Information Disclosure Ranking, Industry Production Market Competition, and Mispricing: An Empirical Analysis

Bing Wang,I-Ming Jiang,Hung-Yi Huang,Si Xu,Kung-Cheng Ho

doi:10.3390/su11010262

Abstract

Improving the transparency of corporate information disclosure is a key principle of corporate governance in Taiwan. This study uses the information disclosure assessment system established by the information disclosure and transparency ranking system to explore whether information transparency can reduce the degree of mispricing. The study uses the data of 10,686 listed companies in Taiwan for the period from 2005 to 2014. We find that a higher information disclosure ranking (IDR) of rated companies corresponds to a more substantial reduction in the degree of mispricing. Moreover, we discover that product market competition affects mispricing in that smaller degrees of mispricing reflect greater exclusivity; this suggests that lower industry transaction and competition costs lead to less substantial mispricing. Finally, we observe that the effect of information disclosure score on the degree of mispricing is lower in more exclusive industries. Furthermore, a regression process using instrumental variables reveals that IDRs have the significant effect of reducing the degree of mispricing.

Highlights

Financial fraud, such as that committed by Tyco, Enron, and WorldCom, has become prevalent
Our results show that information disclosure ranking, industry production market competition and their interaction did influence the mispricing of Taiwanese firms between 2005 and 2014
The information disclosure ranking (IDR) score is significantly representative because the different methods for estimating the degree of mispricing all maintain a significance level of less than 1%, even after we control for both the year and industry fixed effects

Summary

Introduction

Financial fraud, such as that committed by Tyco, Enron, and WorldCom, has become prevalent. In addition to a greater amount of attention paid by scholars and people practicing business to the matter of information disclosure, financial supervision agencies in various countries have developed guidelines for measuring transparency when encouraging enterprises to improve information disclosure. In 2003, the Taiwan Stock Exchange Corporation (TSEC) entrusted the Securities and Futures Institute (SFI) with the task of improving the information disclosure system to ensure a reduction in information asymmetry between insiders and outsiders on all companies listed in the TSEC. The purpose of this information disclosure system is to plan and design evaluation indicators that meet the needs of the information disclosure and transparency ranking system (IDTRS). The investment publication is expected to be capable of determining the degree of corporate information asymmetry by publishing evaluation grades for listed companies annually

Methods

Results

Conclusion