Strategic Transparency and Informed Trading: Will Capital Market Integration Force Convergence of Corporate Governance ?
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 equityholders prefer more. Market interaction creates strategic complementarity in gathering information on competing firms, thus entry by transparent competitors will affect 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.
|Date of creation:||Feb 1998|
|Date of revision:||Jul 2002|
|Publication status:||Published in Journal of Law, Economics and Organization, vol. 21 (1), October 2005, pp. 76-102 (Revised version: "Outside Finance, Dominant Investors and Strategic Transparency, Cahier 01.02, December 2000)|
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Web page: http://www.hec.unil.ch/deep/publications/cahiers/series
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