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Does Corporate Transparency Contribute to Efficient Resource Allocation?
Author(s) -
FRANCIS JERE R.,
HUANG SHAWN,
KHURANA INDER K.,
PEREIRA RAYNOLDE
Publication year - 2009
Publication title -
journal of accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 6.767
H-Index - 141
eISSN - 1475-679X
pISSN - 0021-8456
DOI - 10.1111/j.1475-679x.2009.00340.x
Subject(s) - transparency (behavior) , business , accounting , resource allocation , monetary economics , economics , industrial organization , market economy , political science , law
This paper examines whether a country's corporate transparency environment, which includes the quality of accounting information, contributes to efficient resource allocation. Based on a cross‐country study of 37 manufacturing industries in 37 countries, we provide three pieces of related evidence. First, we find the contemporaneous correlations in industry growth rates across country pairs are higher when there is a greater level of corporate transparency in the country pairs, after controlling for country‐level economic and financial development. Second, we find the influence of transparency on these correlations is stronger when country pairs are at similar levels of economic development (GDP). Finally, when we control for the level of transparency explained by a country's institutions in place, we find that residual transparency (unexplained by country‐level factors) is associated with industry‐specific growth rates. Taken together, the results are consistent with corporate transparency facilitating the allocation of resources across industry sectors.