Does the release of corporate governance evaluation information decrease information asymmetry? Evidence from Taiwan

Authors: Yi-Hui Tai

Journal: Corporate Management Review. Dec. 2021, 41(2): 129-166

Keywords: Corporate governance ranking, evaluation, information asymmetry, Taiwan.

Abstract:
This research takes Taiwan’s corporate governance evaluation exercises as the subject to investigate whether releasing their rankings decreases information asymmetry. I follow prior studies and focus on the stock market’ bid-ask spread as a measure of information asymmetry, while controlling for its non-information asymmetry-related components. Evidence herein demonstrates that, on average, the bid-ask spread decreases by approximately 1% on the announcement date of corporate governance evaluation rankings as well as one day before the announcement. I also explore long-window effects, documenting results that releasing corporate governance evaluation rankings does decrease information asymmetry over the four days prior to the announcement and two days after the announcement, but I do not find consistent results when I employ the number of transactions as an alternative measure of information asymmetry. I further examine whether investors’ predictable behavior and the status of corporate governance evaluation results influence information asymmetry, offering findings that information asymmetry really diminishes no matter whether the firm’s EPS in the previous period is positive or negative and whether the status of CG evaluation is upgrade, downgrade, or no change. Lastly, I highlight the empirical findings’ implications for regulatory agencies, corporate management, and the overall capital market.