Information Transparency, Corporate Governance, And Convertible Bonds

Abstract

Information transparency is a popular topic in capital markets. A firms corporate governance policy, which influences its disclosure behavior and disclosure quality, influences the information transparency perceived in relation to that firm. It was previously understood that greater information asymmetry between investors and issuers/underwriters translates into a larger discount required to be offered in bond pricing by the issuing firm, to attract investors. In this paper, we numerically analyze: (a) the effect of the composition of the board structure on corporate information transparency under the code law system, and (b) the effect of information transparency on the initial return rate of convertible bonds. The results of our study revealed that the board structure affects corporate information disclosure policies under the code law system. Specifically, CEO duality tends to bring about lower information transparency, whereas better information transparency emanates from a higher proportion of independent directors. However, there is a lack of conclusive evidence to support the view that the shareholdings of directors and large shareholders are correlated with information transparency. We also show numerically that greater information transparency combined with lesser information asymmetry (between insiders and outsiders) leads to a lower initial return rate of convertible bonds.

The Relationship between Corporate Governance Attributes and Environmental Disclosure Quality of Malaysian Public Listed Companies

“…Combining these two roles weakens the internal corporate governance system and may result excessive power to be given to the CEO who is also the Board Chairperson (Shamsul et al 2010). Duality of CEO also tends to lower information transparency (Wu & Lee 2014)which influences its disclosure behavior and disclosure quality, influences the information transparency perceived in relation to that firm. It was previously understood that greater information asymmetry between investors and issuers/ underwriters translates into a larger discount required to be offered in bond pricing by the issuing firm, to attract investors.…”

“…In other words, as the level of shareholding held by board of directors increases, the likelihood of voluntary disclosures made reduces. As explained by Wu and Lee (2014), the higher the directors' shareholding, the lower the pressure faced by company in disclosing information. Hence, as part of cost reduction, information disclosed will be reduced and information transparency will be low (Wu & Lee 2014).…”

“…As explained by Wu and Lee (2014), the higher the directors' shareholding, the lower the pressure faced by company in disclosing information. Hence, as part of cost reduction, information disclosed will be reduced and information transparency will be low (Wu & Lee 2014). With this finding, Akhtaruddin and Hasnah (2010) suggested more independent directors to be included in the audit committee when the board has higher ownership control.…”

Effect of Earnings Management on Cost of Debt Before and After International Standard Financial Reporting Implementation

“…Turkish Research (8) states that IFRS implementation contains key factor factors that can reduce information asymmetry, thus lowering the cost of equity. Mohammadrezaei (9) conducted a literature study and concluded that the majority of research concludes that IFRS implementation reduces information asymmetry which reduces cost of equity but still recognizes that some research has led to different conclusions.…”

“…In response to this there is an attempt to reduce information asymmetry by designing and encouraging the implementation of International Financial Reporting of IFRS Standards). This research (8) who sampled companies in Europe concluded that IFRS implementation could reduce information asymmetry and improve the reliability of financial statements in predicting future circumstances. The results of this study are in line with (9) but contrary to the results of (10) studies concluding that for companies listed in the Brazil stock exchange the IFRS implementation does not provide a significant influence on reducing information asymmetry.…”