Abstract

This research is conducted to investigate the impact of corporate governance on stock price synchronicity in the context of the Vietnamese market. The paper tests four hypotheses proposing the effect of four crucial components of corporate governance including board size, board independence, managerial ownership, and foreign ownership on stock price synchronicity. The study sample includes 247 non-financial listed companies on the Ho Chi Minh Stock Exchange (HOSE) in Vietnam over a period of five years from 2014 to 2018. The fixed effects model is employed to address econometric issues and to improve the accuracy of the regression coefficients. The research results show the positive impact of board size and foreign ownership but the negative impact of managerial ownership on stock price synchronicity. This study confirms the viewpoint that stocks in the market move more together when the firms’ corporate governance gets better. In other words, the research findings suggest that low synchronicity signifies the corporate intransparency and weak information environment and vice versa. From this, the paper provides a new insight to managers on how to improve stock price synchronicity with corporate governance.

Highlights

  • The relationship between stock price synchronicity and price informativeness has been pointed out to be closely related to the quality of the information environment and the efficiency of the capital market

  • Our research focuses more on corporate governance as the crucial mechanism that affects the transparency of firms’ inside information environment in the context of Vietnamese emerging market

  • This paper examines the link between stock return synchronicity and corporate governance in the context of Vietnamese emerging market

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Summary

Introduction

The relationship between stock price synchronicity and price informativeness has been pointed out to be closely related to the quality of the information environment and the efficiency of the capital market. Recent research of Dzung and Quang (2019) applying the new concept “Adaptive market hypothesis”, which is the harmonization of efficient market hypothesis and behavioral finance, concluded that Vietnamese stock market’s behaviors have gradually improved and are in line with the adaptive market hypothesis Besides these developments, we cannot deny that the Vietnamese stock market is still a small frontier or emerging market with low liquidity compared to other stock markets. The result of research reveals that low stock price synchronicity in Vietnamese stock market is associated with ineffective corporate governance system, which limits transparency to the market forces. This finding contributes to the growing literature by adding more support to the view that a weak information environment leads to low synchronicity and vice versa. The part discusses empirical results, and the last one concludes main ideas, referring to implications for managers of Vietnamese companies and government authority

Literature Review and Hypotheses Development
Board Size and Stock Price Synchronicity
Board Independence and Stock Price Synchronicity
Managerial Ownership and Stock Price Synchronicity
Foreign Ownership and Stock Price Synchronicity
Research Design and Data Collection
Empirical Results and Discussion
Conclusions
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