Advertisement

Review of Quantitative Finance and Accounting

, Volume 53, Issue 3, pp 721–747 | Cite as

Information disclosure, transparency ranking system and firms’ value deviation: evidence from Taiwan

  • Chien-Chi Chu
  • Kung-Cheng Ho
  • Chia-Chun Lo
  • Andreas Karathanasopoulos
  • I-Ming JiangEmail author
Original Research

Abstract

We examine whether the implementation of the information disclosure and transparency ranking system (IDTRS) affects firms’ value deviation in Taiwan using the annual reports of the listed companies for the period 2001–2004. Using firms’ value deviation as a proxy for information disclosure, we find that reducing information asymmetry can allay moral hazard. We also document a significant difference in the level of information disclosure in the years before and after the IDTRS implementation. Stronger information transparency can strengthen investment certainty and lead to less forecasting errors.

Keywords

Corporate governance Firm value deviation Information disclosure Transparency ranking system 

JEL Classification

G3 G18 G30 G34 K23 

Notes

Acknowledgements

We thank Cheng-Few Lee (the Editor) and two anonymous reviewers for helpful comments. Professor Jiang thanks the Ministry of Science and Technology of Taiwan for partial financial support (MOST 105-2410-H-155-030). This work was also supported by Shantou University under Grant “Shantou University Research Fund” (2015WQNCX031), the Humanistic and Social Science Research Base—Shantou University Research Institute for Cooperation of Guangdong and Taiwan Enterprises under Grant “Major Research Project Fund”, and the fundamental research for the central universities (2017QN034).

