Background

Stock price informativeness is considered as a key factor to represent the accuracy of firm’s
stock prices which provides all the available information about the firm’s fundamentals and
potential. Hence, this term also supports to assess that the stock price accounts of all
pertinent of public and private information becomes effective at any time with the given
price of a stock.

Recently, Stock Price Informativeness (hereafter SPI) has received considerable attention in
the finance discipline. SPI is the extent to which firm-specific information is incorporated in
stock price (Morck, Yeung, &Yu, 2000). In an efficient market, SPI incorporates all the
available information and reflects the important decisions of managers, investors, and other
participants (Sila, Gonzalez, & Hagendorff, 2017). However, enhancing SPI has remained an
issue in both the theoretical and empirical literature in the sense that the opportunistic
behavior of managers creates an environment of asymmetric information between
managers and outside investors which prevents the latter from accurately pricing firm-
related specific information (Ben-Nasr & Cosset, 2014, Kim, Zhang, Li, & Tian, 2014). Hence,
the literature has analyzed the various determinants (e.g., dividend changes, audit quality,
state ownership, and board structure) of SPI (De Cesan & Huang-Meier, 2015; Gul, Kim, &
Qiu, 2010; Hou, Kuo, & Lee, 2012: Huang & Ni, 2017) to reduce the information asymmetry
between managers and investors and of maximizing SPI.

In this context, the upper echelon theory believes that the executive characteristics could
influence the firm’s choice of strategy, which could further affect other behaviours of the
firm (Hambrick & Mason, 1984a). This conclusion has been proven by a large number of
empirical studies (Malmendier & Tate, 2005). For instance, Morck et al (2000) argued that
because of weak investor protection, SPI is lower in less developed countries. Furthermore,
Jin and Myers (2006) stated that SPI is high in countries that are more transparent and have
lower private information acquisition costs. Following these leads, the impact of various
governance factors that are considered effective in protecting investors and bringing
transparency at the firm level has been tested on SPI.

The stock price is a result of the free exchange between buyers and sellers in the secondary
market. Buyers and sellers trade them based on the information available on the secondary
market, the industry, and the enterprise, where the information may be insufficient,(Personal
& Archive, 2022). How adequately the stock prices reflect corporate fundamental
information can be comprehended as stock market effectiveness (Bhattacharya et al, 2010).
This type of effectiveness is referred to as “stock price informativeness” in the literature.
Stock price informativeness is defined as the amount of fundamental corporate information
contained in stock price (Sila et al., 2017).

Roll (1988) proposed that stock price contains three different levels of information. Firstly,
market-level information, such as macroeconomic and policy factors, affects the stock prices
of all companies throughout a given market. Secondly, industry-level information, such as
new industrial policies and economic restructuring both impact changes in stock prices in a
particular industry. And thirdly, enterprise-level information, such as the publication of
annual financial reports and changes in board members can change the stock price of a
particular enterprise. However, the direction and mechanism of these changes in stock price
changes depends on the type of information. Market and industry information, as public
information, often directly causes changes in the stock price along with the release of this
information. Enterprise-level information is mainly private information, which is
incorporated into stock prices through the behavior of risk arbitrage actors.

Recently, a growing number of finance and management studies have provided evidence that
top managers' attributes are important to the regulation of corporate policies and decisions.
(Loi et al., 2022). we focus on the cultural background of the CEOs, as they control a wide
range of activities in the firm (Ham et al., 2017), as well as the content of corporate
communications such as annual reports, conference calls, and press releases (Chatterjee &
Hambrick, 2007). Further analyses also indicate that managers with different cultural values
have different attitudes toward exploiting information asymmetry (Loi et al., 2022).

For instance, (Fu & Zhang, 2019) found that managerial cultural backgrounds that emphasis
uncertainty avoidance are more pronounced in firms with a higher level of cash flow
volatility, earnings volatility, return volatility, and expected default frequency. Custódio and
Metzger (2014) argue that chief executive officers (CEOs) with a finance career background
tend to hold less cash, incur more debt, and engage in more share repurchases. However,
most of the studies on CEO-specific heterogeneity focus on CEOs' education (Malmendier &
Tate, 2005), and the degree of CEO overconfidence (Malmendier & Tate, 2005, 2008). There
is a paucity of research on the impact of managerial cultural background. Nguyen et al.
(2018) provide evidence that informal constraints such as CEOs' cultural heritage shape
corporate outcomes (Fu & Zhang, 2019; Pan et al., 2017).

Likewise, Hofstede (2001) defines culture as ‘the collective programming of the mind that
distinguishes the members of one group or category of people from another’ For a company,
the recipe for success, and conversely for failure, lies in how it is managed. The CEO is the
most powerful person in the company, and his whole job, if not career, relies on the success
of his managing abilities. (Sebbas, 2017). Recent research shows that the CEO's ability to
affect the firm performance, for better or worse, has been ever-increasing in recent decades,
to heights never seen before(Sebbas, 2017).

