Abstract
Being able to separate temporary global macroeconomic influences – caused by fluctuations in exchange rates, interest rates and inflation – from intrinsic performance – related to a superior product, production process or management – is crucial to assessing the development of a firm’s competiveness. Against that background, this paper analyzes institutions’ role in making firms supply outside shareholders with relevant information corresponding to satisfactory transparency from the shareholder perspective. Based on a sample of the 100 largest public European firms, it is found that no firm provided information to a level deemed satisfactory by the outside shareholder. One explanation may be that optimal transparency for the firm does not equal satisfactory transparency for the outside shareholder. However, the implementation of IFRS/IAS 1 in the EU as of 2005 and a company’s international cross-listing activities exhibit associations with a better supply of information and a narrowing of the gap. Shareholders in the Anglo-Saxon corporate governance system are provided with more relevant information than those in other corporate governance systems. The paper adds to the literature on the role of institutions in international corporate governance, with a particular focus on information asymmetries in an international business context.
Highlights
To support most corporate decision-making, the decision-maker needs to understand what share of the profits reflects a superior product, production process and/or management and what share reflects a temporary effect of macroeconomic variables, that is, exchange rates, interest rates and inflation rates
It provides a new angle on the stream of research that examines the supply of information in relation to corporate governance systems (Leuz et al, 2003; Ball et al, 2003; Daske et al, 2008)
The Anglo-Saxon dummy is robust for all four dependent variables, and indicates that firms in market-driven governance systems are more likely to disclose a higher quality of macroeconomic information of the kind demanded by outside shareholders in countries adopting an Anglo-Saxon corporate governance regime
Summary
To support most corporate decision-making, the decision-maker needs to understand what share of the profits (or corporate performance in general) reflects a superior product, production process and/or management (i.e. the intrinsic competitive edge of the firm) and what share reflects a temporary effect of macroeconomic variables, that is, exchange rates, interest rates and inflation rates. The paper addresses institutional factors influencing the gap between the information supplied by the firm and the information the shareholder needs to understand – as an input into his/her investment decision – how the intrinsic competitive edge of the firm has developed. This paper adds to the literature on the role of institutions in international corporate governance with a particular focus on information asymmetries and risk premia in the international business context It provides a new angle on the stream of research that examines the supply of information in relation to corporate governance systems (Leuz et al, 2003; Ball et al, 2003; Daske et al, 2008).
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