The Value of Principles-Based Governance Practices and the Attenuation of Information Asymmetry

This paper focuses on the value of principles-based governance practices. Using the sample of Thai listed firms, we investigate whether firms that comply with the principles of good corporate governance incur lower financing cost and have stronger financial standing. The overall results suggest that the firms on average have significant improvements in major areas of corporate governance practices such as disclosure and transparency, the equitable treatment of shareholders, and the responsibilities of the board. Furthermore, the firms that have better governance practices enjoy lower cost of capital and are more financially viable; suggesting that good governance probably reduces the destabilizing behavior of investors as they become better informed, and mitigates agency problems between controlling shareholders and managers on one hand, and minority shareholders and other stakeholders on the other. Therefore, the guidelines for good governance practices introduced by the Stock Exchange of Thailand should serve as an important tool to bridge information gap between investors and firms, to help overall investors learn more about which firms need to be closely monitored or should be invested in, and to level the playing field for the investors.