Corporate governance and stock price synchronicity

The main objective of this thesis is to contribute to the existing literature by investigating the effect of corporate governance on firm's information environment. The study explores a number of governance mechanisms and examines their implication on the extent to which information is impounded into stock prices. The empirical analyses are developed from the existing theoretical and empirical literatures that build from the agency theory. Further, institutional structure of countries covered in the sample provide unique background that build foundation for the analysis. The first empirical analysis studies the impact of firm-level and country-level governance on firm's information environment proxy by stock price synchronicity. Using broad based firm-level corporate governance score which derive its foundation from the national corporate governance codes, the analysis investigate whether firms investment in better governance enhance information content of stock prices. Further, proportion of outsiders and board size are used to test for different governance mechanisms. In the analysis, a number of empirical tests are undertaken and reasonable changes in methodology are provided. The primary findings of this study are that better governed firms and proportion of outsiders enhance production of firm specific information. The latter is more pronounced with better country-level governance. On the other hand, firms with large boards reduce firm-specific information. The second empirical analysis examines the effect of different ownership categories on synchronicity. First, it looks at the impact of the ownership by largest shareholder within firm. Second, examines the implication of largest shareholder's relation with the firm. Third, impact of block ownership and forth, the implication of multiple blockholders by examining the number of block owners. The analysis employ holding of true owner of shares in investigating the relations. Panel regression analysis is employed to examine these relations. The study finds that ownership has significant implication on the aggregation of firm-specific information. The negative relation between largest shareholder and synchronicity is significant in countries with better institutional structure. The study also show that when the largest institution is independent, firm-specific information become more publicly available. Further, the study finds blockholders to have significant effect in the production of firm-specific information. The third empirical analysis explores the role of corporate governance on the amount of information incorporated into stock prices and how that is reflected in firm value. As such, the third empirical provides first attempt to provide direct empirical link between firm-specific information and valuation. The analysis of corporate governance and firm value is also examined. 1he study provides three main empirical findings. First, firms with informative stock prices as measured by logarithmic transformation of the R2 statistic of the market model have higher market valuation. Second, the study show· that better governed firms receives higher market valuation. Third, the relationship between firmspecific information and valuation stronger for firms with better firm-level governance and large proportion of independent non-executive directors. In addition, the relation between stock prices informativeness and firm value is stronger for firms with higher concentration of block ownership.