Do More Transparency & Disclosure Necessarily Enhance Firm Performance?

55 Pages Posted: 21 May 2014 Last revised: 23 Mar 2018

See all articles by Suman Banerjee

Suman Banerjee

Stevens Institute of Technology; Stevens Institute of Technology

Ronald W. Masulis

University of New South Wales, Sydney; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Sarmistha Pal

University of Surrey; IZA Institute of Labor Economics

Date Written: July 31, 2015

Abstract

The present paper provides new evidence that the introduction of transparency and disclosure rules may not necessarily boost firm performance. Focusing on the introduction of the Transparency and Disclosure (T&D) reforms initiated in Russia in 2002, we use data on staggered implementation of the reform by two types of Russian firms over 2003-07: firms listed only in Russian domestic stock exchanges and firms that listed both in domestic and various foreign stock exchanges prior to the reform. We find new evidence that the reform negatively impacted operating performance (i.e., EBIT/Assets) of Russian only domestic-listed firms, whereas had some positive impact on their valuation (e.g., Tobin’s Q). Weak tax enforcement in the pre-reform period made it possible for managers to inflate earnings, which was no longer possible after the T&D reform was implemented. Further analysis showed that state-controlled domestic Russian firms experienced a drop in EBIT and did not experience any improvement in market valuation in the post-reform era. In contrast, better governed Russian firms did not experience a drop in EBIT and they were the only ones to experience significantly higher market valuation in the post-reform era.

Keywords: Corporate governance reform, Transparency and Disclosure rules, Domestic and foreign listed

JEL Classification: G3, K2, P2

Suggested Citation

Banerjee, Suman and Masulis, Ronald W. and Pal, Sarmistha, Do More Transparency & Disclosure Necessarily Enhance Firm Performance? (July 31, 2015). Available at SSRN: https://ssrn.com/abstract=2437021 or http://dx.doi.org/10.2139/ssrn.2437021

Suman Banerjee

Stevens Institute of Technology ( email )

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Stevens Institute of Technology ( email )

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Ronald W. Masulis

University of New South Wales, Sydney ( email )

UNSW Business School
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Financial Research Network (FIRN)

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National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

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Sarmistha Pal (Contact Author)

University of Surrey ( email )

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United Kingdom
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IZA Institute of Labor Economics

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