Prior research has concluded that senior executives of different ages, genders, and tenures
may have significant differences in risk appetite and risk-taking (Bertrand & Mullainathan,
2004), hence affecting corporate behavior. However, it remains unclear how the board of
directors' foreign experience (hereafter BDFE) is acknowledged as an important dimension
of corporate governance specifically in China, in bringing transparency and protecting
shareholders' and investors' interests (Giannetti, Liao, & Yu, 2015), can effect SPI. Stock
price informativeness is a key concept to better understand the role played by market
discipline. The most famous measure of stock price informativeness in literature is stock
return synchronicity, which is the co-movement of an individual stock return with the
market (e.g., Gul, Kim, and Qiu, 2010; An and Zhang, 2013, jones, lee, and yeager, 2013).
However, whether higher return synchronicity is associated with higher or lower
informativeness has been a subject of debate in recent years (e.g., Jin and Myers, 2006;
Dasgupta, Gan and Gao, 2010: Xing and Anderson, 2011).

On one side, culture is gradually implanted into people’s thinking in the early socialization
process and further stimulates and adjusts the actions and choices of people to make them
conform to specific social values (Joel et al., 2023).On the other side, culture forms the
subjective psychological structure of people to explain the problem by influencing the way
they deal with information (North, 1990). An empirical study by Sekely and Markham
Collins (1988) highlights that culture significantly affects the firm’s decision-making. A very
important question in the field of finance is who takes the business decisions at the firm level.
A simple answer is top management, specifically the CEO. The importance of this study can
be judged from real business settings as corporate executives often stress that corporate
culture is a critical determinant of corporate decisions (Tedla, 2016). Amongst the CEO’s
characteristics, the cultural background is very important. Hofstede (2001) defines culture as
“the collective programming of the mind that distinguishes the members of one group or
category of people from another” (p. 9).

The importance of culture can be seen from several empirical studies. (Naeem et al., 2021).
CEO’s ability to influence decisions will affect firm performance. Building on Sah and
Stiglitz (1986, 1991) and a large management and organizational literature on managerial
discretion, we argue that in a firm in which the CEO makes the most relevant decisions, the
risk arising from judgment errors is not well diversified. That is, the likelihood of either very
good or very bad decisions is higher in an organization in which the CEO’s power to
influence decisions is greater than in an organization in which many executives are involved
in the decision-making process. A survey by Graham et al. (2005) shows that managers
indicate a primary objective of income smoothing is to provide information that helps
investors to predict future performance.

The paucity of female CEOs on the corporate ladders is at odds, provided the evidence of
multiple literatures documenting that female leaders play a positive role in bringing economic
value to firms. Kotiranta, Kovalainen, and Rouvinen, (2007) explored Finnish firms with
female CEOs and found that higher profits were being earned by the firms with female CEOs,
overall representing the benefits of cultural diversity and multidimensionality, which also
leads on to think about what novelty females could bring to management practices. literature
provides that presence of females in high proportion in top management of the firms dealing
with complex environment, are believed to generate significantly positive rather abnormal
returns (Francoeur, Labelle and Sinclair-Desgagne, 2008).

The presence of female executives as top management decision makers is also observed to be
linked to smaller bid offers and price premiums when dealing with situations likes mergers
and acquisitions (Levi, Zhang and Li, 2008). Similarly gender diversity in the composition of
board of directors is noted to affect the firm value in a positive manner (Campbell, and
Minguez-Vera, 2008). Not only that, investors seem to give a positive response to
appointment of a female executive and weigh it in terms of value addition, leading to
generation of a wave of positive sentiment in stock markets (Vera and Campbell, 2010).

Vast literature can be found regarding the presence of a “glass ceiling,” whereby women
remain underrepresented among top management. The need, to explore untouched avenues of
unobserved and undermined in productive capabilities, risk preferences, prejudiced and
biased beliefs about the ability of female managers, still exists.

Throughout history, males have predominantly occupied the largest United States firm’s CEO
(Chief Executive Officer) positions. More recently, females have breached this glass ceiling
and increasingly take on CEO responsibilities. This opens the door to examine questions
about how gender affects CEO management style, firm performance, and how much investors
will pay to purchase the firm. Sufficient data is now available to conduct meaningful
statistical analysis to answer these questions. Nevertheless, little academic research exists on
the performance of CEOs in the largest United States firms as it relates to CEO gender.

The relationship between stock price informativeness and the CEO’s cultural background can
be explored through empirical research. A regression analysis can be used to estimate the
relationship between the two variables, with stock price informativeness as the dependent
variable (DV) and the CEO’s cultural background as the independent variable (IV). The study
can control for other factors that may affect stock price informativeness, such as firm size,
industry, and financial performance.

