Transparency and Corporate Governance / Benjamin E. Hermalin, Michael S. Weisbach.

Format:

Book

Author/Creator:

Hermalin, Benjamin E.

Contributor:

National Bureau of Economic Research.

Weisbach, Michael S.

Series:

Working Paper Series (National Bureau of Economic Research) no. w12875.

NBER working paper series no. w12875

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2007.

Summary:

An objective of many proposed corporate governance reforms is increased transparency. This goal has been relatively uncontroversial, as most observers believe increased transparency to be unambiguously good. We argue that, from a corporate governance perspective, there are likely to be both costs and benefits to increased transparency, leading to an optimum level beyond which increasing transparency lowers profits. This result holds even when there is no direct cost of increasing transparency and no issue of revealing information to regulators or product-market rivals. We show that reforms that seek to increase transparency can reduce firm profits, raise executive compensation, and inefficiently increase the rate of CEO turnover. We further consider the possibility that executives will take actions to distort information. We show that executives could have incentives, due to career concerns, to increase transparency and that increases in penalties for distorting information can be profit reducing.

Notes:

Print version record

January 2007.