Corporate Governance and Information Content of Stock Trades: Evidence from S&P 100 Companies

Steve Fan

The International Journal of Business and Finance Research, 2013, vol. 7, issue 3, 41-56

Abstract: This paper studies the relationship between firms' corporate governance quality and information content of stock trades. Following Hasbrouck (1991) method, a trade's information content is defined as persistent impact of trade innovation on stock price. Using firm-level governance data, we show that the information content is negatively correlated with firms' corporate governance quality for the S&P 100 companies. Further analysis shows that board of directors is the main governance mechanism contributing to the negative correlation, while audit, anti-takeover, and compensation do not play a significant role. Our results provide empirical evidence to support the theory that corporate governance improves firms' information environment. It provides guidance on governance system design to reduce information asymmetry.

Keywords: Information Content; Corporate Governance; Governance Mechanisms; Vector Autoregression (VAR) (search for similar items in EconPapers)
JEL-codes: G30 G34 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (1)

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