Investors' Interpretations of the October 15, 2002 Standard & Poors Transparency & Disclosure Rankings

Abstract

This paper investigates whether the Standard & Poors (S&P) transparency and disclosure (T&D)rankings informed the financial markets with respect to firms' corporate governance and disclosure practices when the results of the study were released by S&P on October 15, 2002. The S&P T&D rankings report the relative levels of three disclosure dimensions (ownership structure and investor rights, financial transparency and information disclosure, and board and management structure and process) provided by firms in their annual reports (annual report rankings) and complete regulatory filings (composite rankings). The results suggest that the S&P T&D rankings provided new information to the markets on cross-sectional differences in disclosure, and the market responds unfavorably during the event period to firms with large difference in disclosure levels across annual report and other regulatory filings. Further analyses reveal that the results are driven by the subcategory of ownership structure and investor rights.

Keywords: transparency, disclosures, corporate governance, earning quality, Standard & Poors

JEL Classification: G14, G34, M41, M45