Corporate Governance as a Determinant of Stock Price Synchronicity: Empirical Evidence from Pakistan

Abstract

The objective of this study is to investigate the association of investor protection (IP) and stock price synchronicity (SPS). Based on the theory that a strong IP reduces information asymmetry (IA) and enhances the quality of firm fundamental information through disclosures of annual reports. Such information is then considered for investment decisions. SPS is measured by Co-movement of majority of share prices in either direction in a stock market, while IP is proxied by Size of the Board of Directors, ratio of the independent directors to total size, and audit committee. Data has been downloaded from State Bank of Pakistan, Companies web sites, and Pakistan Stock Exchange for the period 2010-17. Using panel data analysis techniques, results show that IP and SPS are negatively related. These findings suggest that companies with strong IP help in reducing IA and thus increase the use of FFIs for investment purposes.