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Information Asymmetry and Corporate Governance

Author

Listed:
  • 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)

  • Yiming Qian

    (Henry B. Tippie College of Business, University of Iowa, Iowa City, IA 52242, USA)

  • Miaomiao Yu

    (Edwards School of Business, University of Saskatchewan, Saskatoon, SK, Canada)

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.

Suggested Citation

  • Jie Cai & Yixin Liu & Yiming Qian & Miaomiao Yu, 2015. "Information Asymmetry and Corporate Governance," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 5(03), pages 1-32, September.
    • Handle: RePEc:wsi:qjfxxx:v:05:y:2015:i:03:n:s2010139215500147
    DOI: 10.1142/S2010139215500147
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    2. Guy Schofield, 2020. "Evidence of governance arbitrage by private equity sponsors," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(S1), pages 971-1005, April.
    3. Anne-Marie Anderson & Nandu Nayar, 2022. "Can regulation enhancing the shareholder franchise increase firm value?," Journal of Regulatory Economics, Springer, vol. 61(3), pages 191-221, June.
    4. Hafezali Iqbal Hussain & Azlan Ali & Hassanudin Mohd Thas Thaker & Mohsin Ali, 2019. "Firm Performance and Family Related Directors: Empirical Evidence from an Emerging Market," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 13(2), June.
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    8. Edward Jones & Hao Li & Oluwagbenga Adamolekun, 2022. "Excess Cash Holdings, Stock Returns, and Investment Organicity: Evidence from UK Investment Announcements," Abacus, Accounting Foundation, University of Sydney, vol. 58(4), pages 603-647, December.
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    11. Rania B'eji & Ouidad Yousfi & Abdelwahed Omri, 2021. "Corporate Social Responsibility and Corporate Governance: A cognitive approach," Papers 2102.09218, arXiv.org.
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