Narrow Results

Understanding the impacts of transparency in capital markets is important for determining the trading mechanism and for evaluating market efficiency and market fairness. The recent reforms covering trade transparency on the Taiwan Stock Exchange give us an opportunity to address and examine the relevant arguments. Evidence from this study indicates that increasing trade transparency may create a more efficient market due to decreased effective spreads compared with before the event. Asymmetric information also declines after transparency is liberalized. However, the movement direction of the realized spread does not seem obvious or pronounced. The implication from our results is that the exact effects from trade transparency may be dependent on the stock market's structure itself.

Corporate governance (CG) reformists typically presume better-governed companies are more transparent to investors. We focus on CG and transparency in Japan, where CG has been an ongoing issue. Using local ratings of Japanese companies’ CG and data on corporate disclosures and their associated stock returns, we do find better-governed Japanese companies have made more frequent and timelier disclosures, and their share prices have reflected value-relevant information earlier. While these results hold for good news, they do not hold for bad. Consequently, governance guidance in Japan may not have resulted in both timelier and more balanced release of newsworthy information.

We show that new trade restrictions implemented since the onset of the global financial crisis have had — in the limited products targeted — a strong distortionary impact on trade. Their aggregate impact is modest, however, as most countries have resisted a widespread resort to protectionism. Looking ahead, sustained high unemployment, uneven growth, and an unwinding of government stimulus measures suggest that protectionist pressures may rise. Continuing and further enhancing monitoring of all protectionist measures will help, but the surest way to avoid such a downside scenario is to tighten multilateral trade commitments by completing the World Trade Organization (WTO) Doha Round.

Can fiscal transparency, accountability and macro-fiscal stabilization be imposed by adopting a fiscal responsibility law (FRL)? Skeptics argue that law is impotent or that the existing legal framework for the budget system suffices. In Europe, supranational fiscal rules were previously seen to be adequate. After reviewing the experience with FRLs around the world, this paper concludes that FRLs enhance fiscal transparency and accountability. However, the adoption of a FRL for attaining fiscal stability goals succeeds only if there is strong political commitment to fiscal discipline. Also, the inclusion of quantitative fiscal rules in FRLs is a high-risk undertaking.

We examine the impact of iceberg orders on the price and order flow dynamics in limit order books. Iceberg orders allow traders to simultaneously hide a large portion of their order size and signal their interest in trading to the market. We show that when market participants detect iceberg orders they tend to strongly respond by submitting matching market orders consistent with iceberg orders facilitating the search for latent liquidity. The greater the fraction of an iceberg order that is executed, the smaller is its price impact consistent with liquidity rather than informed trading. The presence of iceberg orders is associated with increased trading consistent with a positive liquidity externality, but the reduced order book transparency associated with iceberg orders also creates an adverse selection cost for limit orders that may partly offset any gains.

This paper analyzes a firm’s incentives to disclose private information related to its market situation when there is a potential competitor. However, I adopt a more realistic definition of transparency that has been mostly overlooked by the earlier literature. In a realistic situation, financial transparency does not imply that all the relevant information are automatically transmitted to the receiver of the signal but instead the available information needs to be understood. When the model is adjusted to incorporate this realistic definition of transparency, fully revealing equilibrium associated with the “Revelation Principle” does not exist anymore. It is observed that the model with interpretation costs of transparency yields both pooling and partially pooling equilibria.

The desirability of transparency in its varied aspects is not always certain particularly for developing countries. This paper empirically investigates the link between forecast transparency and inflation volatility in a relatively homogenous sample of 41 developing economies over 1998–2007. It classifies central banks into transparent and opaque groups on the basis of their forecast transparency. The differential effect of the forecast transparency is then estimated both at a point in time and over time while controlling for the relevant factors. The main finding of the paper is that forecast transparency stabilizes inflation. In addition, we find that the stabilizing effect of disclosing numerical forecasts gets stronger over time supporting the theoretical insight that forecast transparency allows reputational externalities, and minimizes the likelihood of policy inconsistency. The results are robust against different specifications of the empirical model.

This paper evaluates sovereign wealth funds in light of the extreme volatility of energy prices and the severe global recession that began in 2008. A recent paper by Das characterized the assets of funds as showing steady growth in the past and likely increased importance in the future. However, recent developments have reduced the relative importance of funds and have demonstrated the sensitivity of the funds to energy prices and world business cycles. Investments by sovereign wealth funds have the potential to introduce political influence into corporate governance, but this potential is much smaller than the interventions into corporate governance by governments of the United States and elsewhere connected to corporate bail-outs during the recession. Lack of transparency remains a problem for certain sovereign wealth funds, but anti-recession interventions by governments have been characterized by extreme lack of transparency.

It is easier than ever to run modern machine learning (ML) models. However, developing and implementing systems that support real-world risk management applications in a bank is a significant challenge. It is partly because ML models are not transparent and explainable. The framework presented here covers the leading eXplainable AI (XAI) methods. Practical challenges in implementing these methods are discussed.

