Firm-Level Transparency in the Former East Bloc: Empirical Evidence from the Baltic Region

45 Pages Posted: 2 Apr 2008 Last revised: 4 Nov 2009

See all articles by Yuan Ding

Yuan Ding

China Europe International Business School (CEIBS)

Ole-Kristian Hope

University of Toronto - Rotman School of Management

Hannu J. Schadewitz

Turku School of Economics at the University of Turku - Department of Accounting & Finance

Date Written: November 3, 2009

Abstract

Research has established that financial disclosures are critical for the functioning of an efficient capital market. The role of disclosure may be especially important in newly-democratized nations that historically lack the tradition of transparency in financial information. This is the first study to systematically examine financial disclosure practices of firms from the Baltic states of Estonia, Latvia, and Lithuania. Using hand-collected data to form two distinct measures of disclosure, we assess the differences in disclosure practices between Baltic firms and a matched sample of firms from the Nordic region (specifically, Denmark, Finland, and Sweden). Our results show that the financial transparency level is lower in Baltic firms than in Nordic firms. The results are more pronounced for the second and broader disclosure measure that incorporates not only financial transparency but also disclosures about ownership and governance.

We further investigate economic consequences (i.e., stock price volatility) of variations in disclosure in these two regions. We find that it is only the broader measure of disclosure that relates negatively to stock price volatility in the Baltic countries. In contrast, in the Nordic countries, both measures of disclosure are significantly negatively associated with stock price volatility.

Our study should be of interest to investors, firm managers, and regulators in the Baltic countries as well as other emerging markets. These countries face challenges in attracting foreign capital. Increasing the overall level of financial transparency has the potential to help these countries attract foreign investment, allocate capital more efficiently, and foster economic growth.

Keywords: Disclosure, transparency, international accounting, stock price volatility, corporate governance, capital markets, Baltic region, Nordic region, European Union

JEL Classification: F30, M41, M45, M47, G12

Suggested Citation

Ding, Yuan and Hope, Ole-Kristian and Schadewitz, Hannu J., Firm-Level Transparency in the Former East Bloc: Empirical Evidence from the Baltic Region (November 3, 2009). Available at SSRN: https://ssrn.com/abstract=1098193 or http://dx.doi.org/10.2139/ssrn.1098193

Yuan Ding

China Europe International Business School (CEIBS) ( email )

699, Hongfeng Road
Shanghai 201206, Shanghai 201206
China

Ole-Kristian Hope (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Hope.aspx

Hannu J. Schadewitz

Turku School of Economics at the University of Turku - Department of Accounting & Finance ( email )

Rehtorinpellonkatu 3
FIN-20500 Turku
Finland
+358 2 333 9321 (Phone)
+358 2 333 9350 (Fax)

HOME PAGE: http://www.utu.fi/en/people/hannu-schadewitz

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