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.
Information asymmetry between managers and outside investors creates agency problems and impedes efficient capital allocation. Information disclosure is critical in alleviating information asymmetry in capital markets. This study investigates the effect of information asymmetry on managerial short-termism by examining information disclosure ratings (IDRs). Using real earnings management as a proxy for managerial short-termism, our analysis of a sample of Chinese A-share companies during 2001-2018 indicates that high IDRs mitigate managerial short-termism. The results also indicate that the effect of IDRs in reducing managerial short-termism is driven mainly by stock liquidity. This conclusion holds after consideration of endogeneity and application of two-stage least-squares and generalized method of moments methods, adjustment of the definition of IDRs, consideration of alternative proxies for managerial short-termism, and control for firm characteristics that might affect the extent of managerial short-termism. This study also examines the effects within three subsamples: companies listed on the Shenzhen Stock Exchange main board, small and medium enterprise board, and growth enterprise market board. IDRs substantially reduce managerial short-termism among firms listed on all three boards. These findings indicate that enterprises have corrected previous internal governance problems, and IDRs have helped to improve internal governance through stock liquidity. Therefore, external supervision also helps to reduce the agency problem of managerial short-termism.
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