Corporate
Governance, Corporate Disclosure Policies and
the Timeliness of Price Discovery: An International Study
Dr Wendy Beekes
and Professor Philip Brown, Lancaster University
(Research
sponsored by the Leverhulme Trust Grant
reference F/00 185/W – Completed August 2012)
Study
Context:
Corporate governance is a key issue for firms internationally and many
countries have issued codes which provide guidance to firms on what constitutes
‘good’ corporate governance. One of the first governance codes to be published
and adopted by a major stock exchange as a condition of listing was the Cadbury
Code (1992) in the UK, which prompted a number of countries to adopt similar
principles in their country-specific guidance.
This study examines the
benefits of good corporate governance to investors and firms on an
international basis. We examine two specific potential benefits of corporate
governance. Firstly, we focus upon whether there are any benefits to investors
in terms of greater transparency in firms’ activities and disclosures to the
share market. Secondly, we examine whether there are any cost advantages to
good corporate governance to firms when they raise funds in the market in terms
of a lower cost of capital. Our study provides evidence on the different
effects of corporate governance internationally, enabling us to make
cross-country comparisons. This study
was funded by a Leverhulme Trust grant and undertaken
under the guidance of Dr Wendy Beekes (Principal Investigator) and Professor Philip Brown (Co-Investigator) at Lancaster
University.
Study Objectives
Our earlier study of
Australian companies (and subsequent study of Canadian companies) leads us to
expect that better-governed firms tend to be more transparent and forthcoming
with information to the share market. However, we have little knowledge of
whether this result is transferable to other countries’ share markets. This is
something we wish to tease out in our cross-country analysis in this research
project. If firms with better corporate governance are more open and
forthcoming by releasing a greater quantity and quality of information, this
will enable investors to make better-informed investment decisions. We will provide insights into the impact of
corporate governance on disclosures and transparency in countries with
different stages of market development.
The availability of
information about a company’s activities and prospects in the market decreases
the amount of information asymmetry between the firm and investors. If firms
are more forthcoming with information to the market, this may be translated
into a lower cost of finance and a greater availability of investment
opportunity. If this is the case for better-governed firms, we would expect
there to be a lower cost of finance because of lower risk associated with these
firms. We investigate the link between corporate governance and the cost of
finance on a multi-country basis. We also investigate whether firms changing
their corporate governance structures obtain a lower cost of finance and how
this effect differs by country.
Significance of Research
The research questions to
be addressed by this study are:
·
‘Does better corporate governance improve the level
of transparency in firm disclosures such that investors are better informed?
·
And as a consequence, does the firm achieve a cost
advantage in raising finance?
·
How do these effects differ by country?’
We believe our study will
provide a significant contribution to existing literature; this is the first
study to our knowledge to investigate these benefits of good corporate
governance to market participants and firms themselves on an international
basis.
Our access to unique data
on an international basis and new methods in this field of research, will allow
us to make international comparisons across firms and over time which were
previously not possible in this area. The results of our study will be of
interest to academics, the accounting profession, the finance community,
regulators and the public at large. Our research findings will have
implications for policy making in corporate governance and firm’s governance
structure choices; it may also help identify places where individuals might
prefer to invest their savings.
Related prior/concurrent work
·
Beekes, W. and P. Brown (2006) ‘Do
Better-Governed Australian Companies Make More Informative Disclosures?’, Journal of Business Finance and Accounting, Vol. 33(3&4), April/May, pp. 422-450.
·
Beekes, W. and P. Brown ‘On the Timeliness of Price Discovery’ Lancaster University
Working Paper
·
Aman, H., Beekes, W and P. Brown (2011) ‘Corporate Governance and Transparency in Japan’ Lancaster
University Working Paper
Working papers arising from this project:
·
Beekes, W., P. Brown, G. Chin and Q. Zhang (2012) The effects of corporate governance on information
disclosure, timeliness and market participants’ expectations. Lancaster University Working Paper
Published Output from this project:
Academic Journal Articles:
· Beekes, W.A., Brown, P., Zhan, W. and Zhang, Q (2016) ‘Corporate Governance, Companies’ Disclosure Practices, and Market
Transparency: A Cross Country Study’, Journal of Business Finance
and Accounting, Vol. 43(3) & (4), pp.
263-297.
·
Beekes, W.A. Brown, P. and Zhang, Q. (2015) ‘Corporate Governance and the Informativeness of Disclosures in
Australia: A Re-examination’, Accounting and Finance,
Vol. 55(4), pp. 931-963
·
Brown, P., Beekes, W.A. and
Verhoeven, P. (2011)
‘Corporate Governance, Accounting and Finance: A review’, Accounting & Finance. 51, 1, p. 96-172
Media Coverage of the Leverhulme Trust Funded
Work:
Links
Last Updated: 2016/05/24 by Dr W
Beekes