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The substitutive relation between voluntary disclosure and corporate governance in their effects on firm performance

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The substitutive relation between voluntary disclosure and corporate governance in their effects on firm performance. / Enache, Luminita; Hussainey, Khaled.

In: Review of Quantitative Finance and Accounting, 18.02.2019.

Research output: Contribution to journalArticlepeer-review

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@article{3136df33abff4d338a46f1ca1b4283ba,
title = "The substitutive relation between voluntary disclosure and corporate governance in their effects on firm performance",
abstract = "Prior literature shows that financial disclosures and corporate governance both impact firm performance. This paper documents an important topic that has been overlooked in the prior literature, their joint effect, because the two mechanisms could be independent, substitutive, or complementary in their impact on firm performance. We find a substitutive relation based on data from 2005 to 2013 for a sample of US biotech firms, but only for firms with products in advanced stages of development, because their disclosures are trustworthy about the firms{\textquoteright} future performance. We do not find such effect for firms with early-stage products, that would take years to convert to profits, and whose product-related disclosures are speculative at best. This paper shows that informative and reliable voluntary disclosures have similar value-increasing effect as corporate governance and that the marginal effect of trustworthy disclosures is decreasing in governance. To the extent that the two mechanisms are costly, firms can partly substitute one for the other.",
keywords = "Biotechnology firms, Corporate governance, Voluntary disclosures, Proprietary costs, Firm performance, Complementary or substitutive relationship",
author = "Luminita Enache and Khaled Hussainey",
note = "EMBARGO 12 MTHS - 18 Feb 2020 ",
year = "2019",
month = feb,
day = "18",
doi = "10.1007/s11156-019-00794-8",
language = "English",
journal = "Review of Quantitative Finance and Accounting",
issn = "0924-865X",
publisher = "Springer New York",

}

RIS

TY - JOUR

T1 - The substitutive relation between voluntary disclosure and corporate governance in their effects on firm performance

AU - Enache, Luminita

AU - Hussainey, Khaled

N1 - EMBARGO 12 MTHS - 18 Feb 2020

PY - 2019/2/18

Y1 - 2019/2/18

N2 - Prior literature shows that financial disclosures and corporate governance both impact firm performance. This paper documents an important topic that has been overlooked in the prior literature, their joint effect, because the two mechanisms could be independent, substitutive, or complementary in their impact on firm performance. We find a substitutive relation based on data from 2005 to 2013 for a sample of US biotech firms, but only for firms with products in advanced stages of development, because their disclosures are trustworthy about the firms’ future performance. We do not find such effect for firms with early-stage products, that would take years to convert to profits, and whose product-related disclosures are speculative at best. This paper shows that informative and reliable voluntary disclosures have similar value-increasing effect as corporate governance and that the marginal effect of trustworthy disclosures is decreasing in governance. To the extent that the two mechanisms are costly, firms can partly substitute one for the other.

AB - Prior literature shows that financial disclosures and corporate governance both impact firm performance. This paper documents an important topic that has been overlooked in the prior literature, their joint effect, because the two mechanisms could be independent, substitutive, or complementary in their impact on firm performance. We find a substitutive relation based on data from 2005 to 2013 for a sample of US biotech firms, but only for firms with products in advanced stages of development, because their disclosures are trustworthy about the firms’ future performance. We do not find such effect for firms with early-stage products, that would take years to convert to profits, and whose product-related disclosures are speculative at best. This paper shows that informative and reliable voluntary disclosures have similar value-increasing effect as corporate governance and that the marginal effect of trustworthy disclosures is decreasing in governance. To the extent that the two mechanisms are costly, firms can partly substitute one for the other.

KW - Biotechnology firms

KW - Corporate governance

KW - Voluntary disclosures

KW - Proprietary costs

KW - Firm performance

KW - Complementary or substitutive relationship

U2 - 10.1007/s11156-019-00794-8

DO - 10.1007/s11156-019-00794-8

M3 - Article

JO - Review of Quantitative Finance and Accounting

JF - Review of Quantitative Finance and Accounting

SN - 0924-865X

ER -

ID: 13192812