Adverse Selection and Corporate Governance

• Main Authors: Charoenwong, Charlie, DING, David K., Siraprapasiri, Vasan
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2011
• Subjects: Corporate governance; Adverse selection; GLCs; Asian Studies; Finance and Financial Management; Portfolio and Security Analysis
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/3596; https://ink.library.smu.edu.sg/context/lkcsb_research/article/4595/viewcontent/Adverse_selection_and_corporate_governance_av.pdf
• Institution: Singapore Management University

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.