How informative is the Thai corporate governance index? A financial approach

Hodgson, Allan, Lhaopadchan, Suntharee and Buakes, Sitapa (2011) How informative is the Thai corporate governance index? A financial approach. International Journal of Accounting and Information Management, 19 1: 53-79. doi:10.1108/18347641111105935

Author Hodgson, Allan
Lhaopadchan, Suntharee
Buakes, Sitapa
Title How informative is the Thai corporate governance index? A financial approach
Journal name International Journal of Accounting and Information Management   Check publisher's open access policy
ISSN 1834-7649
Publication date 2011
Sub-type Article (original research)
DOI 10.1108/18347641111105935
Volume 19
Issue 1
Start page 53
End page 79
Total pages 27
Place of publication W Yorks, United Kingdom
Publisher Emerald Group Publishing
Collection year 2012
Language eng
Formatted abstract
Purpose - Prior research, in mainly Western economies, suggests the level of corporate governance is financially important. As an emerging economy case study, the purpose of this paper is to investigate whether the Thai Institute of Directors (IOD) corporate governance index provides investors with financial information about fundamental value and arbitrage portfolio decisions, and if/how information content changes over time.
Design/methodology/approach - Logistic regressions using 11 financially dependent variables and a "good governance" dummy variable, constructing zero-cost buy-sell portfolios, and Fama-French cumulative average returns (CARs), over the period 2001-2006.
- The predicted significant relationships between a "good governance" categorization and financial proxies for firm performance; and zero-cost portfolios that generate very high future monthly excess returns early in the study period, which are then dissipated by 2006, are found. These high returns were also associated with insignificant or inconsistent ten-day CARs after the announcement of an improving (deteriorating) index category, but with a more rapid reaction in 2006.
Research limitations/implications - Results suggest that either (or in a combination): the Thai stock market had a slow learning adjustment to the governance index because of uncertainty as to information content; the IOD was incomplete and needed fine tuning and updating before full information impact was realized; and other time-specific factors meant the IOD was of a lesser importance. One limitation is the data time period and the extension of the governance analysis to the global financial crisis years.
Practical implications - Governance information content in Thailand was not (initially) fully integrated into prices with substantial arbitrage returns available to astute investors. Continual re-assessment and improvement of governance reporting should be an agenda requirement.
Originality/value - The paper forms an extension of governance studies into an Asian emerging economy, and determination of time-varying information content and arbitrage opportunities.
Keyword Thailand
Corporate governance
Emerging markets
Portfolio investments
Content management
Q-Index Code C1
Q-Index Status Confirmed Code
Institutional Status UQ
Additional Notes 'Research Paper'

Document type: Journal Article
Sub-type: Article (original research)
Collections: Official 2012 Collection
UQ Business School Publications
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Citation counts: Scopus Citation Count Cited 9 times in Scopus Article | Citations
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Created: Wed, 02 Mar 2011, 11:08:56 EST by Karen Morgan on behalf of UQ Business School