Information Asymmetry, Corporate Governance, and Shareholder Wealth: Evidence from Unfaithful Disclosures of Korean Listed Firms

In this study, we investigate firms that the Korea Exchange claims have made unfaithful dis-closures. We find that such firms experience significantly negative stock price returns, sug-gesting that their managements exploit the information asymmetry involved in unfaithfuldisclosures to expropriate shareholder wealth. Our evidence shows that firms with highermanagement ownership experience a smaller decline in stock returns following notices ofunfaithfulness, implying that corporate governance could improve the overall informationenvironment and thus eventually help mitigate the information asymmetry associated withinvestors’ lack of timely and correct information. An evaluation of idiosyncratic volatility, adirect measurement of information asymmetry, confirms our results.