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.