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Control-Ownership Wedge , Disclosure Incentives , and Stock Price Informativeness : International Evidence

Using a sample of firms with ultimate ownership data from 9 East Asian and 13 Western European countries, this study investigates whether the wedge between voting rights (control) and cash flow rights (ownership) influences a firm’s information environment, in particular, the extent to which firm-specific information is incorporated into stock prices which we conveniently call stock price informativeness (SPI). We find that SPI decreases with the control-ownership wedge, and that the SPI-reducing effect of the wedge is attenuated for firms with high analyst following and in countries with strong institutions. Finally, we also find that SPI decreases with analyst following, but this SPIreducing effect of analyst coverage is attenuated in countries with strong institutions. This finding suggests that strong institutional environments are conducive to analysts producing and disseminating more firm-specific information relative to common (marketwide and/or industry-wide) information.