Does corporate governance matter? Here, in Baltics? Particularly, do listed companies of Estonia, Latvia and Lithuania can increase their share prices through better corporate information disclosure practices? These questions were raised last spring in Stockholm School of Economics in Riga with help of Riga Stock Exchange by my partner Inga Zarecka, currently a student of Heriot-Watt University of Edinburgh, and me in Bachelor thesis writing process. Our intention was to evaluate numerically the effect of corporate governance on stock returns of listed companies in Baltic States.
Apart from identification of general links between information disclosure and corporations valuation, one can find stated questions especially interesting under current poor economic environment of the region. Good knowledge about companies is the first step to attract foreign capital to the countries, which is so required today for Baltic economies. But results we have found during the study process are not very promising. As could be expected more transparent companies might gain benefit which is greater than costs of preparing report which is expressed in excess stock returns. However, the opposite effect was observed in empirical analysis of the paper. The group of companies with poor reporting standards significantly outperform the companies with high quality corporate information disclosure.
Research Question
We were interested whether the companies of Baltic stock exchanges gain an extra advantage in their share price values through “best practice” reporting. In order to answer this question the authors investigated whether investors earn positive returns on a long “high information disclosure level” portfolio and a short “low information disclosure” portfolio.
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