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

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  • Steve Fan

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.

Suggested Citation

  • Steve Fan, 2013. "Corporate Governance and Information Content of Stock Trades: Evidence from S&P 100 Companies," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 7(3), pages 41-56.
    • Handle: RePEc:ibf:ijbfre:v:7:y:2013:i:3:p:41-56
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    References listed on IDEAS

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    More about this item

    Keywords

    Information Content; Corporate Governance; Governance Mechanisms; Vector Autoregression (VAR);
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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