How Transparency Affects Stock Valuation
Cheng, Collins and Huang published an article in the September 2006 Review of Quanititative Finance and Accounting that considered the effects of shareholder rights and financial disclosure on the cost of equity capital.
Prior research has shown that the cost of capital is reduced when shareholders have strong rights and the company operates in a transparent manner with full financial disclosure. This article studies interactions between rights and transparency, as well as the resulting impact on cost of capital.
Consistent with prior research, both shareholder rights and transparency individually serve to increase value by reducing the cost of equity capital. Furthermore, the authors find that poor scores on either measure can offset strong scores in the other, and that the greatest benefit is accrued by companies that offer both strong shareholder rights and high financial transparency.
For more information, see all articles on: Corporate Governance, Governance, Research, Securities Regulation, Valuation See also:
The Intelligent Investor: The Classic Text on Value Investing
Financial Statement Analysis: A Practitioner's Guide, 3rd Edition
Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)
