Equity Markets, Valuation, and Analysis

CHAPTER 23Disclosure Regulations in Emerging Economies and Their Impact on Equity Markets

Xiaohua Diao

Professor of Finance, Chongqing Technology and Business University

Shantanu Dutta

Associate Professor of Finance, University of Ottawa

Peng Cheng Zhu

Associate Professor of Finance, University of San Diego

INTRODUCTION

Corporate disclosure and financial reporting convey valuable information to shareholders and market participants. A widely accepted view is that disclosure of financial information to investors is important to shareholders and other market participants (Lin 2009). Although corporations routinely engage in financial reporting, mostly in regular intervals according to regulatory requirements, corporate disclosures could be voluntary or mandatory depending on the nature of the information. Corporate disclosures on various aspects such as corporate social responsibility (CSR) initiatives, insider trading activities, and private meetings make investors and regulators better informed about a firm's operational strategies and increase informational transparency. Until the early 2000s, most corporate disclosure initiatives occurred in developed markets. However, given the shifting focus toward socially responsible investing (SRI), emerging markets have also taken active interests in promoting the notion of voluntary corporate disclosures in nonfinancial areas, as well as starting to introduce specific disclosure regulations to enhance transparency in terms of environmental ...