Governance and Equity Prices: Does Transparency Matter?

Review of Finance, Forthcoming

51 Pages Posted: 10 Dec 2011 Last revised: 11 Dec 2012

See all articles by Lifeng Gu

Lifeng Gu

The University of Hong Kong

Dirk Hackbarth

Boston University - Department of Finance & Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: October 3, 2012

Abstract

This paper examines how accounting transparency and corporate governance interact. Firms with better governance are associated with higher abnormal returns, but even more so if they also have higher transparency. The effect is largely monotonic — it is small and insignificant for opaque firms and large and significant for transparent firms — and survives numerous robustness tests. We find supportive evidence for firm value and operating performance. Hence governance and transparency are complements. This complementarity effect is consistent with the view that more transparent firms are more likely takeover targets, because acquirers can bid more effectively and identify synergies more precisely.

Keywords: Accounting Transparency, Corporate Governance, Firm Performance, Takeovers

JEL Classification: G30, G34

Suggested Citation

Gu, Lifeng and Hackbarth, Dirk, Governance and Equity Prices: Does Transparency Matter? (October 3, 2012). Review of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1970294 or http://dx.doi.org/10.2139/ssrn.1970294

Lifeng Gu

The University of Hong Kong ( email )

Hong Kong
+852 3917-1033 (Phone)

HOME PAGE: http://https://sites.google.com/site/uiuclifenggu/

Dirk Hackbarth (Contact Author)

Boston University - Department of Finance & Economics ( email )

Department of Finance
595 Commonwealth Avenue
Boston, MA 02215
United States
(617) 358-4206 (Phone)
(617) 353-6667 (Fax)

HOME PAGE: http://people.bu.edu/dhackbar/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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