Dominant Investors and Strategic Transparency

Enrico Perotti and Ernst-Ludwig von Thadden

No 1999.24, Working Papers from Fondazione Eni Enrico Mattei

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 more 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 comparitive statics show that bank control may fail to keep firms less transparent as global trading volumes rise.

Keywords: Transparency; Bank control; product market competition (search for similar items in EconPapers)
JEL-codes: G14 G20 L10 (search for similar items in EconPapers)
Date: 1999-02
New Economics Papers: this item is included in nep-fin, nep-ind and nep-mic
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Related works:
Journal Article: Dominant Investors and Strategic Transparency (2005)
Working Paper: Dominant Investors and Strategic Transparency (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:fem:femwpa:1999.24

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