Essays on corporate transparency and governance practices

This dissertation studies corporate governance issues at a micro-level using U.S. and international industry and firm data. On the domestic front, it proposes a new measure of transparency, based on the amount of information incorporated in stock prices, and relates this measure to firms' quality of capital budgeting. On the international front, it documents a wide variation in corporate governance and disclosure practices within and across countries. It also investigates how the choice of corporate governance is determined by firm-specific attributes and legal environment, and how governance is related to firm performance.; This dissertation consists of four essays. The first essay adopts a new measure of transparency based on the amount of firm-specific variation in stock prices. It shows that stock returns predict future earnings (as opposed to current earnings) better if the returns exhibit greater firm-specific variation.; The second essay investigates the relation between this transparency measure and the quality of capital budgeting. It establishes that industries in the U.S. that have higher firm-specific stock return variation exhibit a more value enhancing allocation of capital.; The third essay examines why firms practice high-quality governance when law does not require it; firm attributes related to the quality of governance; how the attributes interact with legal environment; and the relation between firm valuation and corporate governance. The third essay establishes that firms with greater growth opportunities, greater needs for external financing, and more concentrated cash flow rights practice higher-quality governance and disclose more. Moreover, firms that score higher in governance and transparency rankings are valued higher in the stock market. Equally important, all these relations are stronger in countries that are less investor friendly.; The fourth essay addresses the endogeneity problem between corporate governance, its determinants, and firm performance. Endogeneity is dealt with in three ways. The first approach uses past differences in explanatory variables as instruments for contemporaneous differences. The second approach utilizes the unexplained portion (by future investment opportunities and the need for external financing) of governance as an instrument for governance. The third approach uses the 2000 oil price increase as an exogenous investment-opportunities shock.