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Journal of Accounting Research Vol. 62 No. 1 2024

Information Complementarities and the Dynamics of Transparency Shock Spillovers

Shantanu Banerjee1; Sudipto Dasgupta2; RUI SHI2; Jiali Yan3,4

1 Accounting and Finance Department Lancaster University Management School · 2 Department of Finance Chinese University of Hong Kong · 3 Department of Finance and Accounting University of Exeter Business School · 4 Accounting and Finance Group The University of Liverpool Management School

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Abstract

We show that information complementarities play an important role in the spillover of transparency shocks. We exploit the revelation of financial misconduct by S&P 500 firms, and in a “Stacked Difference‐in‐Differences” design, find that the implied cost of capital increases for “close” industry peers of the fraudulent firms relative to “distant” industry peers. The spillover effect is particularly strong when the close peers and the fraudulent firm share common analyst coverage and common institutional ownership, which have been shown to be powerful proxies for fundamental linkages and information complementarities. We provide evidence that increase in the cost of capital of peer firms is due, at least in part, to “beta shocks.” Disclosure by close peers—especially those with co‐coverage and co‐ownership links—also increases following fraud revelation. Although disclosure remains high in the following years, the cost of equity starts to decrease.

DOI
10.1111/1475-679x.12510
Volume
62
Issue
1
Pages
55-99
Language
en
Sources
openalex bibtex:phds-export.bib crossref

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