Information Complementarities and the Dynamics of Transparency Shock Spillovers

60 Pages Posted: 1 Mar 2021 Last revised: 2 Sep 2021

See all articles by Shantanu Banerjee

Shantanu Banerjee

Lancaster University - Department of Accounting and Finance; Lancaster University - Management School

Sudipto Dasgupta

Chinese University of Hong Kong, ABFER, CEPR, and ECGI

Rui Shi

The Chinese University of Hong Kong (CUHK)

Jiali Yan

University of Liverpool - Management School (ULMS)

Date Written: December 26, 2020

Abstract

We show that information complementarities play an important role in the spillover of transparency shocks. We exploit staggered revelation of financial misconduct by S&P500 firms and find that the implied cost of capital increases for “close” industry peers relative to “distant” peers. Disclosure also increases. The effects are particularly strong when the close peers share common analysts and institutional ownership with the fraudulent firm. While disclosure remains high for the next four years, with sustained disclosure, the cost of equity starts to decrease. Firms’ financing patterns tilt more towards debt financing initially at the expense of equity, but eventually revert.

Keywords: Cost of equity, Disclosure, Transparency, Information Environment, Information Complementarity

JEL Classification: G14, G30, M41

Suggested Citation

Banerjee, Shantanu and Banerjee, Shantanu and Dasgupta, Sudipto and SHI, RUI and Yan, Jiali, Information Complementarities and the Dynamics of Transparency Shock Spillovers (December 26, 2020). Available at SSRN: https://ssrn.com/abstract=3755473 or http://dx.doi.org/10.2139/ssrn.3755473

Shantanu Banerjee

Lancaster University - Department of Accounting and Finance ( email )

Lancaster, Lancashire LA1 4YX
United Kingdom

Lancaster University - Management School ( email )

Lancaster, Lancashire LA1 4YX
United Kingdom

Sudipto Dasgupta (Contact Author)

Chinese University of Hong Kong, ABFER, CEPR, and ECGI ( email )

CUHK, Cheng Yu Tung Building, Room 1224
Shatin, NT
Hong Kong
Hong Kong

RUI SHI

The Chinese University of Hong Kong (CUHK) ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong

Jiali Yan

University of Liverpool - Management School (ULMS) ( email )

Chatham Street
Liverpool, L69 7ZH
United Kingdom

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