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The substitutive relation between voluntary disclosure and corporate governance in their effects on firm performance

Review of quantitative finance and accounting, 2020-02, Vol.54 (2), p.413-445 [Peer Reviewed Journal]

Springer Science+Business Media, LLC, part of Springer Nature 2019 ;Review of Quantitative Finance and Accounting is a copyright of Springer, (2019). All Rights Reserved. ;ISSN: 0924-865X ;EISSN: 1573-7179 ;DOI: 10.1007/s11156-019-00794-8

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  • Title:
    The substitutive relation between voluntary disclosure and corporate governance in their effects on firm performance
  • Author: Enache, Luminita ; Hussainey, Khaled
  • Subjects: Accounting/Auditing ; Companies ; Corporate Finance ; Corporate governance ; Disclosure ; Econometrics ; Economics and Finance ; Finance ; Operations Research/Decision Theory ; Organizational performance ; Original Research ; Profits
  • Is Part Of: Review of quantitative finance and accounting, 2020-02, Vol.54 (2), p.413-445
  • Description: Prior literature shows that financial disclosures and corporate governance both impact firm performance. This paper documents an important topic that has been overlooked in the prior literature, their joint effect, because the two mechanisms could be independent, substitutive, or complementary in their impact on firm performance. We find a substitutive relation based on data from 2005 to 2013 for a sample of US biotech firms, but only for firms with products in advanced stages of development, because their disclosures are trustworthy about the firms’ future performance. We do not find such effect for firms with early-stage products, that would take years to convert to profits, and whose product-related disclosures are speculative at best. This paper shows that informative and reliable voluntary disclosures have similar value-increasing effect as corporate governance and that the marginal effect of trustworthy disclosures is decreasing in governance. To the extent that the two mechanisms are costly, firms can partly substitute one for the other.
  • Publisher: New York: Springer US
  • Language: English
  • Identifier: ISSN: 0924-865X
    EISSN: 1573-7179
    DOI: 10.1007/s11156-019-00794-8
  • Source: AUTh Library subscriptions: ProQuest Central
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