Implementation and Unanticipated Impact of Corporate Disclosure in an Emerging Economy: Evidence from Russia
68 Pages Posted: 9 Aug 2018 Last revised: 5 Jun 2019
Date Written: May 21, 2019
Do corporate governance reforms influence firm decision-making in the intended way in countries where the institutional framework is weak? We explore this issue for Russia, which implemented a corporate governance reform in 2002. Contrary perhaps to expectation, we document a significant increase in compliance to transparency and disclosure (T&D) rules over 2003-2007. The immediate effect of the new rules was to improve earnings quality as discretionary accruals fell. Market valuations however did not start improving until 2007 when all treated firms started disclosing quality information. The mechanism for the higher valuations was improved earnings quality and lower cost of capital, though cross-listed firms did not experience this. We find that treated domestic listed firms enjoyed about 10% increase in firm value, even when 100% compliance was not achieved. These findings establish that there is a benefit from increasing the requirements for disclosures, even in a country with weak institutions.
Keywords: Natural Experiment, 2002 Russian Corporate Governance Code, Earnings Management, Market Valuation, Difference-In-Difference Model, Domestic vs. Cross-Listed Firms, Russia
JEL Classification: G3, K2, O38
Suggested Citation: Suggested Citation