Political Institutions and Corporate Transparency in Emerging Economies
41 Pages Posted: 8 Mar 2018
Date Written: March 7, 2018
Corporate transparency is essential to reducing investor uncertainty and attracting foreign investment. Although firms operating in emerging economies vary widely in the degree of their corporate transparency, existing theories have difficulty accounting for this. We argue that whether a country possesses a legislature with multiple political parties will influence the level of corporate transparency for firms operating in that country. We predict that firms located in political regimes that lack legislatures (non-competitive authoritarian regimes) will have a lower level of transparency than those in regimes with legislatures elected in semi-competitive elections (semi-competitive authoritarian regimes), and these in turn will have lower transparency than firms located in countries with competitive elections (democracies). We further predict corporate transparency will vary among semi-competitive authoritarian regimes depending on whether the ruling party is weakly or strongly dominant. Results from a sample of 226,088 firm-level observations from 67 countries over the period 1990–2014 support our hypotheses. Our results suggest that the global shift toward stronger corporate disclosures is due, in part, to the concomitant rise in the proportion of semi-competitive authoritarian regimes and democracies. Our findings also demonstrate the capacity of national legislatures to compensate for an economic environment that is otherwise institutionally thin.
Keywords: Political Economy; Institutional Theory; Earnings Management; Institutional Context; Emerging Markets, Countries, Economies
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