeness
  • Trading volume

ASJC Scopus subject areas

  • Business, Management and Accounting(all)

Cite this

Corporate governance and the divergence of learning channels. / Cheung, Ming Yan William; Lei, Adrian; Tao, Libin.

In: Corporate Ownership and Control, Vol. 8, No. 3 A, 2011, p. 9-15.

Research output: Contribution to journalArticle

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