Title

The impact of corporate governance and political connections on information asymmetry: International evidence from banks in the Gulf Cooperation Council member countries

Author First name, Last name, Institution

Abiot Tessema, Zayed University

ORCID Identifiers

0000-0001-8423-8232

Document Type

Article

Source of Publication

Journal of International Accounting, Auditing and Taxation

Publication Date

6-1-2019

Abstract

© 2019 Elsevier Inc. This study investigates the impact of corporate governance on the level of information asymmetry. In addition, the study examines whether a firm's political connections have a moderating effect on this relationship. Based on a sample of leading listed local banks in the Gulf Cooperation Council (GCC) member countries, the findings indicate that proxies for corporate governance mechanisms are inversely related to proxies for information asymmetry. Specifically, greater board independence, blockholders, institutional ownership, and board size are associated with greater information asymmetry as reflected in share trading volume, market value of shares traded, and volatility of shares returns, whereas a Chief Executive Officer (CEO)’s also being on the Board of Directors is not significantly related to the level of information asymmetry. Moreover, removing insiders from the board may harm the company because outside directors lack the knowledge and experience to steer the company appropriately. Similarly, blockholders and institutional ownership both have a limited role in information dissemination in the GCC markets. Larger boards are ineffective in information dissemination because communication, coordination, and decision-making problems are greater. However, the interactions between the proxy for the firm's political connections and corporate governance mechanisms are negatively related to the level of information asymmetry. The results indicate that firms with strong corporate governance and political connections may disseminate more information than firms that are politically unconnected. The results also imply that firm-level governance mechanisms and political connections in the GCC are crucial to improve the level of a firm's transparency.

ISSN

1061-9518

Publisher

Elsevier Ltd

Volume

35

First Page

1

Last Page

17

Disciplines

Business

Keywords

Corporate governance, Emerging markets, GCC, Information asymmetry, Political connections, Voluntary disclosure

Scopus ID

85066302473

Indexed in Scopus

yes

Open Access

no

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