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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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    References listed on IDEAS

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    Cited by:

    1. Mehdi Elhaei Sahar & Seyed Ali Vaez, 2013. "Information Asymmetry and Financing Decisions: Evidence from Iran Stock Exchange," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 3(3), pages 105-110, July.
    2. repec:wyz:journl:id:570 is not listed on IDEAS
    3. Back, Kerry E. & Li, Tao & Ljungqvist, Alexander P., 2013. "Liquidity and Governance," CEPR Discussion Papers 9739, C.E.P.R. Discussion Papers.
    4. repec:zbw:espost:173674 is not listed on IDEAS
    5. repec:kap:jbuset:v:148:y:2018:i:3:d:10.1007_s10551-015-3003-8 is not listed on IDEAS

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