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In this paper, we develop a corporate accessibility measure for publicly listed firms in China based on their responses to outside market participants’ attempts to communicate with them (via telephone, e-mail, and online discussion forum), and examine whether the provision of corporate accessibility signals the incidence of agency problems. We find robust evidence that non-accessible firms are associated with more agency problems, manifested in greater tunneling of corporate resources through inter-corporate loans and related-party transactions, greater consumption of managerial slack, more earnings management, and a higher probability of committing corporate fraud. We also find that non-accessible firms are more likely to conduct value-destroying acquisitions than accessible firms. Furthermore, we find that non-accessible firms under perform accessible firms in both firm valuation and operating performance. Overall, our results suggest that a firm’s decision to provide corporate accessibility is a value-relevant signal for informing investors of the severity of agency problems in publicly listed firms.
Bibliographical noteThis manuscript is dedicated to Michael Firth, who passed away in August 2016. While working on revisions to this manuscript, he enlightened us with his wisdom about life and his brilliant understanding of financial and accounting economics, which is important for the eventual completion of this work.
We thank Patricia Dechow (the editor) and two anonymous referees for their constructive feedback and valuable comments. We also appreciate the helpful comments from K. Philip Wang, Ignacio Requejo, Cong Wang, Yuanyuan Zhang, Jingyuan Li, and Jin Gao and the seminar participants at Zhongnan University of Economics and Law, the Seventh China Finance and Investment Forum, and EFMA. We also thank Zhengjia Guo for her excellent research assistance. Wong thanks the Government of the Hong Kong Special Administrative Region of PRC for funding support (GRF LU391113). Lin acknowledges the financial supports from the National Natural Science Foundation of China (No. 71790601 and 71728009).
The Hong Kong Asian Capital Market Research Prize (2014). Presented at Zhongnan University of Economics and Law and the Seventh China Finance and Investment Forum (2014).
- Corporate Accessibility
- Agency Problems
- Direct communications
- Agency problems
- Corporate accessibility