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Corporate transparency and firm value: Does market competition play an external governance role?

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  • Liu, Chengcheng
  • Li, Qing
  • Lin, Yu-En

Abstract

We investigate whether market competition affects the relationship between corporate transparency and firm value in the United States using a sample of 12,665 firm-year observations, representing 1,644 individual firms for the period 1996–2018. The results show that stronger transparency enhances firm value, and market competition has a significantly positive effect on that relationship. More importantly, we use hierarchical linear models further to explore the cross-level interaction impact of market competition, and we find evidence suggesting that the industry-level competition has a significant cross-level moderating effect. Additionally, consistent with the substitute perspective, we also find that the disciplinary power of competition on the relationship between transparency and value is more pronounced for firms with weak corporate governance. Overall, our evidence supports the “bright side” of the competition view and highlights the active external governance role that competition plays in the value promotion effect of corporate transparency at both the individual and the industry levels.

Suggested Citation

  • Liu, Chengcheng & Li, Qing & Lin, Yu-En, 2023. "Corporate transparency and firm value: Does market competition play an external governance role?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 19(1).
    • Handle: RePEc:eee:jocaae:v:19:y:2023:i:1:s1815566922000297
    DOI: 10.1016/j.jcae.2022.100334
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    2. Xu, Meng & Yang, Zhonghai & Lin, Yu-En & Li, Gaobo, 2024. "Maturity mismatched investment, digital financial inclusion, and digital orientation: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 91(C).

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    More about this item

    Keywords

    Corporate transparency; Firm value; Market competition; External governance;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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