NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Transparency and Corporate Governance

Benjamin E. Hermalin, Michael S. Weisbach

NBER Working Paper No. 12875
Issued in January 2007
NBER Program(s):   CF   LE   LS

An objective of many proposed corporate governance reforms is increased transparency. This goal has been relatively uncontroversial, as most observers believe increased transparency to be unambiguously good. We argue that, from a corporate governance perspective, there are likely to be both costs and benefits to increased transparency, leading to an optimum level beyond which increasing transparency lowers profits. This result holds even when there is no direct cost of increasing transparency and no issue of revealing information to regulators or product-market rivals. We show that reforms that seek to increase transparency can reduce firm profits, raise executive compensation, and inefficiently increase the rate of CEO turnover. We further consider the possibility that executives will take actions to distort information. We show that executives could have incentives, due to career concerns, to increase transparency and that increases in penalties for distorting information can be profit reducing.

download in pdf format
   (224 K)

email paper

This paper is available as PDF (224 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w12875

Users who downloaded this paper also downloaded these:
La Porta, Lopez-de-Silanes, Shleifer, and Vishny w5661 Law and Finance
Hermalin and Weisbach w12050 A Framework for Assessing Corporate Governance Reform
Morck and Steier w11062 The Global History of Corporate Governance: An Introduction
Shleifer and Vishny w5554 A Survey of Corporate Governance
Bebchuk and Weisbach w15537 The State of Corporate Governance Research
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us