Breaking Off with the Irresponsible: The Effect of Procedural Transparency on Transactional Relations



Prior research suggests that the provision of substantive information reduces asymmetry across transactional partners. In this paper, we argue that the mere act of disclosing information itself has symbolic value, which can also lead to organizational change. In particular, we examine the symbolic value of procedural transparency, and how it drives organizations to cut ties with irresponsible partners. Procedural transparency refers to the extent to which organizations are informed about enforcement procedures of regulators. We argue that an organization is less likely to transact with irresponsible partners (1) where there is greater procedural transparency, especially (2) if the organization can benefit greater from procedural fairness. We exploit a quasi-natural experiment provided by the Green Credit Initiative (GCI) where major Chinese banks were asked to cut ties with polluting firms. Using a difference-in-differences design, we find that banks are more likely to detach from polluting firms where local regulators are transparent about environmental enforcement procedures; this effect is more salient among banks with weak market power.  

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