Does enhanced disclosure really reduce agency costs? Evidence from the diversion of corporate resources

Ping-Hsun Huang, Yan Zhang

Research output: Contribution to specialist publicationArticle

Abstract

This study investigates whether extensive disclosure reduces managerial expropriation of corporate resources by examining the potential effects of enhanced reporting on the values of cash assets and investment ventures, respectively. We uncover evidence that liquid asset holdings are valued at a discount by firms with fewer disclosure practices than their more transparent counterparts. Moreover, disclosure activity substantially improves the value of cash assets in excess of requirements for operations and investment. These findings suggest that detailed reporting facilitates the scrutiny and discipline of capital markets, thus preventing the diversion of cash reserves. In further support of the disciplinary power of greater disclosure, we find that valuedestroying projects, through internal capital investment and external acquisitions, are concentrated in firms adopting opaque disclosure policies. Collectively, our results support the premise that extensive disclosure impairs insiders' abilities to utilize corporate resources in a self-serving manner.

Original languageEnglish
Pages199-229
Number of pages31
Volume65
No.5
Specialist publicationATIP. Association Technique de L'Industrie Papetiere
Publication statusPublished - 2012 Feb

Fingerprint

Costs
Liquids
Financial markets

All Science Journal Classification (ASJC) codes

  • Media Technology

Cite this

@misc{068c105c70234144a0d5427a289f3042,
title = "Does enhanced disclosure really reduce agency costs? Evidence from the diversion of corporate resources",
abstract = "This study investigates whether extensive disclosure reduces managerial expropriation of corporate resources by examining the potential effects of enhanced reporting on the values of cash assets and investment ventures, respectively. We uncover evidence that liquid asset holdings are valued at a discount by firms with fewer disclosure practices than their more transparent counterparts. Moreover, disclosure activity substantially improves the value of cash assets in excess of requirements for operations and investment. These findings suggest that detailed reporting facilitates the scrutiny and discipline of capital markets, thus preventing the diversion of cash reserves. In further support of the disciplinary power of greater disclosure, we find that valuedestroying projects, through internal capital investment and external acquisitions, are concentrated in firms adopting opaque disclosure policies. Collectively, our results support the premise that extensive disclosure impairs insiders' abilities to utilize corporate resources in a self-serving manner.",
author = "Ping-Hsun Huang and Yan Zhang",
year = "2012",
month = "2",
language = "English",
volume = "65",
pages = "199--229",
journal = "ATIP. Association Technique de L'Industrie Papetiere",
issn = "0997-7554",
publisher = "Association Technique de l'Industrie Papetiere",

}

Does enhanced disclosure really reduce agency costs? Evidence from the diversion of corporate resources. / Huang, Ping-Hsun; Zhang, Yan.

In: ATIP. Association Technique de L'Industrie Papetiere, Vol. 65, No. 5, 02.2012, p. 199-229.

Research output: Contribution to specialist publicationArticle

TY - GEN

T1 - Does enhanced disclosure really reduce agency costs? Evidence from the diversion of corporate resources

AU - Huang, Ping-Hsun

AU - Zhang, Yan

PY - 2012/2

Y1 - 2012/2

N2 - This study investigates whether extensive disclosure reduces managerial expropriation of corporate resources by examining the potential effects of enhanced reporting on the values of cash assets and investment ventures, respectively. We uncover evidence that liquid asset holdings are valued at a discount by firms with fewer disclosure practices than their more transparent counterparts. Moreover, disclosure activity substantially improves the value of cash assets in excess of requirements for operations and investment. These findings suggest that detailed reporting facilitates the scrutiny and discipline of capital markets, thus preventing the diversion of cash reserves. In further support of the disciplinary power of greater disclosure, we find that valuedestroying projects, through internal capital investment and external acquisitions, are concentrated in firms adopting opaque disclosure policies. Collectively, our results support the premise that extensive disclosure impairs insiders' abilities to utilize corporate resources in a self-serving manner.

AB - This study investigates whether extensive disclosure reduces managerial expropriation of corporate resources by examining the potential effects of enhanced reporting on the values of cash assets and investment ventures, respectively. We uncover evidence that liquid asset holdings are valued at a discount by firms with fewer disclosure practices than their more transparent counterparts. Moreover, disclosure activity substantially improves the value of cash assets in excess of requirements for operations and investment. These findings suggest that detailed reporting facilitates the scrutiny and discipline of capital markets, thus preventing the diversion of cash reserves. In further support of the disciplinary power of greater disclosure, we find that valuedestroying projects, through internal capital investment and external acquisitions, are concentrated in firms adopting opaque disclosure policies. Collectively, our results support the premise that extensive disclosure impairs insiders' abilities to utilize corporate resources in a self-serving manner.

UR - http://www.scopus.com/inward/record.url?scp=84863119003&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84863119003&partnerID=8YFLogxK

M3 - Article

VL - 65

SP - 199

EP - 229

JO - ATIP. Association Technique de L'Industrie Papetiere

JF - ATIP. Association Technique de L'Industrie Papetiere

SN - 0997-7554

ER -