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)

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 will examine the benefits of good corporate governance to investors and firms on an international basis. We will examine two specific potential benefits of corporate governance. Firstly, we will 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 will 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 will provide evidence on the different effects of corporate governance internationally, enabling us to make cross-country comparisons. This study is funded by a Leverhulme Trust grant which will be 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 will investigate the link between corporate governance and the cost of finance on a multi-country basis. We will also seek to 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., P. Brown and G. Chin ‘Do Better Governed Firms Make More Informative Disclosures? Canadian Evidence’ Lancaster University Working Paper

· 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

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Last Updated: 25/8/2011 by Dr W Beekes