Information Transparency, Corporate Governance, And Convertible Bonds

Information transparency is a popular topic in capital markets. A firm’s corporate governance policy, which influences its disclosure behavior and disclosure quality, influences the information transparency perceived in relation to that firm. It was previously understood that greater information asymmetry between investors and issuers/underwriters translates into a larger discount required to be offered in bond pricing by the issuing firm, to attract investors. In this paper, we numerically analyze: (a) the effect of the composition of the board structure on corporate information transparency under the code law system, and (b) the effect of information transparency on the initial return rate of convertible bonds. The results of our study revealed that the board structure affects corporate information disclosure policies under the code law system. Specifically, CEO duality tends to bring about lower information transparency, whereas better information transparency emanates from a higher proportion of independent directors. However, there is a lack of conclusive evidence to support the view that the shareholdings of directors and large shareholders are correlated with information transparency. We also show numerically that greater information transparency combined with lesser information asymmetry (between insiders and outsiders) leads to a lower initial return rate of convertible bonds

Main banks influence on financial reporting quality in Japan

This study investigated main banks’ influence on the quality of accounting firms’ audits and corporate firms’ earnings, focusing on companies on Japan’s Nikkei 500 index. We posed three questions in this research study about main banks’ influence on corporate clients’ earnings management. First, does a weakened main bank relationship influence corporate clients’ financial reporting quality? Second, does Japan’s firewall deregulation influence firms’ earnings quality? Finally, does the relationship between accounting firms and main banks affect client firms’ earnings quality? Our main findings were that main banks are not related to client firms’ earnings management; however, main banks mitigate client firms’ earnings management after firewall deregulation. On the other hand, firewall deregulation does motivate firms to manipulate their earnings management. Finally, using Pong and Kita’s (2006) study as a framework, we found that main banks and client firms using the same accounting firms had no influence on earnings management. Based on these evidences presented, our findings suggest that the quality of corporate clients’ financial reporting changes before and after firewall deregulation