Are Investors Concerned by Annual Corporate Governance Reports? Some Evidence from the Spanish Stock Market

Abstract

While prior research has generally shown a positive price reaction to voluntary declarations of compliance with codes of corporate governance, this is the first paper to examine how investors react to the release of mandatory corporate governance reports. Positive reactions to declarations of compliance are generally interpreted in terms of signalling effects for those companies more committed with transparency. However, once corporate governance reports are mandatory, such signalling effects make no sense anymore. In the current context, the market would react according to the relevance of the information conveyed by the report. While prior related research has examined market reactions only through the behaviour of returns, we use three indicators: returns, price volatility and trading volumes. Our main result would be the lack of a significant market reaction to the release of corporate governance reports. This finding is robust as it is reported for each indicator of market reaction. However, for some subsamples of firms we show some weak reactions in the lines suggested by the agency theory. Our results might have some implications for regulators and policy makers when designing corporate governance regulations.