Corporate Governance and Information E¢ ciency in Security Markets: Results for Smaller Cap Companies in the UK

This paper considers a new research topic within corporate governance; namely the impact of corporate governance variables on the stock market reaction to company speci…c news. This topic is important for a range of stakeholders, but especially investors, because one of the key concerns of corporations is the returns to shareholders and news (and the way it is managed) has the potential to impact on these returns. As the market reaction to news can now, given all the advances in electronic order books and the electronic transmission of news, be almost instantaneous , the analysis of the current research question has necessitated the use of the latest developments in the market microstructure literature. For a sample of 'smaller cap'companies in the UK, the study shows that a small group of corporate governance variables (board size, Chairman/CEO split, the presence of founding directors and directors having professional quali…cations) have explanatory power in terms of the market reaction to company speci…c news. The results of the paper point to the analysis of the impact of governance variables on the market reaction to news being a new and complementary research agenda within corporate governance.