Editing Corporate transparency (section)

{{Short description|Aspect of open corporate governance}}
'''Corporate transparency''' describes the extent to which a corporation's actions are observable by outsiders. This is a consequence of regulation, local norms, and the set of information, privacy, and business policies concerning corporate decision-making and operations openness to employees, [[Stakeholder (corporate)|stakeholders]], shareholders and the general public. From the perspective of outsiders, [[transparency (behavior)|transparency]] can be defined simply as the perceived quality of intentionally shared information from the corporation.<ref name='JOM'/> 

Recent research suggests there are three primary dimensions of corporate transparency: information disclosure, clarity, and accuracy.<ref name='JOM'>{{cite journal |last1=Schnackenberg |first1=Andrew K. |last2=Tomlinson |first2=Edward C. |title=Organizational Transparency |journal=Journal of Management |date=9 July 2016 |volume=42 |issue=7 |pages=1784–1810 |doi=10.1177/0149206314525202|s2cid=144442748 }}</ref> To increment transparency, corporations infuse greater disclosure, clarity, and accuracy into their communications with stakeholders. For example, governance decisions to voluntarily share information related to the firm's ecological impact with environmental activists indicate disclosure; decisions to actively limit the use of [[technical terminology]], [[fine print]], or complicated mathematical notations in the firm's correspondence with suppliers and customers indicate clarity; and decisions to not bias, embellish, or otherwise distort known facts in the firm's communications with investors indicate accuracy. The ''strategic'' management of transparency, therefore, involves intentional modifications in disclosure, clarity, and accuracy to accomplish the firm's objectives.<ref name='JOM' />

High levels of corporate transparency can have positive impact on companies. It is known that high levels of corporate transparency improve investment efficiency and [[resource allocation]]. Companies with great corporate transparency are expected to enjoy lower cost of external financing resulting in more opportunities for growth. Next, transparency can lead to better reflection of company specifications in the stock prices and greater extent of monitoring by outside investors.<ref>{{cite journal |last1=FRANCIS |first1=JERE R. |last2=HUANG |first2=SHAWN |last3=KHURANA |first3=INDER K. |last4=PEREIRA |first4=RAYNOLDE |title=Does Corporate Transparency Contribute to Efficient Resource Allocation? |journal=Journal of Accounting Research |date=September 2009 |volume=47 |issue=4 |pages=943–989 |doi=10.1111/j.1475-679X.2009.00340.x|s2cid=17890141 }}</ref> Internally, corporate transparency has been shown to increase employee trust in the organization.<ref>{{cite journal |last1=Schnackenberg |first1=Andrew K. |last2=Tomlinson |first2=Edward C. |last3=Coen |first3=Corinne |title=The dimensional structure of transparency: A construct validation of transparency as disclosure, clarity, and accuracy in organizations |journal=Human Relations |date=27 June 2020 |volume=74 |issue=10 |pages=1628–1660 |doi=10.1177/0018726720933317|s2cid=225675340 }}</ref> Among other benefits of corporate transparency are lower [[transaction costs]] and greater stock liquidity associated with lower cost of capital which in return correlates with an increase in the firm value.<ref>{{cite journal |last1=LANG |first1=MARK |last2=LINS |first2=KARL V. |last3=MAFFETT |first3=MARK |title=Transparency, Liquidity, and Valuation: International Evidence on When Transparency Matters Most |journal=Journal of Accounting Research |date=June 2012 |volume=50 |issue=3 |pages=729–774 |doi=10.1111/j.1475-679X.2012.00442.x |jstor=41477990|s2cid=154045000 }}</ref> On the other hand, low levels of corporate transparency are linked with [[moral hazard]] extracting firm resources for private benefit. This causes [[principal–agent problem]] and worsens firm performance.<ref>{{cite journal |last1=Anderson |first1=Ronald C. |last2=Duru |first2=Augustine |last3=Reeb |first3=David M. |title=Founders, heirs, and corporate opacity in the United States |journal=Journal of Financial Economics |date=May 2009 |volume=92 |issue=2 |pages=205–222 |doi=10.1016/j.jfineco.2008.04.006}}</ref>

[[Standard & Poor's]] has included a definition of corporate transparency in its Gamma methodology aimed at analysis and assessment of [[corporate governance]]. As a part of this work, Standard & Poor's Governance Services publishes a transparency index which calculates the average score for the largest public companies in various countries.