Governance and Equity Prices: Does Transparency Matter?
Review of Finance, Forthcoming
51 Pages Posted: 10 Dec 2011 Last revised: 11 Dec 2012
Date Written: October 3, 2012
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: Suggested Citation