Corporate Governance and the Linkage

Abstract

Thai corporate governance (CG) practices have been reformed and heralded by the market regulators; the Office of the Securities and Exchange Commission (SEC) and the Stock Exchange of Thailand (SET), from time to time since 2001. CG scorings of voluntary listed companies are announced once a year around the fourth quarter. This study examines the linkage of CG scoring and market reactions. In addition, this research aims to find out whether the market players in the SET recognize the value of getting a CG scoring of the listed firm. The objects of this research are firstly to examine whether market players react to CG scoring announcement and secondly to investigate whether in Thai capital market abnormal returns can result from CG scoring announcement. To answer the said questions, this paper conducts event study employing 3 methodology models; mean-adjusted returns, market-adjusted returns and market-model-adjusted returns, to test the effect on stock price as a result of addition (deletion) to the CG scoring during the period of 2009 to 2013. This study finds that the market players value the CG scoring, resulting that the abnormal returns are detected for both additions and deletions. For the additions, the market price shows significant positive average abnormal returns (AAR) and cumulative average abnormal returns (CAAR) in the first announcement day. For deletion, the market price shows significant negative AAR and CAAR in the first announcement day. However, the effects of both addition and deletion slightly die out the next 2 days after announcement (after day+1). This study, also, find that among 3 methodology models; mean-adjusted returns, market-adjusted returns, and market-model-adjusted returns, the market-adjusted returns methodology is more powerful to detect the statistical significance abnormal returns than others.