Information Transparency and Profitability Convergence

Date
2018-08-31
Authors
Kimbrough, Michael
Wei, Sijing
Contributor
Advisor
Department
Instructor
Depositor
Speaker
Researcher
Consultant
Interviewer
Annotator
Journal Title
Journal ISSN
Volume Title
Publisher
Volume
Number/Issue
Starting Page
Ending Page
Alternative Title
Abstract
We investigate the effect of information transparency on the competitive environment by examining whether information transparency at the industry level is associated with industry-level earnings persistence. Theory predicts that competition reduces the sustainability of abnormally high and abnormally low profits, thereby reducing overall earnings persistence. Therefore, if information transparency facilitates competition, we expect more transparent industries to have lower earnings persistence. We measure industry-level information transparency as the industry-level future earnings response coefficient. Consistent with our expectation, we find that transparency is associated with lower earnings persistence. This finding suggests that information transparency facilitates the competitive forces that lead profits to converge within an industry. We corroborate this interpretation by demonstrating that information transparency is positively associated with the degree to which competitors enter or exit an industry in anticipation of changes in the industry’s profitability outlook. Our study provides new and important evidence that information transparency facilitates product market competition.
Description
Keywords
Information Transparency, Profitability Convergence, Earnings Persistence, Product Market Competition, Abnormal Profits
Citation
Extent
Format
Geographic Location
Time Period
Related To
Table of Contents
Rights
Rights Holder
Local Contexts
Email libraryada-l@lists.hawaii.edu if you need this content in ADA-compliant format.