Stock co-movement and governance bundles: Does the quality of national governance moderate this relationship?

In this study we examine if corporate governance, as a bundle, can better explain stock co-movement. To test the implication of governance bundles on stock co-movement, we consider a monitoring and incentive alignment bundle. Using 2659 firm–year observations from 321 firms listed on the S&P 500 from 2009-2017, we find that the governance mechanism bundle can enhance the ability of stock prices to integrate better firm-specific information, which reflects on stock co-movement. In addition, we find the existence of a complementary relationship between National Governance Quality and a firm’s board monitoring. This also helps in explaining the puzzle of stock co-movement. The findings will extend the understanding about the co-movement related literature mentioned in the corporate governance and corporate finance research. The findings are also helpful for decision makers and policy makers involved in the efficient controlling of stock co-movement.

This is the peer reviewed version of the following article: Egwuonwu, A, Lodh, S, Nandy, M. Stock co-movement and governance bundles: Does the quality of national governance moderate this relationship? Int J Fin Econ. 2023; 28: 2530–2548, which has been published in final form at https://doi.org/10.1002/ijfe.2548. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. This article may not be enhanced, enriched or otherwise transformed into a derivative work, without express permission from Wiley or by statutory rights under applicable legislation. Copyright notices must not be removed, obscured or modified. The article must be linked to Wiley’s version of record on Wiley Online Library and any embedding, framing or otherwise making available the article or pages thereof by third parties from platforms, services and websites other than Wiley Online Library must be prohibited.