What Determines Corporate Transparency?


  • We appreciate the insightful suggestions of the referee and the editors. We thank workshop participants at Baruch College, Harvard Business School, HKUST, University of Iowa, Massachusetts Institute of Technology, University of Rochester, University of Wisconsin, and conference participants at Berkeley's 2003 BART conference, the 2001 Duke/UNC Fall Camp, the 2001 University of Minnesota Accounting Theory conference, and the 2003 Journal of Accounting Research conference for helpful comments. We appreciate the valuable research assistance of Xia Chen, Sarah Eriksen, and Sarah Lindholm, and the financial support of the Kenan-Flagler Business School, University of North Carolina at Chapel Hill, the Institute of Professional Accounting of the GSB, University of Chicago, the William Ladany Faculty Research Fund, and Harvard Business School.


We investigate corporate transparency, defined as the availability of firm-specific information to those outside publicly traded firms. We conceptualize corporate transparency within a country as output from a multifaceted system whose components collectively produce, gather, validate, and disseminate information. We factor analyze a range of measures capturing countries' firm-specific information environments, isolating two distinct factors. The first factor, interpreted as financial transparency, captures the intensity and timeliness of financial disclosures, and their interpretation and dissemination by analysts and the media. The second factor, interpreted as governance transparency, captures the intensity of governance disclosures used by outside investors to hold officers and directors accountable. We investigate whether these factors vary with countries' legal/judicial regimes and political economies. Our main multivariate result is that the governance transparency factor is primarily related to a country's legal/judicial regime, whereas the financial transparency factor is primarily related to political economy.