Corporate governance and transparency: evidence from stock return synchronicity

Abstract

Purpose – The purpose of the study is to examine the influence of corporate governance on the flow of firm-specific information in an emerging market. Design/methodology/approach – Synchronicity is estimated under assumptions of contemporaneous and non-contemporaneous relationship between individual stock returns and the market return. Possible thin-trading effect is also corrected using the Dimson’s Beta approach to estimate synchronicity. In the main empirical model, both the Panel-Corrected Standard Errors and the Generalized Least Square estimations were used to provided robust evidence of governance influencing transparency. Findings – Corporate governance was found to broadly influence the release of firm-specific information in a relatively opaque market through the information environment. However, no evidence in support of the “auditor-reputation effects” theory was found. As well, CEO duality does not create an individual powerful enough to reduce the monitoring role of boards. We further document the presence of noise trading on the Ghana Stock Exchange. Practical implications – This study suggests that specific corporate mechanism practices have implications for stock selection in a relatively high information asymmetry Capital Market. Investors require transparency; hence, firms with governance mechanisms that elicit such transparency are likely to attract investors. Originality/value – This study is the first to examine the relationship between governance and transparency while using stock return synchronicity as a proxy for transparency in an emerging Ghanaian Capital Market.