Does Trade Globalization Induce or Inhibit Corporate Transparency? Unbundling the Growth Potential and Product Market Competition Channels

Hui Tong and Shang-Jin Wei

No 17631, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: How does increasing globalization affect corporate transparency? Freer trade represents different facets and in theory has ambiguous effects on corporate transparency. On the one hand, by exposing firms to more product market competition, it could discourage discretionary disclosure. On the other hand, by opening up foreign markets and enhancing firms' growth opportunities, it may promote more transparency. Rather than simply estimating a net effect, this paper pursues an approach that allows separate estimation of the two potentially opposing channels. We employ three different measures of corporate transparency and track their evolutions for 4061 firms in 49 countries during 1992-2005. By using detailed product-level tariff schedules for these countries, we construct a measure of growth opportunities enabled by foreign tariff liberalizations at the sector-country-year level, and a second measure of globalization-induced product market competition based on a country's own tariff liberalization (again at the sector-country-year level). We find strong evidence that higher growth opportunities engendered by globalization promotes corporate transparency, especially in industries that depend heavily on external financing. At the same time, we find somewhat weaker evidence that greater product market competition engendered by globalization discourages corporate transparency. The results demonstrate the importance of disentangling the multiple and potentially conflicting effects of globalization.

JEL-codes: F10 G30 (search for similar items in EconPapers)
Date: 2011-12
New Economics Papers: this item is included in nep-bec and nep-int
Note: CF ITI
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published as Tong, Hui & Wei, Shang-Jin, 2014. "Does trade globalization induce or inhibit corporate transparency? Unbundling the growth potential and product market competition channels," Journal of International Economics, Elsevier, vol. 94(2), pages 358-370.

Downloads: (external link)
http://www.nber.org/papers/w17631.pdf (application/pdf)

Related works:
Journal Article: Does trade globalization induce or inhibit corporate transparency? Unbundling the growth potential and product market competition channels (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:17631

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w17631

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().