Review of Quantitative Finance and Accounting

, Volume 40, Issue 1, pp 101–134 | Cite as

The impact of multi-dimensional corporate transparency on us firms’ credit ratings and cost of capital

  • David Gregory DeBoskeyEmail author
  • Peter R. Gillett
Original Research


This study examines corporate transparency in the US market for a sample of 319 S&P 500 firms. We examine whether a number of disparate measures of corporate transparency used by other researchers are distinct, cohere as measures of a single factor of corporate transparency, or capture multiple different dimensions. Next, we begin to examine the impact of corporate transparency, conceived in the broadest sense, and not limited to financial reporting, on US firms. We develop a model of corporate transparency based on a broad definition and framework proposed by Bushman, Piotrowski and Smith, which we extend in several ways, and then study the effect of corporate transparency on cost of debt, credit rating, and cost of equity. First, we find that corporate transparency is neither a unitary concept nor merely an ambiguous term for multiple distinct concepts: factor analysis of ten corporate transparency variables identifies four independent underlying dimensions: public disclosure information, intermediary information, earnings quality information and insider information. Second, we find that corporate transparency has significant power to explain cross-sectional variation in credit rating and cost of capital. More specifically, (i) credit rating, cost of debt, and beta are significantly associated with disclosure information transparency; (ii) credit rating, cost of equity, and beta are significantly associated with intermediary information transparency; and (iii) cost of equity and beta are significantly associated with insider information transparency. Our findings offer a more comprehensive evaluation of corporate transparency than prior studies, and we demonstrate direct economic implications for both US firms and markets.


Corporate transparency Credit rating Cost of capital Factor analysis 

JEL Classification

G30 M41 N22 D82 C12 



We thank the editor and two anonymous reviewers for their helpful suggestions. Finally, we thank participants at the American Accounting Association 2008 annual meeting held in Anaheim, California. We especially thank Dr. Chee Chow, Dr. Elizabeth Gordon, Dr. Bikki Jaggi, Dr. Per Olsson and Dr. Michael Willenborg for their insightful and helpful comments.


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Copyright information

© Springer Science+Business Media, LLC 2011

Authors and Affiliations

  1. 1.Charles W. Lamden School of Accountancy, College of Business Administration, San Diego State UniversitySan DiegoUSA
  2. 2.Department of Accounting, Business Ethics and Information SystemsRutgers Business School, Newark and New Brunswick, Rutgers, The State University of New JerseyPiscatawayUSA

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