Yosuke Kakinuma

This paper presents an empirical evidence of a time-varying relationship between corporate governance and its impacts on stock returns in Thailand. The governance grades assessed by the Thai Institute of Directors are used as governance measurement for the analysis. The parameters estimated by Fama-Macbeth regression indicate that firms with higher governance ratings generate greater expected stock returns in a long run. However, on yearly basis, the positive relationship deteriorates and loses explanatory power in the most of the tested years. The coefficients of governance ratings estimated by fixed effect regression are examined for statistical difference, which confirms that effect of corporate governance on stock returns differs year by year. While there are some distinct years that governance ratings affect stock prices positively, higher governance ratings lead to lower returns in other particular years. The both positive and negative magnitudes of corporate governance’s impact on expected returns do not stay the same over time. Good governance practice at a firm does not always yield positive returns to investors.