Corporate Governance and Information Content of Stock Trades: Evidence from S&P 100 Companies

This paper studies the relationship between firms' corporate governance quality and information content of stock trades. Following Hasbrouck (1991) method, a trade's information content is defined as persistent impact of trade innovation on stock price. Using firm-level governance data, we show that the information content is negatively correlated with firms' corporate governance quality for the S&P 100 companies. Further analysis shows that board of directors is the main governance mechanism contributing to the negative correlation, while audit, anti-takeover, and compensation do not play a significant role. Our results provide empirical evidence to support the theory that corporate governance improves firms' information environment. It provides guidance on governance system design to reduce information asymmetry.