Dominant Investors and Strategic Transparency

Enrico Perotti and Ernst-Ludwig von Thadden

No 1948, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper studies product market competition under a strategic transparency decision. Dominant investors can influence information collection in the financial market, and thereby corporate transparency, by affecting market liquidity or the cost of information collection. More transparency on a firm's competitive position has both strategic advantages and disadvantages: in general, transparency results in higher variability of profits and output. Thus lenders prefer less information revelation through stock market trading, since this protects firms when in a weak competitive position, while equityholders prefer to make full use of the strategic advantage of a strong firm. We show that bank-controlled firms will tend to discourage trading to reduce price informativeness, while shareholder-run firms prefer more transparency. Our comparative statics show that bank control may fail to keep firms less transparent as global trading volumes rise.

Keywords: bank governance; Competition; disclosure; market microstructure; Transparency (search for similar items in EconPapers)
JEL-codes: D43 G21 G32 G34 (search for similar items in EconPapers)
Date: 1998-10
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Dominant Investors and Strategic Transparency (2005)
Working Paper: Dominant Investors and Strategic Transparency (1999)
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