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Governance and Equity Prices: Does Transparency Matter?

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  • Lifeng Gu
  • Dirk Hackbarth

Abstract

This article examines how accounting transparency and corporate governance interact. Firms with better governance are associated with higher abnormal returns, but even more so if they also have higher transparency. The effect is largely monotonic--it is small and insignificant for opaque firms and large and significant for transparent firms--and survives numerous robustness tests. We find supportive evidence for firm value and operating performance. Hence, governance and transparency are complements. This complementarity effect is consistent with the view that more transparent firms are more likely takeover targets, because acquirers can bid more effectively and identify synergies more precisely. Copyright 2013, Oxford University Press.

Suggested Citation

  • Lifeng Gu & Dirk Hackbarth, 2013. "Governance and Equity Prices: Does Transparency Matter?," Review of Finance, European Finance Association, vol. 17(6), pages 1989-2033.
    • Handle: RePEc:oup:revfin:v:17:y:2013:i:6:p:1989-2033
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    File URL: http://hdl.handle.net/10.1093/rof/rfs047
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    Cited by:

    1. Houdou Basse Mama & Alexander Bassen, 2017. "Neglected disciplinary effects of investor relations: evidence from corporate cash holdings," Journal of Business Economics, Springer, vol. 87(2), pages 221-261, February.
    2. Houdou Basse Mama & Rachidi Kotchoni, 2017. "Investor Relations' Quality and Mispricing," EconomiX Working Papers 2017-33, University of Paris Nanterre, EconomiX.
    3. Guo, Yifeng & Mota, Lira, 2021. "Should information be sold separately? Evidence from MiFID II," Journal of Financial Economics, Elsevier, vol. 142(1), pages 97-126.
    4. Houdou Basse Mama & Rachidi Kotchoni, 2017. "Investor Relations' Quality and Mispricing," Working Papers hal-04141636, HAL.
    5. Kose John & Qianru Qi & Jing Wang, 2020. "Bank Integration and the Market for Corporate Control: Evidence from Cross-State Acquisitions," Management Science, INFORMS, vol. 66(7), pages 3277-3294, July.
    6. Lixiong Guo & Patrick Lach & Shawn Mobbs, 2015. "Tradeoffs between Internal and External Governance: Evidence from Exogenous Regulatory Shocks," Financial Management, Financial Management Association International, vol. 44(1), pages 81-114, March.
    7. Ramón Bermejo Climent & Isabel Figuerola-Ferretti Garrigues & Ioannis Paraskevopoulos & Alvaro Santos, 2021. "ESG Disclosure and Portfolio Performance," Risks, MDPI, vol. 9(10), pages 1-14, September.
    8. Michel, Allen & Oded, Jacob & Shaked, Israel, 2020. "Institutional investors and firm performance: Evidence from IPOs," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    9. Campbell, T. Colin & Thompson, Mary Elizabeth, 2015. "Why are CEOs paid for good luck? An empirical comparison of explanations for pay-for-luck asymmetry," Journal of Corporate Finance, Elsevier, vol. 35(C), pages 247-264.

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