Ownership Concentration Effects on Financial Disclosure Transparency Levels

Abstract

This research investigates the nuanced relationship between concentrated ownership
structures and the transparency of financial disclosures, challenging the conventional
principal-agent paradigm that predominantly views dispersed ownership as the primary driver of opaque reporting. We introduce a novel methodological framework that
synthesizes concepts from information theory, specifically Shannon entropy and mutual information measures, with traditional corporate governance metrics to quantify
disclosure transparency not as a binary outcome but as a continuous spectrum of information quality and accessibility. Moving beyond the typical focus on institutional
or insider ownership percentages, our study constructs a multi-dimensional ’Ownership
Influence Vector’ that captures the concentration, stability, and strategic alignment of
controlling blocks. Utilizing a hand-collected dataset of 450 firms across three distinct
regulatory jurisdictions over a ten-year period, we employ a quasi-experimental design
that leverages exogenous regulatory shocks to ownership rules as natural experiments.
Our results reveal a non-linear, context-dependent relationship: moderate ownership
concentration, contrary to much existing literature, can act as a catalyst for superior
transparency when coupled with specific governance mechanisms, such as independent audit committees with financial expertise. However, at extreme concentration
levels, transparency deteriorates significantly, supporting entrenchment hypotheses.
Furthermore, we identify a previously under-explored ’transparency threshold’ effect,
where the informativeness of disclosures increases up to a point of ownership cohesion, after which additional concentration yields diminishing informational returns.
The study’s primary contribution lies in its original theoretical reconceptualization
of transparency as an information-theoretic property and its empirical demonstration
that the ownership-transparency nexus is conditional on the interactive effects of control, incentive alignment, and external monitoring forces, rather than a simple linear
function. These findings have profound implications for regulators aiming to design
disclosure regimes that account for the underlying ownership architecture of firms.