Corporate Governance and the Information Content of Earnings Announcements: A Cross-Country Analysis

Using firm-level data from 23 developed markets, we document a positive association between overall firm-level governance quality and the informativeness of earnings announcements measured by abnormal stock return variance. This finding is robust after controlling for the potential endogeneity of firm-level corporate governance. Further analyses reveal that firms with strong governance show little evidence of earnings management, appoint Big 4 auditing firms, and attract analyst following, implying a positive link between strong corporate governance and the information quality of earnings announcements. Finally, there is some evidence that the relation between firm-level governance and market reactions around the announcements exists only in countries characterized by a transparent information environment and strong legal investor protection.