The previous literature on the effect of corporate governance on firm values raises a question on the efficiency of the stock market. One line of research involves many papers supporting that good corporate governance leads to higher firm values as measured by the Tobin's Q. Papers by Ashbaugh et al. (2004), and Byun et al. (2008) among others belong to this group claiming that reduction in agency costs helps to increase firm value by reducing the cost of capital. On the other hand, there are papers showing that the information on corporate governance is not fully reflected in the stock prices; therefore, investors may still realize abnormal returns by investing in firms with good corporate governance (Gompers et al., 2003; Bebchuk et al., 2009). These two results are not consistent in terms of market efficiency since the first group of papers implies that information on corporate governance is already reflected on the stock price of the firms while the second group of papers implies that the information is not fully reflected on the stock prices. In this paper, we attempt to reconcile these two contradictory findings by providing evidence that the realization of the effect of good corporate governance is contingent on the level of firms' information asymmetry. We empirically show that good corporate governance of a firm reduces the cost of equity capital only when the information asymmetry of the firm is relatively at a low level. Practically, the information on corporate governance such as ownership structure, board of directors, shareholder right protection, and audit committee is abstruse as well as hard to access. In Korea for example, the Corporate Governance Service evaluates the governance level of the firms listed on the Korea Exchange, but does not disclose corporate governance scores to investors except for the best and second-best firms. Because of the incomprehensibility of corporate governance level, stock investors may not fully reflect the information on the corporate governance of a firm on its stock price, so that reduction in the cost of equity capital of the firm may not be attained. Investors' perception of corporate governance, therefore, is an important issue for the efficiency of a stock market and the financing costs of related firms. We hypothesize that the level of information asymmetry of a firm affects the level of the investors' understanding of the corporate governance of the firm and, accordingly, the value of the firm. To the authors' knowledge, this is the first study ever conducted to show that the effect of good corporate governance on the firm value depends on the level of information asymmetry of a firm. Previous studies have investigated the relation between corporate governance and firm value without taking into account investors' perception of corporate governance. This paper, however, complements the existing results by considering the impact of investors' understanding of their firms' corporate governance. For the analysis, we divide the sample firms into two groups based on their level of information asymmetry. The number of analyst coverage is used as a proxy for information asymmetry. Then, we construct a hedge portfolio which is long in good governance firms and short in weak governance firms by each group, and estimate the abnormal return of the hedge portfolio of each group using CAPM and Fama-French (1993) three-factor model. The results show that the abnormal return of the hedge portfolio is statistically not different from zero for the low information asymmetry group, which implies that information on corporate governance is efficiently reflected on stock prices for the group. On the other hand, the abnormal return is significantly positive for the high information asymmetry group, which suggests that information on corporate governance of those firms is not fully understood by the investors and, therefore, is not fully reflected on the stock prices. We also regress Tobin's q on corporate governance scores and find that corporate governance has significantly positive effect on Tobin's q only for the low information asymmetry group. The effect of corporate governance on Tobin's q is insignificant for the high information asymmetry group. In summary, we find that investors do not really reflect the information on the corporate governance of firms on their stock prices and their financing costs in case of higher information asymmetry. On the contrary, we show that good corporate governance positively affects firm values with lower level of information asymmetry.