Research Hypotheses Proceeding E Book 4A Turky

1463 and more accurate. In addition, value-relevant information of these firms is more timely in the sense that price discovery is faster. Recently, the transparency and disclosure score criteria of Standard and Poor have been used as a measure of corporate governance. For example, Patel et al. 2002 use Standard and Poor‘s score datasets for γ54 firms in 19 emerging markets over three years ending 2000. They show that price to book equity ratio is positively correlated with transparency and disclosure scores. Cheng, Collins and Huang β00γ argue that strong SP:TD reduces the firm‘s cost of equity measured by market beta. Also, it leads to increased risk-adjusted abnormal returns and earnings response coefficients around the release of the SP scores. With the SP:TD database of SP 500 firms, Chen, Chung, Lee and Liao 2005 find that companies with poor disclosure and transparency have larger economic costs of equity liquidity. Some researchers have used Standard an d Poor‘s transparency and disclosure measurement criteria to gauge information disclosure in their country. For example, Chiang 2005 provides evidence on the relationship between SP:TD scores and operating performance of high tech companies listed in Taiwan. The study shows that scores for financial transparency and information disclosure are the highest among three categories. Also, only this component of transparency and disclosure has a positive significance for firm performance. This study intends to test the effects of transparency and disclosure on firm performance. I expect a relationship between transparency and disclosure, and firm performance for two reasons. First, the higher transparency and disclosure of the company‘s business can reduce the asymmetry of information between shareholders and managers. Second, transparency and disclosure serves to keep management in check. In order to test whether transparency and disclosure affects firm performance, the study measures 1464 transparency and disclosure by using twelve subcategories of SP:TD criteria see appendix A. The research hypotheses are as following. H1: Transparency and disclosure in the transparency of ownership OWN_TRAN is related to firm performance. H2: Transparency and disclosure in the concentration of ownership OWN_CONC is related to firm performance. H3: Transparency and disclosure in the voting and shareholder meeting procedure OWN_VOTE is related to firm performance. H4: Transparency and disclosure in the business focus FIN_BUSF is related to firm performance. H5: Transparency and disclosure in accounting policy review FIN_ACPR is related to firm performance. H6: Transparency and disclosure in accounting policy details FIN_ACPD is related to firm performance. H7: Transparency and disclosure in related party structure and transactions FIN_RELAT is related to firm performance. H8: Transparency and disclosure in information on auditors FIN_AUDIT is related to firm performance. H9: Transparency and disclosure in board structure and composition BOARD_STRUC is related to firm performance. H10: Transparency and disclosure in the role of board BOARD_ROLE is related to firm performance. H11: Transparency and disclosure in directors training and composition BOARD_TRAIN is related to firm performance. H12: Transparency and disclosure in compensation and evaluation of executive EXE_EVAL is related to firm performance. Table 1 lists the measurement and predicted signs of transparency and disclosure variables. 1465 Table1: Measurement and predicted signs of twelve variables of transparency and disclosure. Variables Abbreviation Measurement Predicted Sign Twelve sub-categories of transparency and disclosure 1. Transparency of ownership OWNR_TRAN 11 Questions of SP:TD Scoring System + 2. Concentration of ownership OWN_CONC 8 Questions of SP:TD Scoring System + 3. Voting and shareholder meeting procedure OWN_VOTE 9 Questions of SP:TD Scoring System + 4. Business focus FIN_BUSF 15 Questions of SP:TD Scoring System + 5. Accounting policy review FIN_ACPR 9 Questions of SP:TD Scoring System + 6. Accounting policy details FIN_ACPD 3 Questions of SP:TD Scoring System + 7. Related party structure and transactions FIN_RELAT 4 Questions of SP:TD Scoring System + 8. Information on auditors FIN_AUDIT 4 Questions of SP:TD Scoring System + 9. Board structure and composition BOARD_STRUC 8 Questions of SP:TD Scoring System + 10. Role of the board BOARD_ROLE 12 Questions of SP:TD Scoring System + 11. Directors training and compensation BOARD_TRAIN 6 Questions of SP:TD Scoring System + 12. Compensation and evaluation of executive EXE_EVAL 9 Questions of SP:TD Scoring System + 1466

4. Methodology and Data

4.1 Data and data source Data of this study include both financial firms and non-financial firms, which are reported by either one of the two announcements of SET 100 index 254 of year 2005. Due to imperfectly overlapping of SET 100 firms, I have 108 observations. After that, I exclude REHABCO firms and firms which the fiscal year ending is not December. I finally have 103 observations which represent nearly eighty percent of the market capitalization of Thai listed firms. The data consist of firms in seven industries see Table 2: Table 2: Data classification by Industries Name of industry Number of firms Agro Food Industry 4 Property and Construction Industry 34 Industrials Industry 5 Resource Industry 11 Service Industry 11 Technology Industry 14 Finance Industry 24 Source: List of securities in the SET100 index during May 3, 2005 to June 30, 2005 and during July 1, 2005 to December 31, 2005. 254 Being part of the index, these companies are likely to be of the greatest interest to individual and institutional investors, particularly international investors. Furthermore, these companies are expected to practice relatively higher standards of corporate governance compared to other listed Thai companies and so can be role models of corporate governance for others. 1467 The data in above table are from the SET. More detailed data are from SETSMART database, the annual registration statements 255 Form56-1, annual corporate reports, and the database of DATASTREAM INTERNATIONAL. The data regarding transparency and disclosure; and ownership structure are from Form 56-1. Annual corporate reports provide additional data where there are gaps in data from SETSMART and Form 56-1. Finally, financial data are from the databases of SETSMART and DATASTREAM INTERNATIONAL. 4.2 Measurement of Firm Performance As noted in Brown and Caylor 2004, all performance measures are imperfect. Since measurement errors in performance indicators are not perfectly correlated, researchers should examine several performance measures rather than drawing conclusions from only one of them. In this paper, I collect data on three measures of firm performance as dependent variables, based on both accounting and market measures similar to other accounting and finance studies e.g. Klein, 1998; Wiwattanakantang, 2001 For two reasons, I prefer to use future performances rather than contemporary performances as dependent variables. First, corporate governance requires more time before its effects on firm performance is reflected. Many of the corporate governance papers link corporate governance variables to future firm performance e.g. Core et al., 1999, Ertugrul and Hedge, 2005. Second, in order to address the endogeneity problem which is a typical problem in estimating the relationship between performance and corporate governance, a lag variable will be used. 255 The Office of the Securities and Exchange Commission SEC requires all companies listed on the Stock Exchange of Thailand to fill in the annual registration statement Form 56-1. They need to clarify accurate and clear information for investors to understand the operation, significant change of the corporation and possible risks.