آیا اداره خوب شرکت های بزرگ عدم تقارن اطلاعات در زمان اعلان سود فصلی کاهش می دهد؟

We examine the relationship between the quality of corporate governance and information asymmetry in the equity market around quarterly earnings announcements. We use the change in market liquidity (i.e., bid–ask spreads and depths) around the announcements as a proxy for information asymmetry. We use principal components analysis to identify three factors, board independence, board structure and board activity, that capture the information in the eight individual corporate governance variables we examine. We then use ordinary least squares and two-stage least squares to estimate the relations between market liquidity changes and the following four explanatory variables: directors’ and officers’ percentage stock holdings, board independence, board structure, and board activity. Our results indicate that changes in bid–ask spreads at the time of earnings announcements are significantly negatively related to board independence, board activity, and the percentage stock holdings of directors and officers. We also find that depth changes are significantly positively related to board structure, board activity, and directors’ and officers’ percentage stock holdings. Our results are consistent with the hypothesis that firms with higher levels of corporate governance have lower information asymmetry around quarterly earnings announcements.

We examine the relationship between the quality of corporate governance and changes in information asymmetry in the equity market around quarterly earnings announcements. Prior research finds that more effective boards increase the quality and quantity of information disclosed by the firm, thereby reducing information asymmetry. The market microstructure literature indicates that market liquidity increases as information asymmetry is reduced. Based on the findings of these two streams of research, we hypothesize that increases in information asymmetry at earnings announcements are smaller for firms with stronger corporate governance. Corporate governance encompasses the controls and procedures that exist to ensure that management acts in the interest of shareholders. In addition to reducing the likelihood that management, acting in its self-interest, takes actions that deviate from maximizing the value of the firm, corporate governance mechanisms also affect the information disclosed by the firm to its shareholders. These mechanisms make it less likely that management, acting in its self-interest, does not fully disclose relevant information to shareholders or discloses information that is less than credible. A sizable body of prior research indicates that boards that do a more effective job of monitoring management enhance the quality and the frequency of information released by management (Ajinkya et al., 2005, Karamanou and Vafeas, 2005 and Klein, 2002a). These information releases include not only actual reported earnings but also voluntary disclosures such as management forecasts and other information releases. Diamond, 1985 and Verrecchia, 2001 demonstrate that, in addition to reducing the precision of private information relative to the precision of public information, increased disclosure reduces the incentive for private information search. This suggests that information asymmetry, on average, is lower for firms whose boards are more effective. We employ market liquidity (i.e., bid–ask spreads and depths) as a proxy for information asymmetry3 to examine the relationship between several board attributes which reflect the quality of corporate governance and changes in information asymmetry around earnings announcements.4 We focus on earnings announcements because prior research indicates that earnings announcements have significant price and volume effects (Beaver, 1968) and, more importantly, significant changes in bid–ask spreads (Lee et al., 1993). Given these significant changes, we are able to design more powerful tests of the effect of corporate governance on changes in information asymmetry by focusing on the period around earnings announcements. We contribute to the literature by focusing on a different aspect of the information environment.5 We investigate the impact of corporate governance quality, as proxied by several board attributes, on the information environment at the time of earnings announcements. Effective board monitoring of management should not only increase the frequency of disclosures but also enhance their quality. This, in turn, will reduce the variance of prior information and the variance of the error in the earnings announcement. Consequently, increases in information asymmetry will be smaller at earnings announcements when the quality of corporate governance is higher. While prior research has studied the links between corporate governance and disclosure and between disclosure and information asymmetry, it has not directly examined the link between corporate governance and information asymmetry. Our study provides a direct test of this link. One way of viewing the contribution of our study is that it provides a triangulation of the relationships observed in prior research. In this regard, it validates those findings by empirically documenting the relationship between corporate governance and a market-determined measure of information asymmetry (i.e., bid–ask spread and depth changes around the announcements). Using principal components analysis, we identify three factors that capture the information in our eight individual corporate governance variables. We label these factors board independence, board structure, and board activity, based on the characteristics of the individual corporate governance variables that are related to each factor. We measure changes in market liquidity (our proxy for information asymmetry) around earnings announcements as changes in bid–ask spread and depth. We then estimate the relations between market liquidity changes and the following four variables: board independence, board structure, board activity, and directors’ and officers’ percentage stock holdings, using both ordinary least squares and two-stage least squares estimation. We employ two-stage least squares estimation in order to reflect the simultaneity in the specialists’ decision to change spreads and/or depths. Our ordinary least squares and two-stage least squares results both indicate that changes in bid–ask spreads at the time of earnings announcements are significantly negatively related to board independence, board activity, and the percentage stock holdings of directors and officers. We also find that depth changes are significantly positively related to board structure, board activity, and the percentage stock holdings of directors and officers. Our results show that firms with stronger corporate governance have smaller changes in information asymmetry around quarterly earnings announcements. These findings have significant implications for both investors and regulators, as well as for future research. The smaller increase in information asymmetry around earnings announcements resulting from good corporate governance is consistent with the mission of the Securities and Exchange Commission: “…the SEC requires public companies to disclose meaningful financial and other information to the public. This provides a common pool of knowledge for all investors to use to judge for themselves whether to buy, sell, or hold a particular security. Only through the steady flow of timely, comprehensive, and accurate information can people make sound investment decisions. The result of this information flow is a far more active, efficient, and transparent capital market that facilitates the capital formation so important to our nation’s economy.”6 It is this concern for an equitable information flow that led to the adoption of Regulation Fair Disclosure by the SEC in the year 2000. In addition, this “leveling of the playing field” should increase investor confidence in the financial markets around a significant corporate information event. The remaining sections of the paper are organized as follows: Section 2 presents the research hypotheses. Section 3 describes the data and sample selection. Section 4 presents the empirical analysis and Section 5 concludes the paper.

