Information Asymmetry and Corporate Governance

Download or read book Information Asymmetry and Corporate Governance written by Jie Cai and published by . This book was released on 2016 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the impact of a firm's asymmetric information on its choice of three mechanisms of corporate governance: the intensity of board monitoring, the exposure to market discipline, and CEO pay-for-performance sensitivity. We find that firms facing greater asymmetric information tend to use less intensive board monitoring but rely more on market discipline and CEO incentive alignment. These results are consistent with the monitoring cost hypothesis. In addition, we find that high information-asymmetry firms that have to substantially increase board monitoring intensity after Sarbanes-Oxley Act suffer poor stock performance. Our evidence therefore suggests that regulators should use caution when imposing uniform corporate governance requirements on all firms.