Abstract
In the paper, we examine the impact of the presence and contestability among Multiple Large Shareholders (MLS) on corporate transparency. Using five individual measures comprised of three measures of earnings quality, one of auditor quality and one representing the level of monitoring faced by the firm, and a compound aggregate measure, to better reflect the multi-dimensional nature of corporate transparency, we examine the impact of the presence of two or more block holders on corporate transparency. Our findings suggest a negative association between MLS presence and corporate transparency, suggesting that the collusion effect supersedes the monitoring effect. We also find that the identity of the large shareholder has an important role to play in determining whether the collusion or monitoring role is dominant, with the presence of a non-promoter large shareholder being associated with higher firm transparency. We additionally examine the impact of contestability/ownership wedge which measures the relative shareholding positions of the large shareholders and thereby the non-controlling large shareholders’ ability to contest the controlling owner’s power and find that a lower ownership wedge (greater contestability) is associated with lower firm transparency and the results are consistent across the different OW measures. Finally, we examine the moderating role of retail shareholder presence on the relationship between MLS and corporate transparency and find that the negative association between the two is weakened in high retail shareholding contexts. To the best of our knowledge, we are the first to empirically examine the impact of MLS presence and nature on firm transparency and our results suggest that MLS presence and firm transparency have a conflicting relationship. Our results are robust to the use of multiple measures of corporate transparency and to the use of industry and year fixed effects, firm level controls and heteroskedasticity robust standard errors.