Governance and Equity Prices: Does Transparency Matter?
The University of Hong Kong
Boston University Questrom School of Business
October 3, 2012
Review of Finance, Forthcoming
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.
Number of Pages in PDF File: 51
Keywords: Accounting Transparency, Corporate Governance, Firm Performance, Takeovers
JEL Classification: G30, G34
Date posted: December 10, 2011 ; Last revised: December 11, 2012