Hello, is Anybody There? Corporate Accessibility for Outside Shareholders as a Signal of Agency Problems

Abstract

Using an experimental approach similar to Chong, La Porta, Lopez-de-Silanes, and Shleifer (2014), this study examines whether the effectiveness of corporate accessibility channels (telephone, email, and on-line discussion forum) is a signal for detecting agency problems. We directly contact all the listed firms in a large economy and construct a corporate accessibility measure for them based on their responses. We find robust evidence that accessible firms are associated with less tunneling of corporate funds, lower consumption of managerial slacks, better operating performance, and higher firm valuation when compared to non-accessible firms, with the relations being stronger in privately owned firms than in state-owned firms. In addition, we find that corporate accessibility is informative about future firm performance that goes beyond investors’ and analysts’ expectations. Furthermore, we also find that a one dollar cash holding in accessible firms is worth about 36% more than in non-accessible firms. Accessible acquirers, in M&A activities, experience an 11-day cumulative abnormal return that is about 6% higher than for non-accessible acquirers. Overall, our results indicate that corporate accessibility for outside shareholders is a value-relevant signal for investors to detect the severity of agency problems among publicly listed firms.