Calibration of transparency risks: a note

TL;DR

This paper proposes a simple framework to quantify a firm's transparency by linking observable stock prices and infrequent firm value observations, showing transparency impacts market shocks and can be calibrated.

Contribution

It introduces a hybrid model connecting firm value and stock prices to measure and calibrate transparency levels.

Findings

Transparency depth influences market shock magnitude.

Calibration method effectively quantifies transparency.

Model links infrequent firm value observations with observable stock prices.

Abstract

The aim of this research is to give a simple framework to evaluate/quantize the "transparency" of a firm. We assume that the process of the firm value is only observable once in a while but is strongly correlated with the stock price which is observable and tradable. This hybrid type structure make the transparency "observable". The implication of the present study is that the depth of the shock to the market caused by the precise accounting information does reflect the degree of transparency. Furthermore, it can be quantized resorting to the calibration method.