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Dominant Investors and Strategic Transparency

Author

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  • Enrico C. Perotti

    (University of Amsterdam and CEPR)

  • Ernst-Ludwig von Thadden

    (University of Lausanne and CEPR)

Abstract

This paper studies product market competition under a strategic transparency decision. Dominant investors can influence information collection in the financial market, and thereby corporate transparency, by affecting market liquidity or the cost of information collection. More transparency on a firm's competitive position has both strategic advantages and disadvantages: in general, transparency results in higher variability of profits and output. Thus lenders prefer less information revelation through stock market trading, since this protects firms when in a weak competitive position, while equityholders prefer more to make full use of the strategic advantage of a strong firm. We show that bank-controlled firms will tend to discourage trading to reduce price informativeness, while shareholder-run firms prefer more transparency. Our comparitive statics show that bank control may fail to keep firms less transparent as global trading volumes rise.

Suggested Citation

  • Enrico C. Perotti & Ernst-Ludwig von Thadden, 1999. "Dominant Investors and Strategic Transparency," Working Papers 1999.24, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:1999.24
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    3. Van Tassel, Eric, 2011. "Information disclosure in credit markets when banks' costs are endogenous," Journal of Banking & Finance, Elsevier, vol. 35(2), pages 490-497, February.
    4. Shahchera , Mahshid & Jouzdani , Nasim, 2012. "The Impact of Regulation on Soundness of Banking: A Panel Data Approach," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 6(2), pages 191-209, December.
    5. Hilary, Gilles, 2003. "Accounting behavior of German firms after an ADR issuance," The International Journal of Accounting, Elsevier, vol. 38(3), pages 355-376.
    6. de La Bruslerie, Hubert & Gabteni, Heger, 2014. "Voluntary disclosure of financial information by French firms: Does the introduction of IFRS matter?," Advances in accounting, Elsevier, vol. 30(2), pages 367-380.
    7. Enrico C. Perotti & Ernst-Ludwig von Thadden, 2001. "Outside Finance, Dominant Investors and Strategic Transparancy," Tinbergen Institute Discussion Papers 01-019/2, Tinbergen Institute.
    8. Gagalyuk, Taras & Chatalova, Lioudmila & Kalyuzhnyy Oleksandr, 2021. "Broadening the scope of instrumental motivations for CSR disclosure: an illustration for agroholdings in transition economies," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 24(4), May.
    9. Gagalyuk, Taras & Chatalova, Lioudmila & Kalyuzhnyy, Oleksandr & Ostapchuk, Igor, 2021. "Broadening the scope of instrumental motivations for CSR disclosure: An illustration for agroholdings in transition economies," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 24(4), pages 717-737.
    10. Overfelt, Wouter Van & Annaert, Jan & Ceuster, Marc De & Deloof, Marc, 2009. "Do universal banks create value? Universal bank affiliation and company performance in Belgium, 1905-1909," Explorations in Economic History, Elsevier, vol. 46(2), pages 253-265, April.
    11. Demirgüç-Kunt, AslI & Detragiache, Enrica & Tressel, Thierry, 2008. "Banking on the principles: Compliance with Basel Core Principles and bank soundness," Journal of Financial Intermediation, Elsevier, vol. 17(4), pages 511-542, October.
    12. Marquez, Robert, 2010. "Informed lending as a deterrent to predation," Finance Research Letters, Elsevier, vol. 7(4), pages 193-201, December.
    13. Mohamed, Abdulkadir & Schwienbacher, Armin, 2016. "Voluntary disclosure of corporate venture capital investments," Journal of Banking & Finance, Elsevier, vol. 68(C), pages 69-83.

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    More about this item

    Keywords

    Transparency; Bank control; product market competition;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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