Corporate Communication as a Governance Mechanism

70 Pages Posted: 12 Dec 2019 Last revised: 5 Jan 2020

See all articles by Sam Kolahgar

Sam Kolahgar

University of Prince Edward Island, Faculty of Business

Azadeh Babaghaderi

Concordia University

Harjeet S Bhabra

John Molson School of Business, Concordia University

Date Written: October 25, 2019

Abstract

We examine whether corporate communication is a stand-alone governance mechanism. Corporate communication is measured by length (to capture the amount), dictionary (to capture the informativeness), and communication index (to capture the diversity of disclosed information). Using content analysis technique on more than 150,000 filings of 98 Canadian firms from 1999 to 2014, we find that firms’ communication have governing powers. Our findings confirm substitution-complementary relationship between corporate communication and board size, independence, education, expertise, CEO duality, frequency of board meetings, gender diversity, institutional ownership, and product market competition. Moreover, we show that negative deviation from the expected transparency is associated with negative changes in Tobin’s Q, confirming the disciplinary role of corporate communications. We also find that communication has an inverted U-shaped association with Tobin’s Q, and a U-shaped association with firm’s risk, showing the non-linearity and existence of an optimum point in communications. Results are robust when controlling for corporate major events (M&A, Spin-offs, Financial distress and bankruptcy, and major lawsuits).

Note: Previous titles: Impact of Firms Communication and Disclosure on Risk and Value (2016 to 2018) Effect of Firm’s Investor Relation, Communication and Disclosure on Risk (2015)

Keywords: Corporate communications; Substitution-complementary; Governance mechanism; Idiosyncratic risk; Tobin's Q

JEL Classification: G30, G32, D80, D83, D82

Suggested Citation

Kolahgar, Sam and Babaghaderi, Azadeh and Bhabra, Harjeet S, Corporate Communication as a Governance Mechanism (October 25, 2019). Available at SSRN: https://ssrn.com/abstract=3494598 or http://dx.doi.org/10.2139/ssrn.3494598

Sam Kolahgar (Contact Author)

University of Prince Edward Island, Faculty of Business ( email )

Charlottetown, P.E.I. C1A 4P3
Canada

Azadeh Babaghaderi

Concordia University ( email )

Montreal
Canada

Harjeet S Bhabra

John Molson School of Business, Concordia University ( email )

Montreal, Quebec H3G 1M8
Canada

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