The Substitutive Relation Between Voluntary Disclosure and Corporate Governance in Their Effects on Firm Performance

Review of Quantitative Finance and Accounting DOI:10.1007/s11156-019-00794-8

37 Pages Posted: 27 Jul 2020

See all articles by Luminita Enache

Luminita Enache

University of Calgary; University of Calgary; Dartmouth College - Tuck School of Business

Khaled Hussainey

Portsmouth University

Date Written: February 18, 2019

Abstract

Prior literature shows that financial disclosures and corporate governance both impact firm performance. This paper documents an important topic that has been overlooked in the prior literature, their joint effect, because the two mechanisms could be independent, substitutive, or complementary in their impact on firm performance. We find a substitutive relation based on data from 2005 to 2013 for a sample of US biotech firms, but only for firms with products in advanced stages of development, because their disclosures are trustworthy about the firms’ future performance. We do not find such effect for firms with early-stage products, that would take years to convert to profits, and whose product-related disclosures are speculative at best. This paper shows that informative and reliable voluntary disclosures have similar value-increasing effect as corporate governance and that the marginal effect of trustworthy disclosures is decreasing in governance. To the extent that the two mechanisms are costly, firms can partly substitute one for the other.

Keywords: Biotechnology firms, Corporate governance, Voluntary disclosures, Proprietary costs, Firm performance, Complementary or substitutive relationship

JEL Classification: M40, M41, G14 , G32, G34

Suggested Citation

Enache, Luminita and Enache, Luminita and Hussainey, Khaled, The Substitutive Relation Between Voluntary Disclosure and Corporate Governance in Their Effects on Firm Performance (February 18, 2019). Review of Quantitative Finance and Accounting DOI:10.1007/s11156-019-00794-8, Available at SSRN: https://ssrn.com/abstract=3640620

University of Calgary ( email )

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HOME PAGE: http://https://haskayne.ucalgary.ca/haskayne_info/profiles/luminita-enache

Dartmouth College - Tuck School of Business ( email )

Calgary, Alberta
Canada

HOME PAGE: http://haskayne.ucalgary.ca/haskayne_info/profiles/luminita-enache

Khaled Hussainey

Portsmouth University ( email )

Portsmouth Business School
Portsmouth, PO1 2UP
United Kingdom
07727190105 (Phone)

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