Information Asymmetry and Corporate Governance

Jie Cai, Yixin Liu (), Yiming Qian and Miaomiao Yu ()
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Jie Cai: Drexel University, LeBow College of Business, Department of Finance, Philadelphia, PA 19014, USA
Yixin Liu: University of New Hampshire, Peter T. Paul College of Business and Economics, Accounting & Finance Department Durham, NH 03824, UK
Miaomiao Yu: Edwards School of Business, University of Saskatchewan, Saskatoon, SK, Canada

Quarterly Journal of Finance (QJF), 2015, vol. 05, issue 03, 1-32

Abstract: We examine the impact of a firm’s asymmetric information on its choice of three mechanisms of corporate governance: The intensity of board monitoring, the exposure to market discipline, and CEO pay-for-performance sensitivity. We find that firms facing greater asymmetric information tend to use less intensive board monitoring but rely more on market discipline and CEO incentive alignment. These results are consistent with the monitoring cost hypothesis. In addition, we find that high information-asymmetry firms that have to substantially increase board monitoring intensity after the Sarbanes–Oxley Act suffer poor stock performance. Our evidence therefore suggests that regulators should use caution when imposing uniform corporate governance requirements on all firms.

Keywords: Corporate governance; asymmetric information; board monitoring; pay-for performance; anti-takeover provisions (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (20)

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DOI: 10.1142/S2010139215500147

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