قابلیت مدیر عامل و شفافیت شرکت ها CEO ability and corporate opacity

1. Introduction Publicly traded firms are required by regulators to provide extensive disclosure, yet considerable variation still exists in the additional information provided to the capital markets. Firms have substantial discretion about the informativeness of the mandatory disclosures and the details provided (Lang & Lundholm, 1996). There has been a remarkable body of research evaluating the consequences of variations. Healy and Palepu (2001), for example, consider the main consequences of firm transparency to be the reduction of information asymmetries and mitigation of agency costs. Information asymmetry problems may lead capital markets to undervalue good firms (Akerlof, 1970). Abundant information allows precise valuations and induces investors to hold the company’s stock. Such an increase in liquidity also increases the demand and therefore raises the stock price, in turn decreasing the cost of capital (Diamond & Verrecchia, 1991; Easley & O’Hara, 2004; Healy & Palepu, 2001). In addition, Verrecchia (1983, 2001) suggests that investors interpret withheld information as unfavorable and consequently discount the firm’s value. Studies also associate corporate opacity with the agency problem between controlling and outside shareholders. Faccio, Lang, and Young (2001), for instance, suggest that high opacity makes it difficult for outside shareholders to recognize expropriation. Leuz, Nanda, and Wysocki (2003) argue that controlling shareholders may increase firm opacity to enable them to capture private benefits. In addition, Anderson, Duru, and Reeb (2009) report that corporate opacity can lead to severe conflicts of interests between founding family members and minority shareholders. CEOs, along with a group of well-experienced directors, lead corporate decision making, which undoubtedly includes the decision about corporate opacity. In this paper, I argue that the CEO’s ability level may be an important factor in corporate opacity. While the CEO is aware of his/her own abilities, investors may not be able to observe them fully. The CEO, then, is also aware that the market will assess his/her abilities through firm characteristics, such as firm performance or the success of investment and/or R & D decisions (Holmstrom, 1999).