Information Complementarities and the Dynamics of Transparency Shock Spillovers

Shantanu Banerjee, Sudipto Dasgupta, Rui Shi, Jiali YanAccounting财务报告UTD24

Journal of Accounting Research2023-10-03Lancaster University; Chinese University of Hong Kong; University of Liverpool; University of ExeterDOI

Citations14

ABSTRACT We show that information complementarities play an important role in the spillover of transparency shocks. We exploit the revelation of financial misconduct by S&P 500 firms, and in a “Stacked Difference‐in‐Differences” design, find that the implied cost of capital increases for “close” industry peers of the fraudulent firms relative to “distant” industry peers. The spillover effect is particularly strong when the close peers and the fraudulent firm share common analyst coverage and common institutional ownership, which have been shown to be powerful proxies for fundamental linkages and information complementarities. We provide evidence that increase in the cost of capital of peer firms is due, at least in part, to “beta shocks.” Disclosure by close peers—especially those with co‐coverage and co‐ownership links—also increases following fraud revelation. Although disclosure remains high in the following years, the cost of equity starts to decrease.

Spillover effectTransparency (behavior)Equity (law)ExploitMonetary economicsBusinessShock (circulatory)Cost of capitalCapital (architecture)EconomicsAccountingIndustrial organization