Corporate Governance and Stock Price informativeness: Evidence from an Emerging Market

Abstract

Emerging markets usually have weaker legal and governance environment. The weaker enforcement of investor protection laws leads to a poor information environment. Using data of all the listed non-financial firms from Pakistan stock exchange (PSX), we document the relationship between corporate governance variables and stock price informativeness. The results from two-stage least squares (2SLS) reveal that controlling shareholders in the form of block holding plays an effective role in improving informativeness. Due to the presence of these block ownership, the institutional investors remain largely short term investors and act passively. This behavior of institutional investors encourages managers to extract more cash flows leading to higher synchronicity. These findings suggest market regulators develop such a corporate governance mechanism that not only ensures investor protection but also advise firms to reduce information asymmetry by better disclosure and transparency. More specifically, in the Pakistani context, traditional corporate governance mechanisms through board room regulations may not improve informativeness, and regulators need to regulate the ownership regulations, including family ownership and controlling shareholders.

الدور التأثيري لدقة توقعات الأرباح كمتغير وسيط في العلاقة بين لزوجة التكاليف والمحتوى المعلوماتي لأسعار الأسهم: دليل تطبيقي من البيئة المصرية

“…‫المحاسبية‬ ‫األدبيات‬ ‫وتركز‬ (e.g., Chen et al, 2010;Guenther et al, 2014;Banker et al, 2018;Reimer, 2019;Cannon et al, 2020;Agarwal, 2022 (Anderson et al, 2003;Guenther et al, 2014;Banker et al, 2018;Reimer, 2019) ، ‫وتلعب‬ ‫في‬ ً ‫حاسما‬ ً ‫دورا‬ ً ‫أيضا‬ ‫اإلدارية‬ ‫التوقعات‬ ‫تكاليف‬ ‫نظرية‬ ‫التعديل‬ Chen et al, 2019;Hartlieb, 2023 (Anderson et al, 2003;Guenther et al, 2014;Costa and Habib, 2021) . ‫توصلت‬ ‫التي‬ ‫التجريبية‬ ‫الدراسات‬ ‫نتائج‬ ‫مع‬ ‫النتائج‬ ‫هذه‬ ‫وتتماشى‬ ‫الشركات‬ ‫حوكمة‬ ‫آليات‬ ‫أن‬ ‫إلى‬ (Chen et al, 2012;Ezat, 2014;Loy and Hartlieb, 2021 ‫المستقبلية‬ ‫األرباح‬ ‫بشأن‬ ‫السوق‬ ‫في‬ ‫المشاركين‬ ‫توقعات‬ (Lyimo & Pradesh, 2014;Lee, 2018;Todea, 2018;Choi et al, 2019;Almasarwah et al, 2020;Rasheed & Kouser, 2020;Abedifar et al, 2021;Li & Sun, 2023;Zhang et al, 2023) . (Collins et al, 1994;Gelb & Zarowin, 2002;Lundholm & Myers, 2002;Lee, 2018; (Collins et al, 1994;Lundholm & Myers, 2002;Haw et al, 2012;Agnes Cheng & Li, 2014;Choi et al, 2019) .…”