“AccountingTransparencyandtheTermStructureofCredit
Spreads,”workingpaper,2003.Theformerpresentsevidence
thatthecostofdebtislowerforfirmswithmoretransparent
accountingstatements,whereasthelattershowsthattheeffect
is greater on short-term debt than on long-term debt.
28 L. Jin and S. C. Myers, “R 2 around the World: New
Theory and New Tests,” working paper, SSRN, 2005.
29 Thisfollowsfromtheassumptionthatmanagersarebeing
honest.Ifthisisthecase,theinformationthatisnotavailable
toinvestorshasanequalchanceofbeinggoodnewsorbad
news. Thus, for every complex company that uncovers
informationthat reducesits value, thereshould be another
complexcompanywheretheinformationthatcomesoutwill
increasevalue.Inadiversifiedportfolio,theseeffectsshould
average out to zero.
30 The concerns about accounting practices were global.
Post-Enron,Europeanfirmswithopaquefinancialstatements
suchasSiemensfoundthemselvesconfrontedwithdemands
from their stockholders for more openness, as did Asian
companies like Samsung.
31 Adjustingcashflowsforriskcanbedangerousbecauseof
thedoublecountingthatcanoccurwhendiscountratesare
also adjusted for risk.
32 This will occur only if thethere is a link between the
negativereturnsassociatedwithopacityandmarketreturns.
Historysuggeststhatthereshouldbesuchalink.Infact,the
problemswithopaquecompaniesseemtocometothesurface
in down markets and not bullish ones.