References

  1. Agarwal V, Daniel N, Naik N (2009) Role of managerial incentives and discretion in hedge fund performance. J Financ 64:2221–2256.  https://doi.org/10.1111/j.1540-6261.2009.01499.x CrossRefGoogle Scholar
  2. Armstrong CS, Core JE, Taylor DJ, Verrecchia RE (2011) When does information asymmetry affect the cost of capital? J Account Res 49:1–40.  https://doi.org/10.1111/j.1475-679X.2010.00391.x CrossRefGoogle Scholar
  3. Atiase RK (1985) Pre-disclosure informational asymmetries, firm capitalization, and security price behavior around earnings announcements. J Account Res 23:21–36.  https://doi.org/10.2307/2490905 CrossRefGoogle Scholar
  4. Berger PG, Ofek E (1995) Diversification’s effect on firm value. J Financ Econ 37:39–65.  https://doi.org/10.1016/j.respol.2008.05.004 CrossRefGoogle Scholar
  5. Bergmann R, Friedl G (2008) Controlling innovative projects with moral hazard and asymmetric information. Res Policy 37:1504–1514.  https://doi.org/10.2139/ssrn.771989 CrossRefGoogle Scholar
  6. Bloomfield R, Fischer PE (2011) Disagreement and the cost of capital. J Account Res 49:41–68.  https://doi.org/10.1016/j.jfineco.2015.05.008 CrossRefGoogle Scholar
  7. Boone AL, White JT (2015) The effect of institutional ownership on firm transparency and information production. J Financ Econ 117:508–533.  https://doi.org/10.1016/j.jfineco.2015.05.008 CrossRefGoogle Scholar
  8. Botosan CA (1997) Disclosure level and the cost of equity capital. Account Rev 72: 323–349. http://www.jstor.org/stable/248475
  9. Braga-Alves MV, Shastri K (2011) Corporate governance, valuation, and performance: evidence from a voluntary market reform in Brazil. Financ Manage 40:139–157.  https://doi.org/10.1111/j.1755-053X.2010.01137.x CrossRefGoogle Scholar
  10. Bushee BJ, Leuz C (2005) Economic consequences of SEC disclosure regulation: evidence from the OTC bulletin board. J Account Econ 39:233–264.  https://doi.org/10.1016/j.jacceco.2004.04.002 CrossRefGoogle Scholar
  11. Bushman RM, Smith AJ (2001) Financial accounting information and corporate governance. J Account Econ 32:237–333.  https://doi.org/10.1016/S0165-4101(01)00027-1 CrossRefGoogle Scholar
  12. Cambell JL, Chen H, Dhaliwal SS, Lu H, Steele LB (2014) The information content of mandatory risk factor disclosure in corporate filings. Rev Account Stud 9(1):396–455.  https://doi.org/10.1007/s11142-013-9258-3 CrossRefGoogle Scholar
  13. Chan WHA, Cheung HY (2012) Cultural dimensions, ethical sensitivity, and corporate governance. J Bus Ethics 110:45–59.  https://doi.org/10.1111/acfi.12046 CrossRefGoogle Scholar
  14. Chang RD, Fang CJ (2006) Effects of the information disclosure and evaluation system on earnings management. Int J Account Stud 42:1–22.  https://doi.org/10.6552/JOAR.2006.42.1 Google Scholar
  15. Chang M, Hooi L, Wee M (2014) How does investor relations disclosure affect analysts’ forecasts? Account Financ 54:365–391.  https://doi.org/10.1111/acfi.12046 CrossRefGoogle Scholar
  16. Chen CW, Liu VW (2013) Corporate governance under asymmetric information: theory and evidence. Econ Model 33:280–291.  https://doi.org/10.1016/j.econmod.2013.04.010 CrossRefGoogle Scholar
  17. Chen CW, Pantzalis C, Park JC (2009) Press coverage and stock prices’ deviation from fundamental value. J Financ Res.  https://doi.org/10.2139/ssrn.1359261 CrossRefGoogle Scholar
  18. Cheng CSA, Collins D, Huang HH (2006) Shareholder right, financial disclosure and the cost of equity capital. Rev Quant Financ Account 27(2):175–204.  https://doi.org/10.1007/s11156-006-8795-2 CrossRefGoogle Scholar
  19. Chhaochharia V, Grinstein Y (2007) Corporate governance and firm value: the impact of the 2002 governance rules. J Financ 62:1789–1825.  https://doi.org/10.2139/ssrn.556990 CrossRefGoogle Scholar
