Financial Integration and the Transparency of Firms in Emerging Capital Markets

We examine the association between financial integration and capital market transparency of emerging-market firms. We use four intra-year price timeliness measures derived from the Beekes and Brown (2006, 2007) methods as indicators of the firm’s transparency. The sample comprises 57,465 firm-year observations on listed companies in 24 emerging economies over the period 1995-2010. As expected, we find that greater financial integration is associated with greater transparency, and that the effect is more pronounced when the news about the firm is bad. Using structural equation modelling (SEM), we find evidence of a mechanism through which financial integration enhances the information environment: improved corporate governance.