Property Rights, R&D Spillovers, and Corporate Accounting Transparency in China

53 Pages Posted: 8 May 2012 Last revised: 9 Jul 2015

See all articles by Joseph P. H. Fan

Joseph P. H. Fan

The Chinese University of Hong Kong (CUHK) - School of Accountancy

Stuart Gillan

University of Georgia - Department of Finance

Xin Yu

University of Queensland

Date Written: March 1, 2012

Abstract

We explore how property rights protections across different regions in China affect the flow of proprietary information and managers’ incentives to disclose details of financial and operating performance. Our focus on research and development spillovers as a proxy for information leakages to competitors allows an examination of whether or not opacity (low transparency) is employed as a mechanism to attenuate such leakages. We find that when the threat of proprietary information leakage is high, information reported by firms is opaque. This relation appears in regions suffering from weak intellectual property rights protections, but not in those with stronger property rights protections. After taking into account the incentive to protect sensitive information, we also document that firm value is no longer related to accounting transparency. Our focus on accounting opacity to protect proprietary information differs from the agency cost explanation of most prior work. Thus we provide evidence of a cost of enhanced disclosure along with new insights on specific channels through which institutional factors influence the costs and benefits of firm disclosure policies.

Keywords: opacity, cost of transparency, institutional environment, emerging markets, China

JEL Classification: G3, M4

Suggested Citation

Fan, Po Hung Joseph P. H. and Gillan, Stuart L. and Yu, Xin, Property Rights, R&D Spillovers, and Corporate Accounting Transparency in China (March 1, 2012). Emerging Markets Review 15, 2013. Available at SSRN: https://ssrn.com/abstract=2054542

Po Hung Joseph P. H. Fan

The Chinese University of Hong Kong (CUHK) - School of Accountancy ( email )

Shatin, N.T.
Hong Kong
(852) 26097839 (Phone)
(852) 26035114 (Fax)

Stuart L. Gillan

University of Georgia - Department of Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States

Xin Yu (Contact Author)

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

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