The effect of governance transparency on earnings response coefficient: evidence from emerging markets

This study examines whether the earnings response coefficient (ERC) is conditional on the transparency of corporate governance (CG) in emerging markets. Using 81 of the top 100 Chinese firms that are listed either in mainland China or in Hong Kong, we find that the level of governance transparency positively interacts with ERC. This finding is generally robust to controls for various firm specifications (size, assets growth, leverage, E/P ratio) and institutional factors (listing place, issuing status, and economic sector). The predicted model is tenable even if we change earnings metrics and window settings. Our refined analysis using five subcategories governance scores indicates that the interaction of governance transparency on ERC is mostly contributed by information disclosure on shareholders and related parties, two types of governance information that concern investors. The alternative test using governance structural variables further shows that the relation of ERC is not significantly conditional on the CG structure