Corporate Governance And Transparency: Evidence From Stock Return Sychronicity

ABSTRACT

The purpose of this study was to investigate the extent of stock return synchronicity on the Ghana Stock Exchange. The study compared synchronicity levels across firm size, age and industry type. Finally, the study examined the influence of corporate governance on transparency while using stock return synchronicity as a measure of transparency. A ten year panel data spanning from 2000 to 2009 collected from 31 listed firms in Ghana was used. Daily stock returns were also collected from the Ghana Stock Exchange. A trend analysis of synchronicity was made for the 10 year period. A non-parametric comparison was made between the synchronicity levels of small and large firms, old and new firms, financial and non-financial firms using the Wilcoxon Rank Sum Test. In the empirical estimation, the study uses the panel correct standard errors as well as the Generalized Least Square techniques to provide robust evidence of governance influencing synchronicity through the information environment. The study found that newly listed firms are generally more synchronous while larger firms also exhibited higher levels of R2 . The study found Board Size, Board Composition and CEO duality to be significant determinants of transparency proxied by stock return synchronicity. Both the Panel Corrected Standard Errors and the Generalized Least Square estimations provided consistent results. After correcting for possible thin-trading effect using the Dimson’s Beta approach to estimating synchronicity, governance still remains significant determinant of transparency. The study recommends that listed firms choose smaller boards over larger boards since the free rider effect associated with larger boards can increase stock return synchronicity; hence, reducing transparency. Companies should encourage CEO duality but this must be done cautiously in order not to dilute the independence of the corporate board. Companies should increase the proportions of non-executive directors on their boards since this could negatively influence synchronicity and impacts positively on transparency.