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Corporate governance, violations and market reactions

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  • Kouwenberg, Roy
  • Phunnarungsi, Visit

Abstract

We test the relation between firm-level corporate governance and the market reaction to announcements of violations of rules and regulations by Thai listed firms. We find no significant difference in market reaction when firms with high and low governance scores commit violations. We do find a larger negative abnormal return when firms with low past violation records violate the rules. The market reaction is especially strong, −8.1% on average, when firms with low past violations and low governance scores commit violations. The evidence suggests that investors rely on a combination of observed behavior (violations) and the firm's formal governance policies to learn about the firm's true governance practices.

Suggested Citation

  • Kouwenberg, Roy & Phunnarungsi, Visit, 2013. "Corporate governance, violations and market reactions," Pacific-Basin Finance Journal, Elsevier, vol. 21(1), pages 881-898.
    • Handle: RePEc:eee:pacfin:v:21:y:2013:i:1:p:881-898
    DOI: 10.1016/j.pacfin.2012.06.006
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    8. Burak Pirgaip & Mehmet Berktay Akyüz, 2020. "To Be Rated or To Be Indexed: Corporate Governance Rating Experience in Borsa Istanbul," Istanbul Business Research, Istanbul University Business School, vol. 49(2), pages 271-300, November.
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    More about this item

    Keywords

    Corporate governance; Violations; Event study; Market reaction;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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