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This study investigates whether better corporate governance enhances the efficiency of stock pricing in the Korean stock market. The variance ratio (Lo and MacKinlay, 1988) is set as a proxy variable for the efficiency of stock pricing. Moreover, the degree of delayed stock pricing (Hou and Moskowits, 2005) is used as a proxy for the inefficiency of stock pricing. In addition, another measure of delayed stock pricing (Hou and Moskowits, 2005) is used as an additional proxy. Moreover, the Hurst Index, representative of the efficiency of stock pricing, is also used. According to the empirical investigation, better corporate governance drives the variance ratio to one (unity), reduces the degree of delay in stock pricing, and leads to a Hurst Index of 0.5, which represents the random walk process of the stock returns. Finally, for robustness checks, idiosyncratic volatility and skewness are set as dependent variables. The empirical results show that better governance reduces the idiosyncratic volatility and the skewness of individual stock returns. These findings indicate that better corporate governance enhances stock pricing efficiency. These results are therefore linked to the previous literature that argues that good governance should be set up necessarily.

The Effects of Corporate Governance on Stock Pricing Efficiency in the Korean Stock Market