The study can also use event studies to analyze the impact of a CEO’s cultural background on
stock price informativeness in response to specific events, such as CEO announcements,
corporate scandals, or changes in corporate strategy. The study can compare the market’s
reaction to these event studies to analyze the impact of the CEO’s cultural background on
stock price informativeness in response to specific events, such as CEO announcements,
corporate scandals, or changes in corporate strategy. The study can compare the market’s
reaction to these events across CEO’s with different cultural backgrounds and assess whether
the cultural background of the CEO affects the informativeness of the stock price.

Overall, the study can provide valuable insights into the relationship between a CEO’s
cultural background and stock price informativeness, and its implications for investors,
policymakers, and corporate boards.

Whether the gender of a company's CEO influences the level of information efficiency in the
stock market is a fascinating subject of inquiry. The association between CEO gender and
stock price informativeness is the article's main focus. The term "stock price informativeness"
describes the degree to which the stock price accurately represents all available information
about a company's fundamentals and potential.
Investors, decision-makers, and corporate boards may find the study's findings interesting
since they shed light on the relationship between a CEO's cultural background, gender, and
stock price informativeness. Such studies may have an impact on programs for gender
diversity, corporate governance, and investor preferences in the financial markets.

1.2. Problem Definition

Investors make decisions based on the information asymmetry which is aligned with CEO CULTURAL
variety. Stock price informativeness is depending on managerial behaviour and cultural background.

The problem statement is to determine whether a CEO's cultural background, gender, and how
informative their company's stock price are related. The study primarily seeks to determine whether
the CEOs' cultural background, such as their race or religion, affects the amount of information
included in the company's stock price. The study will examine how the CEO's cultural background
affects how the market views his or her capacity for making decisions, corporate governance
procedures, and the company's overall performance, and how these perceptions affect the stock
price in its formative years.

Regression analysis and event studies will be used to investigate the association between the CEO's
cultural upbringing and the stock price during formative periods. To better understand how cultural
diversity affects business decision-making and performance, the study's conclusions may have
repercussions for investors, policymakers, and corporate boards.

1.3. Research Questions:

This study examines the impact of CEO’s cultural background, CEO gender on stock price
informativeness. In this context following research questions will be addressed in this study:

1. What is the impact of CEO’s cultural background on the Stock Price Informativeness?
2. What is the impact of gender of CEO on the stock price informativeness?
1.4. RESEARCH GAP:

This study is motivated by upper echelons theory, which argues that the top management
team’s background characteristics are key predictors of organizational behaviors and
outcomes (Hambrick and Mason, 1984). Bertrand and Schoar (2003) document that top
managers have statistically and economically significant effects on corporate behavior.
Furthermore, prior literature (e.g., Brochet et al., 2018; Du et al., 2017; Nguyen et al., 2018)
has confirmed that cultural background has a significant influence on corporate decisions and
outcomes (e.g., analysts’ forecasting accuracy), information disclosure, and firm performance
under pressure. In this study, we focus on the uncertainty avoidance index (UAI) in Hofstede
et al.’s (2010) cultural dimensions. Prior research suggests that, among Hofstede’s six
cultural dimensions, uncertainty avoidance most strongly affects corporate financial decisions
(e.g., Kwok and Tadesse, 2006; Kanagaretnam et al., 2014; Nguyen and Truong, 2013; Pan et
al., 2017). Thus, we believe it is the most relevant cultural dimension for our study.

The impact of CEO cultural background, CEOs gender on SPI is relatively under researched
area, and there are several gaps in the existing literature that provide opportunities for further
research.

Furthermore, existing research has primarily focused on the impact of CEO cultural
background on SPI at a single point in time, the aim of our research could explore the
dynamic relationship between CEO background and stock price informativeness over a
longer time horizon.

1.5 Significance of the study:

The significance of the study is to understand the relationship between CEO’s cultural
background, CEOs gender and stock price informativeness can provide valuable insights
into how cultural diversity in corporate leadership can contribute to more effective
decision making and better corporate governance practices. If CEO’s cultural
background affects the informativeness of the stock price, it could have implications for
market efficiency and the allocation of resources. A better understanding of this
relationship can lead to more informed investment decisions and potentially improve
market efficiency.
The study can provide insights into the benefits of promoting cultural diversity in
corporate leadership, which is becoming increasingly important in today’s global
business environment.

The study can contribute to the development of better investor protection policies by
identifying factors that may affect the quality of information available to investors.
Overall, the study can provide valuable insights into the role of cultural diversity in
corporate decision making, and its impact on the effectiveness of the stock market. The
findings can have significant implications for investors, policymakers, and corporate
boards in terms of promoting diversity, improving corporate governance, and enhancing
market efficiency.
1.6. Research Objectives

The aim of this study is to explore the impact of CEO’s cultural background, CEOs gender on
stock price informativenes.so, the objectives of this study is as follows:

1. To find out the impact of CEO’s cultural background on the stock price
informativeness.
2. To find out the impact of gender of CEO on stock price informativeness.