Investors’ Reaction to the Implementation of Corporate Governance Mechanisms

Abstract

The study investigates the impact of corporate governance on investor reaction. This is the first study till date that addresses this gap in literature. The design of the study comprises of corporate governance, investor reaction. Data was taken from 125 non-financial sector of Pakistani companies listed at KSE for the period of 2005-2010. Data was extracted from balance sheet analysis (SBP report), KSE website and annual reports of companies. Correlation (individual and composite) and linear regression tests were applied to validate the outcomes. The results confirm that there is no impact of corporate governance on investor reaction and relationship between them is negative. This implies the inefficiency of financial market where noise trades create sentiment.