The Link between Information Transparency and Investment Efficiency: A Literature Review

Abstract

Investigating the role of information has been recently a hot topic attracting many researchers. A large number of studies have examined the effect of information on cost of capital (Christine A. Botosan, 1997; Diamond & Verrecchia, 1991; Easley & O’Hara, 2004), stock price (Welker, 1995), and stock liquidity (Leuz & Wysocki, 2008). It is demonstrated that the increase in both quantity and quality of information brings benefits to firms as well as the capital markets (Healy & Palepu, 2001). More specifically, many studies indicate the beneficial influence of information disclosure in improving the efficiency of firm investments (Biddle & Hilary, 2006; Biddle, Hilary, & Verdi, 2009; Cheng, Dhaliwal, & Zhang, 2013; Gomariz & Ballesta, 2014; Lai, Liu, & Wang, 2014). This paper presents a review of literature about the relation between information transparency and firms’ investment efficiency.