The event of Chicago Mercantile Exchange’s (CME) negative oil clearing price on April 20, 2020, in which commodity futures traded in a negative range, is significant to the financial community worldwide. Through discussions of the so-called “best practice” rule for professional behaviors in practice with a number of examples and standards established by professional organizations, it seems that a better option for CME’s execution would have been to first seek feedback from stakeholders internationally within a reasonable transition period before implementing the proposed new trading (or updating) rule that came into effect in the month of April 2020.

The last few decades have seen the transformation of the modern supply chain from a simple (inflexible, linear, and reactive) to a complex (flexible, multi-echelon, and proactive) supply chain. The supply chain encompasses a global network of third-party service providers (Logistic, IT, Customer support, Warehousing), practicing numerous procedures and policies. The complex management of retailers, buyers’ and suppliers’ relations are susceptible to quite a few challenges (transparency, trust, security). Blockchain is an advanced technology with features like distributed notes, storage mechanism, consensus algorithm, decentralized structure, smart contracting, and asymmetric encryption, which helps to ensure supply chain network prominence, security, trust, and transparency. Blockchain technology turbocharges the profitability and efficiency of the supply chain. The level of security like physical management is complemented by process enhancements and technological leverages. Blockchain provides shared ledgers with error-free decentralized digital records, while every participating member act as a catalyst, by maintaining his data set for the transaction. Digitalization eliminates the need for traditional third-party verification; participants may self-verify the transactions. The information once entered is inconvertible and can never be obliterated. Transacted data is stored in time-stamped blocks and serves as the data structure. Blockchain technology serves flawlessly with features like storage mechanism and storage nodes, smart contract, consensus algorithm, and asymmetric encryption. Blockchain technology is successfully implemented in various sectors like finance, banking, IoT, and forex transactions. Current research focuses on providing abridged details of blockchain and serves to introduce its innumerable applications emphasizing the potential to transform supply chain provenance, business process reengineering, to security enhancement for the success of omnichannel retail supply chain.

Extant studies and my own work show that in US listed corporations, the presence of a firm’s founder adds value to the firm. The incremental value increases with the extent of decision rights controlled by the founder. Furthermore, the value addition is higher if the founder CEO is younger at the time of the initial public offering and decreases with the founder’s tenure in the firm. Further investigation reveals that the founders add value by improving operating performance and being more transparent than similar non-founder firms. Moreover, the founders are more focused on the strategic positioning of the firm in improving operating performance — they improve profit margins in differentiated firms while improving efficiency in firms with cost-leadership strategy. Analysts and investors can benefit by incorporating these insights into their analysis.

How does the sovereign credit ratings history provided by independent ratings agencies affect domestic financial sector development and international capital inflows to emerging countries? We address this question utilizing a comprehensive dataset of sovereign credit ratings from Standard and Poor’s from 1995–2003 for a cross-section of 51 emerging markets. Within a panel data estimation framework, we examine financial sector development and the influence of sovereign credit ratings provision, controlling for various economic and corporate governance factors identified in the financial development literature. We find strong evidence that our sovereign credit rating measures do affect financial intermediary sector developments and capital flows. We find that: (i) long-term foreign currency sovereign credit ratings are important for encouraging financial intermediary development and for attracting capital flows; (ii) Long-term local currency ratings stimulate domestic market growth but discourage international capital flows; (iii) Short-term ratings (both foreign and local currency denominated) retard all forms of financial developments and capital flows. There are important implications in this research for policy makers to encourage the provision of longer-term credit ratings to promote financial development in emerging economies.

Corruption has traditionally been wildly rampant in the energy sector and its effects have proved to be extremely dramatic. For decades energy companies have perpetrated corrupt practices with impunity to obtain from the local governments the green light to construct intrusive energy infrastructures, which have the potential of causing serious damages to a country’s environment and social fabric. This illicit way of carrying out business activities has been de facto tolerated by governments for a long time. It affected particular developing nations, causing the so-called “resource curse”. Then, almost unpredictably, over the course of last two decades, significant and increasingly determined efforts have been devoted to fighting against such a criminal phenomenon. It is well established that the role that transparency plays within such a grim scenario is fundamental. This chapter will examine the intimate relationship between the lack of corporate transparency and corruption, and analyze the most important legal instruments that have been developed to encourage a transparent way of conducting business activities in the energy sector at the international, regional and domestic level. Then, will also focus on the recent Trump’s administration decision to nullify the US transparency rules for the extractive industries analyzing the scope of its potentially dramatic consequences.

The release of economic and social data by a government provides many benefits to its citizens on a number of different levels. However, this willingness (or otherwise) to release information to the public may also be useful as a signal of the degree of political and institutional transparency. To that end, a new index is developed that has extensive coverage across countries (175) and time (1960–2005), and is based on the quantity of reported socio-economic data contained in the World Development Indicators and the International Finance Statistics databases. This chapter briefly outlines the construction of this index, and introduces a number of case studies and illustrations that highlight the importance of transparency in economic development.