A computational approach to transparency in corporate governance across borders

Abstract

This article delves into the intricate relationship between information asymmetry and financial reporting comparability, with a particular emphasis on earnings management (EM) in cross-border corporate governance settings. Utilising data from 2,475 non-financial firms across 19 frontier markets from 2003 to 2019, the study employs pooled OLS, fixed effects, and between-effects models to scrutinise the impact of factors like financial comparability, reputable auditing, analyst coverage, and legal systems on earnings management. The findings reveal that enhanced financial comparability, facilitated by strong governance mechanisms such as reputable auditors and analyst coverage, leads to a reduction in earnings management and information asymmetry. Interestingly, leverage does not serve as a constraining factor as commonly believed. The results contribute to the growing body of literature on the application of data science, and challenge the pecking order theory (POT), while lending support to the knowledge-based view (KBV)and convergence theories, thereby offering valuable insights into the role of corporate governance in mitigating information asymmetry.