Equity ownership and corporate transparency: International evidence

Abstract

This paper investigates the effect of insider ownership on stock price synchronicity. Specifically, for countries with poor investor protection, the managerial entrenchment effect dominates. When ownership increases, synchronicity increases at an increasing rate. However, for countries with strong investor protections, managerial entrenchment effect only dominates the incentive alignment effect when controlling ownership increases initially. As controlling ownership continues to increase, the incentive alignment effect becomes stronger and the net effect is reversed, leading to a more transparent firm. Additional tests reveal that financial reporting framework and insider trading law enforcement are crucial external governance channels affecting stock price synchronicity.