  20. Chung H, Judge WQ, Li YH (2015) Voluntary disclosure, excess executive compensation, and firm value. J Corp Financ 32:64–91.  https://doi.org/10.1016/j.jcorpfin.2015.04.001 CrossRefGoogle Scholar
  21. Collins DW, Kothari SP, Rayburn JD (1987) Firm size and the information content of prices with respect to earnings. J Account Econ 9:111–138.  https://doi.org/10.1111/j.1540-6261.2012.01776.x CrossRefGoogle Scholar
  22. Core JE (2001) A review of the empirical disclosure literature: discussion. J Account Econ 31:441–456.  https://doi.org/10.2139/ssrn.258513 CrossRefGoogle Scholar
  23. Cunat V, Gine M, Guadalupe M (2012) The vote is cast: the effect of corporate governance on shareholder value. J Financ 67:1943–1977.  https://doi.org/10.2139/ssrn.1555961 CrossRefGoogle Scholar
  24. Dhaliwal DS, Li OZ, Tsang A, Yang YG (2011) Voluntary nonfinancial disclosure and the cost of equity capital: the initiation of corporate social responsibility reporting. Account Rev 86:59–100.  https://doi.org/10.2308/accr.00000005 CrossRefGoogle Scholar
  25. Diamond DW, Verrecchia RE (1991) Disclosure, liquidity, and the cost of capital. J Financ 46:1325–1359.  https://doi.org/10.1111/j.1540-6261.2005.00767.x CrossRefGoogle Scholar
  26. Durnev A, Kim EH (2005) To steal or not to steal: firm attributes, legal environment, and valuation. J Financ 60:1461–1493.  https://doi.org/10.2139/ssrn.318719 CrossRefGoogle Scholar
  27. Eaton TV, Nofsinger JR, Weaver DG (2007) Disclosure and the cost of equity in international cross listing. Rev Quant Financ Account 29(1):1–24.  https://doi.org/10.1007/s11156-007-0024-0 CrossRefGoogle Scholar
  28. Fama EF (1980) Agency problems and the theory of the firm. J Polit Econ 88:288–307.  https://doi.org/10.1086/260866 CrossRefGoogle Scholar
  29. Fama EF, Jensen MC (1983) Separation of ownership and control. J Law Econ 26:301–325.  https://doi.org/10.1016/0165-4101(87)90005-X CrossRefGoogle Scholar
  30. Francis J, Nanda D, Olsson P (2008) Voluntary disclosure, earnings quality, and cost of capital. J Account Res 46:53–99.  https://doi.org/10.1111/j.1475-679X.2008.00267.x CrossRefGoogle Scholar
  31. Freeman RN (1987) The association between accounting earnings and security returns for large and small firms. J Account Econ 9:195–228.  https://doi.org/10.1016/0165-4101(87)90005-X CrossRefGoogle Scholar
  32. Gao P (2010) Disclosure quality, cost of capital, and investor welfare. Account Rev 85:1–29.  https://doi.org/10.2308/accr.2010.85.1.1 CrossRefGoogle Scholar
  33. Gelb DS, Zarowin P (2002) Corporate disclosure policy and the in formativeness of stock prices. Rev Account Stud 7:33–51.  https://doi.org/10.2139/ssrn.235009 CrossRefGoogle Scholar
  34. Glosten LR, Milgrom PR (1985) Bid, ask, and transaction prices in A specialist market with heterogeneously informed traders. J Financ Econ 14:71–100.  https://doi.org/10.1016/0304-405X(85)90044-3 CrossRefGoogle Scholar
  35. Gompers P, Ishii J, Metrick A (2003) Corporate governance and equity prices. Q J Econ 118:107–155.  https://doi.org/10.2139/ssrn.278920 CrossRefGoogle Scholar
  36. Gong Y, Ho KC (2018) Does corporate social responsibility matter for corporate stability? Evidence from China. Qual Quant. 52:2291–2319.  https://doi.org/10.1007/s11135-017-0665-6 CrossRefGoogle Scholar
  37. Hail L (2002) The impact of voluntary corporate disclosure on the Ex-ante cost of capital for Swiss firms. Eurn Account Rev 11:741–773.  https://doi.org/10.1080/0963818022000001109 CrossRefGoogle Scholar
  38. Hartman-Glaser B, Piskorski T, Tchistyi A (2012) Optimal securitization with moral hazard. J Financ Econ 104:186–202.  https://doi.org/10.2139/ssrn.1365000 CrossRefGoogle Scholar
  39. Healy PM, Palepu KG (2001) Information asymmetry, corporate disclosure, and the capital markets: a review of the empirical disclosure literature. J Account Econ 31:405–440.  https://doi.org/10.1016/S0165-4101(01)00018-0 CrossRefGoogle Scholar
