Corporate governance and the divergence of learning channels

William Cheung*, Adrian Lei, Libin Tao

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


We study the relation between corporate governance, market liquidity and stock price informativeness. Firms with more informative stock prices are associated with larger transaction volume, larger bid-ask spread and better corporate governance. Thisliquidity-informativeness relation is significant for firms with high antitakeover provision (bad corporate governance). However, bid-ask spread is insignificantly associated withprice informativeness for firms with less antitakeover provision (good corporate governance). This supports that firm-specific return variation better measures stock price informativeness when firm has strong corporate governance framework. Our results suggest that (i) more (less) informed trading activities associated with weak (strong) corporate governance, and (ii) corporate governance explains the cross-sectional variation in information efficiency of stock prices. Our results are consistent with theories in financial market learning that investor learn from informed trading activities associated with weak governance firms and informative disclosure from strong governance firms.

Original languageEnglish
Pages (from-to)9-15
Number of pages7
JournalCorporate Ownership and Control
Issue number3 A
Publication statusPublished - 2011
Externally publishedYes


  • Bid-ask spread
  • Corporate governance
  • Market liquidity
  • Stock price informativeness
  • Trading volume

ASJC Scopus subject areas

  • General Business,Management and Accounting


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