Do Higher Value Firms Voluntarily Disclose More Information? Evidence from China

52 Pages Posted: 23 Jan 2013

See all articles by Jean Jinghan Chen

Jean Jinghan Chen

University of Southampton

Youchao Tan

Nankai University, Nankai Business School

Xinsheng Cheng

Nankai School of Business

Stephen Gong

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: January 22, 2013

Abstract

This paper examines the effect of guanxi on the relation between firm value and voluntary disclosure of information about new investment projects in China’s institutional setting. We find a negative relation between firm value and voluntary disclosure for firms that rely more heavily on guanxi in their value creation (e.g. non-high-tech firms, and firms located in regions with underdeveloped institutions). This type of firms refrains from detailed voluntary disclosures for fear of revealing sensitive information that may harm their guanxi. They may more incline to use guanxi to lower information asymmetry and the cost of capital. Therefore, they have less motivation of voluntary disclosure. By contrast, for firms that rely less heavily on guanxi and more on other sources of core competencies (e.g. high-tech firms, and firms in high-marketization regions), we find a positive relation between firm value and voluntary disclosure. This type of firms more replies on voluntary disclosure to reduce information asymmetry and financing cost. Such incentives are particularly strong for high value firms. The moderating role of guanxi on the relation between firm value and voluntary disclosure is explained by firms conscientiously balancing the costs and benefits of voluntary disclosure relative to guanxi. Our evidence has implications for research on motives for disclosure and regulation of financial reporting.

Keywords: Firm value, voluntary disclosure, information asymmetry, guanxi, China

JEL Classification: G32, M41

Suggested Citation

Chen, Jean and Tan, Youchao and Cheng, Xinsheng and Gong, Stephen, Do Higher Value Firms Voluntarily Disclose More Information? Evidence from China (January 22, 2013). Asian Finance Association (AsFA) 2013 Conference. Available at SSRN: https://ssrn.com/abstract=2205403 or http://dx.doi.org/10.2139/ssrn.2205403

Jean Chen (Contact Author)

University of Southampton ( email )

Southampton, SO17 1BJ
Great Britain

Youchao Tan

Nankai University, Nankai Business School ( email )

94 Weijin Road
Tianjin
China

Xinsheng Cheng

Nankai School of Business ( email )

94 Weijin Road
Tianjin
China

Stephen Gong

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong

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