Corporate communication as a governance mechanism: A content analysis of corporate public disclosures

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Abstract

Corporate communication efforts have mainly been viewed as a by-product of governmental regulations and board of directors’ oversight. In this paper, we examine the role of corporate communication as a stand-alone governance mechanism. We introduce a new business-related dictionary and conduct automated textual analysis of over 150,000 electronic documents filed by a sample of firms listed on the S&P/TSX Composite Index from 1999 to the end of 2014. Our findings demonstrate the governing role of corporate communication by documenting the adverse market effects of deviations from the expected level of communication. Moreover, as a governance mechanism, corporate communication shows substitution/complementary relationships with other established governance mechanisms. In addition, we find a non-linear relationship between a firm’s communication efforts and its value and risk levels. Results are robust after controlling for major corporate events (M&A, spin-offs, financial distress and bankruptcy, and significant lawsuits). These findings contribute to corporate governance literature and the understanding of agency theory predictions of communications and disclosures’ economic effects.

Keywords: Corporate Governance, Corporate Communications, Content Analysis, Bundles of Governance Mechanisms, Non-Linearity, Dictionary

Authors’ individual contribution: Conceptualization — S.K., A.B., and H.S.B.; Methodology — S.K., A.B., and H.S.B.; Software — S.K.; Validation — A.B.; Formal Analysis — S.K. and A.B.; Investigation — A.B. and S.K.; Data Curation — S.K. and A.B.; Writing — Original Draft — A.B.; Writing — Review & Editing — S.K., A.B., and H.S.B.; Supervision — H.S.B.; Project Administration — S.K.; Funding Acquisition — A.B. and S.K.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

Acknowledgements: We thank Sandra Betton, Rahul Ravi, Eduardo Schiehll, Igor Semenenko, Doris Juergens, Ronald Alepian, Jordan LeBel, Maysam Radpour, Moein Karami, Andrew Carothers, and participants at the 2017 International Corporate Governance Society Conference (Rome, Italy), and 2016 European Financial Management Association Conference (Basel, Switzerland) for their comments on earlier drafts of the paper. We gratefully acknowledge the financial support by the Luc Beauregard Center of Excellence in Communications Research at Concordia University. All errors are ours.

JEL Classification: G30, G32, D80, D83

Received: 19.03.2021
Accepted: 14.06.2021
Published online: 15.06.2021

How to cite this paper: Kolahgar, S., Babaghaderi, A., & Bhabra, H. S. (2021). Corporate communication as a governance mechanism: A content analysis of corporate public disclosures [Special issue]. Corporate Ownership & Control, 18(3), 438–468. https://doi.org/10.22495/cocv18i3siart16