The Effects of Corporate Governance on Information Disclosure, Timeliness and Market Participants’ Expectations

Abstract

We examine whether corporate governance has an influence on Canadian firms’ disclosure practices, the timeliness of price discovery and market participants’ (analysts’) behaviour in a study of Canadian listed companies for the period 2002-2007. Our results confirm other evidence that better-governed firms make more disclosures and their stock price discovery is more timely. This suggests a complementary association between corporate governance quality and disclosure. However, despite releasing more documents overall, we find releases from better-governed firms to the stock market are made on a less timely basis, perhaps implying a more conservative approach to the release of disclosures to the stock market. We further find that analyst following is positively associated with a firm’s corporate governance quality. In addition, for firms with better corporate governance, analysts’ Earnings Per Share forecasts are more accurate and less dispersed. More detailed analysis reveals only certain components of corporate governance are associated with disclosures and overall transparency. Taken as a whole, our results confirm corporate governance can play a significant role in determining the efficiency of a country’s equity market.