This study examines the relationship between corporate governance quality and information asymmetry around quarterly earnings announcements. Dia- mond (1985) and Verrecchia (2001) demonstrate that voluntary information disclosures lower information asymmetry for investors. Subsequent research finds that the effectiveness of board monitoring has a significant impact on both the quantity and quality of these disclosures; companies with higher levels of corporate governance issue more frequent and more accurate earnings fore- casts ( Ajinkya et al., 2005 ) and more credible earnings ( Dey, 2006 ). Coller and Yohn (1997) find that the issuance of management earnings forecasts lowers information asymmetry in the equity market. The market microstructure liter- ature suggests that information asymmetry reduces market liquidity. Prior research documents significant decreases in market liquidity around earningsannouncements. Therefore, higher quality corporate governance should lead to smaller decreases in market liquidity, an inverse proxy for information asym- metry, around these announcements. Our univariate results indicate that average spread increases are significantly smaller around earnings announcements for firms that have greater board independence and greater board activity. Average depth decreases also are sig- nificantly smaller for firms with higher levels of board structure and board activity. Also, average depth decreases are significantly smaller for firms whose directors and officers own a greater percentage of company stock. The multivariate results demonstrate that average spread decreases signifi- cantly with board independence, board activity, and the percentage stock hold- ings of directors and officers. We also find that average depth increases significantly with board structure, board activity and the percentage stock holdings of directors and officers. Our results are consistent with our hypoth- eses and suggest that good corporate governance reduces information asymme- try around quarterly earnings announcements. The quality of corporate governance ‘‘levels the playing field’’ for all investors around what is arguably the most significant corporate information event. This finding should bolster investor confidence in the financial markets at a time when recent corporate scandals have done much to undermine this confidence. Regu- lators should also be encouraged by these results as good corporate governance contributes to the maintenance of an equitable and transparent security market. Although our study focuses on the relation between corporate governance and changes in information asymmetry around earnings announcements, we note that studying the relation between corporate governance and changes in information asymmetry in non-announcement periods is also an interesting question which we leave to future research