Dominant Investors and Strategic Transparency
AbstractThis 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.
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Bibliographic InfoPaper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 1999.24.
Date of creation: Feb 1999
Date of revision:
Transparency; Bank control; product market competition;
Other versions of this item:
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-06-13 (All new papers)
- NEP-FIN-1999-06-08 (Finance)
- NEP-IND-1999-06-08 (Industrial Organization)
- NEP-MIC-1999-06-08 (Microeconomics)
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