Firm Opacity Lies in the Eye of the Beholder

Dahiya, S; Iannotta, G; Navone, M

Firm Opacity Lies in the Eye of the Beholder

Dahiya, S Iannotta, G Navone, M

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Publisher:: Wiley
Publication Type:: Journal Article
Citation:: Financial Management, 2017, 46 (3), pp. 553 - 592
Issue Date:: 2017-11

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Field	Value	Language
dc.contributor.author	Dahiya, S	en_US
dc.contributor.author	Iannotta, G	en_US
dc.contributor.author	Navone, M https://orcid.org/0000-0002-6273-1808	en_US
dc.date.available	2020-05-25T19:03:01Z
dc.date.issued	2017-11	en_US
dc.identifier.citation	Financial Management, 2017, 46 (3), pp. 553 - 592	en_US
dc.identifier.issn	1755-053X	en_US
dc.identifier.uri	http://hdl.handle.net/10453/119803
dc.description.abstract	We classify and test empirical measures of firm opacity and document theoretical and empirical inconsistencies across these proxies by testing the relative opacity of banks versus non-banks. We evaluate the effectiveness of these proxies by observing the effect of two cleanly identified shocks to firm-specific information: credit rating initiation and inclusion in the S&P 500 index. Using a difference-in-difference approach, we compare firms that are newly rated and firms that are included in the S&P 500 index with a propensity matched sample of “unchanged” firms. We find that only the number of analysts and Amihud's illiquidity ratio provide consistent patterns across different estimation specifications and different econometric settings. These two proxies show that banks are more opaque than non-banks. Based on our tests, we recommend that these proxies be used as the primary measures of firm opacity.	en_US
dc.publisher	Wiley	en_US
dc.relation.ispartof	Financial Management	en_US
dc.relation.isbasedon	10.1111/fima.12168	en_US
dc.subject.classification	Finance	en_US
dc.title	Firm Opacity Lies in the Eye of the Beholder	en_US
dc.type	Journal Article
utslib.citation.volume	3	en_US
utslib.citation.volume	46	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
utslib.copyright.status	open_access
pubs.consider-herdc	true	en_US
pubs.issue	3	en_US
pubs.publication-status	Published	en_US
pubs.volume	46	en_US

Abstract:

We classify and test empirical measures of firm opacity and document theoretical and empirical inconsistencies across these proxies by testing the relative opacity of banks versus non-banks. We evaluate the effectiveness of these proxies by observing the effect of two cleanly identified shocks to firm-specific information: credit rating initiation and inclusion in the S&P 500 index. Using a difference-in-difference approach, we compare firms that are newly rated and firms that are included in the S&P 500 index with a propensity matched sample of “unchanged” firms. We find that only the number of analysts and Amihud's illiquidity ratio provide consistent patterns across different estimation specifications and different econometric settings. These two proxies show that banks are more opaque than non-banks. Based on our tests, we recommend that these proxies be used as the primary measures of firm opacity.

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http://hdl.handle.net/10453/119803