  40. Healy PM, Hutton AP, Palepu KG (1999) Stock performance and intermediation changes surrounding sustained increases in disclosure. Contemp Account Res 16:485–520.  https://doi.org/10.1111/j.1911-3846.1999.tb00593.x CrossRefGoogle Scholar
  41. Heflin F, Subramanyam KR, Zhang Y (2003) Regulation FD and the financial information environment: early evidence. Account Rev 78:1–38.  https://doi.org/10.2308/accr.2003.78.1.1 CrossRefGoogle Scholar
  42. Hermalin B, Weisbach M (2012) Information disclosure and corporate governance. J Financ 67:195–233.  https://doi.org/10.1111/j.1540-6261.2011.01710.x CrossRefGoogle Scholar
  43. Holland J (1998) Private voluntary disclosure, financial intermediation and market efficiency. J Bus Financ Account 25:29–68.  https://doi.org/10.1111/1468-5957.00177 CrossRefGoogle Scholar
  44. Holthausen RW, Verrecchia RE (1988) The effect of sequential information releases on the variance of price changes in an intertemporal multi-asset market. J Account Res 26:82–106.  https://doi.org/10.2307/2491114 CrossRefGoogle Scholar
  45. Hughes JS, Liu J, Liu J (2007) Information asymmetry, diversification, and cost of capital. Account Rev 82:705–729.  https://doi.org/10.2308/accr.2007.82.3.705 CrossRefGoogle Scholar
  46. Hung C, Chen C (2012) Press coverage, breadth of ownership and equity mispricing. Web J Chin Manage Rev 15:1–19.  https://doi.org/10.2139/ssrn.2583611 Google Scholar
  47. Jensen MC, Meckling WH (1976) Theory of the firm: managerial behavior, agency costs and ownership structure. J Financ Econ 3:305–360.  https://doi.org/10.1016/0304-405X(76)90026-X CrossRefGoogle Scholar
  48. Jiao Y (2011) Corporate disclosure, market valuation, and firm performance. Financ Manage 40:647–676.  https://doi.org/10.1111/j.1755-053X.2011.01156.x CrossRefGoogle Scholar
  49. Kim O, Verrecchia RE (1991) Trading volume and price reactions to public announcements. J Account Res 29:302–320.  https://doi.org/10.2307/2491051 CrossRefGoogle Scholar
  50. Klapper LF, Love I (2004) Corporate governance, investor protection, and performance in emerging markets. J Corp Financ 10:703–728.  https://doi.org/10.1016/S0929-1199(03)00046-4 CrossRefGoogle Scholar
  51. Lambert R, Leuz C, Verrecchia RE (2007) Accounting information, disclosure, and the cost of capital. J Account Res 45:385–420.  https://doi.org/10.1111/j.1475-679X.2007.00239.x CrossRefGoogle Scholar
  52. Lee HL, Lee H (2015) Effect of information disclosure and transparency ranking system on mispricing of accruals of Taiwanese firms. Rev Quant Financ Account 44:445–471.  https://doi.org/10.1007/s11156-013-0413-5 CrossRefGoogle Scholar
  53. Lee SC, Lin CT (2010) An accounting-based valuation approach to valuing corporate governance in Taiwan. J Contemp Account Econ 6:47–60.  https://doi.org/10.1016/j.jcae.2010.09.002 CrossRefGoogle Scholar
  54. Leftwich R (1980) Market failure fallacies and accounting information. J Account Econ 2:193–211.  https://doi.org/10.2307/2672911 CrossRefGoogle Scholar
  55. Leuz C, Verrecchia RE (2000) The economic consequences of increased disclosure. J Accountg Res 38:91–124.  https://doi.org/10.2139/ssrn.171975 CrossRefGoogle Scholar
  56. Liao HH, Chen TK, Lu CW (2009) Bank credit risk and structral credit models: agency and information asymmetry perspective. J Bank Financ 33:1520–1530.  https://doi.org/10.1007/s11156-011-0234-3 CrossRefGoogle Scholar
  57. Lin CF (2006) Transparency—an empirical study using Taiwan stock exchange data. Rev Pac Basin Financ Mark Pol 9(1):129–147.  https://doi.org/10.1142/S0219091506000690 CrossRefGoogle Scholar
  58. Lin B, Yang R (2012) Does Regulation Fair Disclosure affect analysts’ forecast performance? The case of restructuring firms. Rev Quant Financ Account 38:495–517.  https://doi.org/10.1007/s11156-011-0234-3 CrossRefGoogle Scholar
