TY  - JOUR
AU  - Hermalin,Benjamin E.
AU  - Weisbach,Michael S.
TI  - Transparency and Corporate Governance
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12875
PY  - 2007
Y2  - January 2007
UR  - http://www.nber.org/papers/w12875
L1  - http://www.nber.org/papers/w12875.pdf
N1  - Author contact info:
Benjamin Hermalin
Walter Haas School of Business
545 Student Services Building, #1900
University of California
Berkeley, CA  94720-0001
Tel: (510) 642-7575
Fax: (510) 643-1420
E-Mail: hermalin@haas.berkeley.edu

Michael Weisbach
Department of Finance
Fisher College of Business
Ohio State University
2100 Neil Ave.
Columbus, OH  43210
Tel: 614/292-3264
E-Mail: weisbach.2@osu.edu
AB  - 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.
ER  -