Strategic Transparency and Informed Trading: Will Capital Market Integration Force Convergence of Corporate Governance?

35 Pages Posted: 17 Jul 2014

See all articles by Enrico C. Perotti

Enrico C. Perotti

University of Amsterdam - Finance Group; Centre for Economic Policy Research (CEPR)

Ernst-Ludwig von Thadden

Universitaet Mannheim; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: September 1, 2002

Abstract

Dominant investors can influence the publicly available information about firms by affecting the cost of information collection. Under strategic competition, transparency results in higher variability of profits and output. Thus lenders prefer less transparency, since this protects firms when in a weak competitive position, while equityholders prefer more. Market interaction creates strategic complementarity in gathering information on competing firms, thus entry by transparent competitors will affect price informativeness. Moreover, as the return to information gathering increases with liquidity, increasing global trading may undermine the ability of bank control to keep firms opaque.

Suggested Citation

Perotti, Enrico C. and von Thadden, Ernst-Ludwig, Strategic Transparency and Informed Trading: Will Capital Market Integration Force Convergence of Corporate Governance? (September 1, 2002). Journal of Financial and Quantitiative Analysis 38 (2003), 61-86, Available at SSRN: https://ssrn.com/abstract=2467199

Enrico C. Perotti (Contact Author)

University of Amsterdam - Finance Group ( email )

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Amsterdam, 1018 TV
Netherlands
+31 20 525 4159 (Phone)
+31 20 525 5285 (Fax)

HOME PAGE: http://www.fee.uva.nl/fm/people/pero.htm

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Ernst-Ludwig Von Thadden

Universitaet Mannheim ( email )

Department of Economics
Mannheim, 68131
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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