  59. Lundholm R, Myers LA (2002) Bringing the future forward: the effect of disclosure on the returns–earnings relation. J Account Res 40:809–839.  https://doi.org/10.1111/1475-679X.00072 CrossRefGoogle Scholar
  60. Maletta MJ, Zhang YM (2012) Investor reactions to contrasts between the earnings preannouncements of peer firms. Contemp Account Res 29:361–381.  https://doi.org/10.1111/j.1911-3846.2010.01063.x CrossRefGoogle Scholar
  61. Merton RC (1987) A simple model of capital market equilibrium with incomplete information. J Financ 42:483–510.  https://doi.org/10.2307/2328367 CrossRefGoogle Scholar
  62. Pan LH, Lin CT, Lee SC, Ho KC (2015) Information ratings and capital structure. J Corp Financ 31:17–32.  https://doi.org/10.1016/j.jcorpfin.2015.01.011 CrossRefGoogle Scholar
  63. Perotti EC, Thadden ELV (2003) Strategic transparency and informed trading: will capital market integration force convergence of corporate governance? J Financ Quant Anal 38:61–86.  https://doi.org/10.2307/4126764 CrossRefGoogle Scholar
  64. Rhodes-Kropf M, Robinson DT, Viswanathan S (2005) Valuation waves and merger activity: the empirical evidence. J Financ Econ 77:561–603.  https://doi.org/10.2139/ssrn.412680 CrossRefGoogle Scholar
  65. Sengupta P (1998) Corporate disclosure quality and the cost of debt. Account Rev 73:459–474.  https://doi.org/10.1016/j.jcorpfin.2014.09.006 Google Scholar
  66. Sheng X, Thevenot M (2015) Quantifying differential interpretation of public information using financial analysts’ earnings forecasts. Int J For 31:515–530.  https://doi.org/10.1016/j.ijforecast.2014.08.012 Google Scholar
  67. Shive S, Yun H (2013) Are mutual funds sitting ducks? J Financ Econ 107:220–237.  https://doi.org/10.1016/j.jfineco.2012.08.012 CrossRefGoogle Scholar
  68. Singhvi S, Desai H (1971) An empirical analysis of the quality of corporate financial disclosure. Account Rev 46(1):129–138.  https://doi.org/10.1108/14720700110389548 Google Scholar
  69. Spicer BH (1978) Investors, corporate social performance and information disclosure: an empirical study. Account Rev 52(1):94–111.  https://doi.org/10.1057/9781137414694.0007 Google Scholar
  70. Tuttle B, Harrell A, Harrison P (1997) Moral hazard, ethical considerations, and the decision to implement an information system. J Manage Inform Syst 13:7–27.  https://doi.org/10.1080/07421222.1997.11518140 CrossRefGoogle Scholar
  71. Verrecchia R (1990) Information quality and discretionary disclosure. J Account Econ 12:365–380.  https://doi.org/10.1016/0165-4101(90)90021-U CrossRefGoogle Scholar
  72. Wang SN, Liang H, Gao WT (2015) Mandatory and voluntary information disclosure and the effects on financial analysts. Chin Manage Stud 9:425–440.  https://doi.org/10.1108/CMS-01-2015-0012 CrossRefGoogle Scholar
  73. Welker M (1995) Disclosure policy, information asymmetry, and liquidity in equity markets. Contemp Account Res 11:801–827.  https://doi.org/10.1111/j.1911-3846.1995.tb00467.x CrossRefGoogle Scholar
  74. Yu HY, Chen LW (2017) Ambiguous customer identity disclosure and the cost of equity capital. Rev Pac Basin Financ Mark Pol 20(3):1750021.  https://doi.org/10.1142/S0219091517500217 CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  • Chien-Chi Chu
    • 1
  • Kung-Cheng Ho
    • 2
  • Chia-Chun Lo
    • 3
  • Andreas Karathanasopoulos
    • 4
  • I-Ming Jiang
    • 5
    Email author
  1. 1.Department of Applied Economics, Business SchoolShantou UniversityShantouChina
  2. 2.School of FinanceZhongnan University of Economics and LawWuhanChina
  3. 3.Prince Mohammad Bin Salman College (MBSC)King Abdullah Economic CityKingdom of Saudi Arabia
  4. 4.Olayan School of BusinessAmerican University of BeirutBeirutLebanon
  5. 5.Faculty of Digital Finance, College of ManagementYuan Ze UniversityTaoyuanTaiwan, ROC

Personalised recommendations