The substitutive relation between voluntary disclosure and corporate governance in their effects on firm performance

Luminita Enache () and Khaled Hussainey ()
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Luminita Enache: University of Calgary

Review of Quantitative Finance and Accounting, 2020, vol. 54, issue 2, No 1, 413-445

Abstract: Abstract Prior literature shows that financial disclosures and corporate governance both impact firm performance. This paper documents an important topic that has been overlooked in the prior literature, their joint effect, because the two mechanisms could be independent, substitutive, or complementary in their impact on firm performance. We find a substitutive relation based on data from 2005 to 2013 for a sample of US biotech firms, but only for firms with products in advanced stages of development, because their disclosures are trustworthy about the firms’ future performance. We do not find such effect for firms with early-stage products, that would take years to convert to profits, and whose product-related disclosures are speculative at best. This paper shows that informative and reliable voluntary disclosures have similar value-increasing effect as corporate governance and that the marginal effect of trustworthy disclosures is decreasing in governance. To the extent that the two mechanisms are costly, firms can partly substitute one for the other.

Keywords: Biotechnology firms; Corporate governance; Voluntary disclosures; Proprietary costs; Firm performance; Complementary or substitutive relationship (search for similar items in EconPapers)
JEL-codes: G14 G32 G34 M40 M41 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (9)

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DOI: 10.1007/s11156-019-00794-8

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