Corporate governance, information asymmetry and firm performance: evidence from Thailand

Kobsidthi Silpachai, Sununta Siengthai and Roger Levermore

Cogent Economics & Finance, 2024, vol. 12, issue 1, 2379583

Abstract: This paper aims to examine the effect of corporate governance (CG) and information asymmetry (IA) on firm performance (FP). We applied 3SLS (Three-Stage Least Squares) regressions to examine the relationships among (1) internal CG mechanism and FP, (2) internal CG mechanism and IA, and (3) IA and FP. The data used in this study were obtained from secondary sources such as Bloomberg and SETSMART. The period of data collection was for nine years, from 2014 to 2022, with a sample size of 3,692 firm-year observations of companies listed on the Thailand Stock Exchange. Our study finds that internal CG mechanisms (board size, board independence, dividend policy, and financial leverage) are positively related to firm performance. Secondly, CG mechanisms are positively associated with analyst coverage (and hence inversely related to IA). This finding suggests that internal CG mechanisms augment corporate transparency and reduce agency costs and adverse selections. Thirdly, IA is inversely related to firm performance, ie more transparent firms with greater analyst coverage tend to deliver better firm performance as monitoring costs and adverse selection are reduced. We found that additional analyst coverage is associated with an increase of a firm’s ROE by 0.52% and its ROA by 0.08%. Fourthly, we further conducted an interaction effect analysis of CG and IA on FP and found that IA also significantly moderates the relationship between CG and FP. Practical implications from our study are also discussed.This paper aims to examine the effect of corporate governance (CG) and information asymmetry (IA) on firm performance (FP) in an emerging market of Thailand. Our study finds that internal CG mechanisms (board size, board independence, dividend policy, and financial leverage) are positively related to firm performance. Secondly, CG mechanisms are positively associated with analyst coverage (and hence inversely related to IA). This finding suggests that internal CG mechanisms augment corporate transparency and reduce agency costs and adverse selections. Thirdly, IA is inversely related to firm performance, i.e., more transparent firms with greater analyst coverage tend to deliver better firm performance as monitoring costs and adverse selection are reduced. We found that additional analyst coverage is associated with an increase of a firm’s ROE by 0.52% and its ROA by 0.08%. Fourthly, we further conducted an interaction effect analysis of CG and IA on FP and found that IA also significantly moderates the relationship between CG and FP.

Date: 2024
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DOI: 10.1080/23322039.2024.2379583

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