The role of financial reporting and transparency in corporate governance

Christopher S. Armstrong, Wayne R. Guay, Hamid Mehran and Joseph P. Weber

Economic Policy Review, 2016, issue Aug, 107-128

Abstract: The authors review recent literature on the role of corporate financial reporting and transparency in reducing governance-related agency conflicts between managers, directors, shareholders, and other stakeholders?most notably financial regulators?and suggest some avenues for future research. Key themes include the endogenous nature of governance mechanisms with respect to information asymmetry between contracting parties, the heterogeneous nature of the informational demands of contracting parties, and the corresponding heterogeneity of the associated governance mechanisms. The authors also emphasize the role of credible commitment to financial reporting transparency in facilitating informal multiperiod contracts among managers, directors, shareholders, and other stakeholders. Finally, they discuss the importance of regulatory supervision and oversight as a class of governance mechanisms that is particularly important for banks and financial institutions.

Keywords: financial accounting; contracting; financial institutions; information asymmetry; executive compensation; corporate transparency; corporate governance; board structure; informal contracts (search for similar items in EconPapers)
JEL-codes: D82 D86 G21 G23 G24 G28 G30 G34 G38 M40 M41 M42 M50 M52 M55 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (7)

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