abstract
We review recent literature on the role of financial reporting transparency in reducing
governance-related agency conflicts among managers, directors, and shareholders,
as well as in reducing agency conflicts between shareholders and creditors, and offer
researchers some suggested avenues for future research. Key themes include the
endogenous nature of debt contracts and governance mechanisms with respect to
information asymmetry between contracting parties, the heterogeneous nature of the
informational demands of contracting parties, and the heterogeneous nature of the
resulting governance and debt contracts. We also emphasize the role of a commitment to
financial reporting transparency in facilitating informal multiperiod contracts among
managers, directors, shareholders, and creditors.