Adverse selection and corporate governance |
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| Authors: | Charlie Charoenwong David K Ding Vasan Siraprapasiri |
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| Institution: | 1. Division of Banking and Finance, Nanyang Business School, Nanyang Technological University, Singapore 639798, Singapore;2. School of Economics and Finance, College of Business, Massey University, Auckland, New Zealand;3. Lee Kong Chian School of Business, Singapore Management University, Singapore 178899, Singapore;4. College of Management, Mahidol University, Bangkok 10400, Thailand;1. Division of Banking and Finance, Nanyang Business School, Nanyang Technological University, Singapore 639798, Singapore;2. School of Economics and Finance, College of Business, Massey University, Auckland, New Zealand;3. Lee Kong Chian School of Business, Singapore Management University, Singapore 178899, Singapore;4. College of Management, Mahidol University, Bangkok 10400, Thailand;1. GAEL–INRA Grenoble, France;2. Copenhagen Business School, Denmark;1. Federal Reserve Bank of Cleveland, Cleveland, OH 44101, USA;2. Department of Economics, University of Notre Dame, Notre Dame, IN 46556, USA;3. Federal Reserve Bank of Cleveland, 419-320-300, USA;4. Centro de Estudios Monetarios Latinoamericanos, Mexico;5. EGADE Business School, Tecnologico de Monterrey, Mexico;6. Division of Research and Statistics, Federal Reserve Board, Washington, DC 20551, USA;1. Primary Health Care Service of Camp de Tarragona, Institut Catalá de la Salut, 43001 Tarragona, Spain |
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| Abstract: | This paper examines the impact of corporate governance on the adverse selection component of the bid-ask spread of stocks listed on the Singapore Exchange. These companies have been identified by Credit Lyonnais Securities Asia (CSLA) with the highest level of corporate governance among 25 emerging markets. We measure corporate governance by several criteria: discipline, transparency, independence, accountability, responsibilities, fairness, and social awareness. The results show that corporate governance has an inverse relationship with adverse selection. However, only the transparency dimension exhibits a significant inverse relationship with adverse selection. In addition, Government-Linked Companies (GLCs) are shown to have a smaller adverse selection component than non-GLCs. |
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