Corporate governance and information asymmetry between managers and investors

The purpose of this paper is to investigate the impact of governance on information asymmetry between managers and investors. Hence, the paper seeks to extend prior voluntary disclosure research.

The paper investigates how a firm's governance maps into the level of information asymmetry between managers and investors. Governance encompasses two complementary dimensions: formal monitoring attributes and voluntary disclosure about board processes. Information asymmetry is measured by either share price volatility or Tobin's Q.

The results show that some formal monitoring attributes (board and audit committee size) as well as the extent of voluntary governance disclosure reduce information asymmetry. This suggests that governance disclosure may complement a firm's governance monitoring attributes, especially in a country such as Canada where investors have good legal protection. It appears also that firms take into account ultimate costs and benefits to shareholders when determining their governance disclosure.

To the best of the authors' knowledge, this study is the first to investigate the impact of voluntary governance disclosure on information asymmetry.