The Effect of Information Transparency on Firm Value: The Moderating Role of Industry Competitiveness

Purpose: Transparent information disclosure enables stakeholders to gain a comprehensive understanding of a company's fundamental quality, financial health, and associated risks, allowing them to make well-informed decisions. While publicly traded firms are required to disclose information through various mechanisms, they still retain significant flexibility in how they present it, which can sometimes lead to increased informational ambiguity. Enhanced transparency mitigates information asymmetry, strengthens communication channels between companies and shareholders, and discourages managerial opportunistic behavior, ultimately contributing to higher firm valuation. Despite the presence of empirical evidence supporting the positive relationship between information transparency and firm value, as well as the moderating effect of industry competitiveness on this relationship, the precise influence of competition remains an ongoing subject of academic discussion. This study explores the relationship between information transparency and firm value by employing both accounting-based and market-based transparency indicators, further examining the role of industry competitiveness in shaping and potentially reinforcing this relationship.

Method: To test the research hypotheses, data for 143 firms (equivalent to 1,716 firm-years) from the Rahavard Novin database and the Codal website were collected for the period 2012–2023. The models used in hypothesis testing were estimated using the generalized least squares approach while controlling for the fixed effects of years and industries to ensure accurate estimation. Additionally, to account for heteroskedasticity and correlation in the model errors, clustered standard errors at the firm level were applied, enhancing robustness. Furthermore, regression models employed to measure information transparency based on accounting data were estimated annually from 2012 to 2023 across 12 industries (amounting to 132 regressions in total). Finally, in the sensitivity analysis section, market-based metrics were used to assess information transparency and validate the core findings of the study.

Results: The results of this research indicate that an increase in information transparency increases the firm value. This finding is consistent with the concepts proposed in signaling theory. Additionally, the research results suggest that industry competitiveness intensifies the positive relationship between information transparency and firm value, aligning with predictions from agency theory. Moreover, supplementary results using market data-based measures of information transparency support the main findings of the study, indicating that the results are not sensitive to the use of alternative definitions for measuring information transparency.

Conclusion: The research findings confirm the positive effect of information transparency on firm value and emphasize the significant role of industry competitiveness in strengthening this relationship. This highlights the role of business units and regulatory bodies in improving the quality of financial reports, reducing information asymmetry, and ultimately enhancing information transparency. Furthermore, due to the positive consequences of industry competitiveness in reducing opportunistic managerial behavior, compelling managers to make efficient and value-creating decisions, decreasing their tendency to hoard information, and encouraging voluntary disclosure of more information.