Large share price movements, the disclosure of news and corporate governance Implications for disclosure rules

Purpose - The paper aims to examine the link between firm- level large share price movements, firm- specific company announcements and corporate governance. Stock market regulation in the UK requires firms to disclose new price- sensitive information immediately via official news providers. The paper investigates whether large share price movements are accompanied by firm disclosure. It also investigates whether corporate governance attributes influence the degree of disclosure by firms. Design/methodology/approach - The disclosure measure is constructed by identifying the largest abnormal daily stock returns for sample firms, and then firm- specific announcements in the three- day window centred on the abnormal return day are searched. Corporate governance variables known to influence disclosure practice are then collected and tested to ascertain whether they influence disclosure for positive and negative (good and bad announcements) abnormal returns. Findings - Large share price movements are accompanied by an official share price movement in 45.2 per cent of cases. This rises to 62.9 per cent when new analyst or newspaper articles are included as potential drivers of the abnormal share price return. The higher the proportion of non- executive directors and CEO/ chair duality lead to a higher incidence of bad news disclosure, suggesting increased scrutiny works. The higher the level of CEO and board ownership the lower the level of disclosure. Finally, institutional ownership concentration appears to negatively influence the level of disclosure. Originality/value - Higher levels of corporate governance are shown to lead to better firm disclosure. At the same time, the authors find that in almost 40 per cent of large abnormal share price returns no information has come to the market to drive the share price. Thus, the paper has important messages for regulators, who need to investigate why prices often move a long way without accompanying news. Shareholders, particularly institutions, should ensure high levels of disclosure by company directors.