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Strategic Transparency and Informed Trading: Will Capital Market Integration Force Convergence of Corporate Governance?

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  • Perotti, Enrico C.
  • Von Thadden, Ernst-Ludwig

Abstract

Dominant investors can influence the publicly available information about firms by affecting the cost of information collection. Under strategic competition, transparency results in higher variability of profits and output. Thus, lenders prefer less transparency, since this protects firms when in a weak competitive position, while equity holders prefer more. Market interaction creates strategic complementarity in gathering information on competing firms, thus entry by transparent competitors will improve price informativeness. Moreover, as the return to information gathering increases with liquidity, increasing global trading may undermine the ability of bank control to keep firms opaque.

Suggested Citation

  • Perotti, Enrico C. & Von Thadden, Ernst-Ludwig, 2003. "Strategic Transparency and Informed Trading: Will Capital Market Integration Force Convergence of Corporate Governance?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(01), pages 61-86, March.
  • Handle: RePEc:cup:jfinqa:v:38:y:2003:i:01:p:61-86_00
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    Cited by:

    1. Andres Almazan & Javier Suarez & Sheridan Titman, 2009. "Firms' Stakeholders and the Costs of Transparency," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(3), pages 871-900, September.
    2. Jiang, Li & Kim, Jeong-Bon & Pang, Lei, 2011. "Control-ownership wedge and investment sensitivity to stock price," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 2856-2867, November.
    3. Ratnovski, Lev, 2013. "Liquidity and transparency in bank risk management," Journal of Financial Intermediation, Elsevier, vol. 22(3), pages 422-439.
    4. Enrico C. Perotti & Ernst-Ludwig von Thadden, 2004. "The Political Economy of Dominant Investors," Tinbergen Institute Discussion Papers 04-091/2, Tinbergen Institute.
    5. Hovey, Martin & Naughton, Tony, 2007. "A survey of enterprise reforms in China: The way forward," Economic Systems, Elsevier, vol. 31(2), pages 138-156, June.
    6. Istaitieh, Abdulaziz & Rodriguez-Fernandez, Jose M., 2006. "Factor-product markets and firm's capital structure: A literature review," Review of Financial Economics, Elsevier, vol. 15(1), pages 49-75.
    7. Enrico Perotti & Ernst-Ludwig von Thadden, 2005. "The Political Economy of Corporate Control," Tinbergen Institute Discussion Papers 05-102/2, Tinbergen Institute.
    8. Udayasankar, Krishna & Das, Shobha & Krishnamurti, Chandrasekhar, 2008. "When is Two Really Company? The Effects of Competition and Regulation on Corporate Governance," Working Paper Series 4020, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    9. Chizema, Amon & Buck, Trevor, 2006. "Neo-institutional theory and institutional change: Towards empirical tests on the "Americanization" of German executive pay," International Business Review, Elsevier, vol. 15(5), pages 488-504, October.
    10. Ke Tang & Changyun Wang, 2011. "Corporate Governance and Firm Liquidity: Evidence from the Chinese Stock Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(0), pages 47-60, January.
    11. Christopher F Baum & Mustafa Caglayan & Neslihan Ozkan, 2004. "The second moments matter: The response of bank lending behavior to macroeconomic uncertainty," Computing in Economics and Finance 2004 172, Society for Computational Economics.
    12. Jiang, Li & Kim, Jeong-Bon & Pang, Lei, 2013. "Insiders’ incentives for asymmetric disclosure and firm-specific information flows," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3562-3576.
    13. Ke Tang & Changyun Wang, 2011. "Corporate Governance and Firm Liquidity: Evidence from the Chinese Stock Market," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 47(0), pages 47-60, January.
    14. Hakkon Kim & Kwangwoo Park & Doojin Ryu, 2017. "Corporate Environmental Responsibility: A Legal Origins Perspective," Journal of Business Ethics, Springer, vol. 140(3), pages 381-402, February.
    15. Her-Jiun Sheu & Huimin Chung & Chih-Liang Liu, 2010. "Comprehensive Disclosure of Compensation and Firm Value: The Case of Policy Reforms in an Emerging Market," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(9-10), pages 1115-1144, November/.

    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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