Corporate Transparency, Disclosure Quality, and Their Effects on Investor Risk Perception

Abstract

This article investigates how corporate transparency and disclosure quality shape investor risk perception by synthesizing evidence from a systematic literature review of peer reviewed studies on financial and non financial reporting. The review shows that timely, accurate, comparable, and decision useful disclosure reduces information asymmetry, enhances price efficiency, and supports higher stock liquidity, thereby lowering risk premiums demanded by investors. High quality reporting also mitigates downside risk by constraining earnings management and stock price crash risk, especially when accompanied by strong assurance mechanisms and effective internal control structures. Evidence on environmental, social, and governance disclosure indicates that credible sustainability reporting is associated with a lower cost of equity and more conservative capital structures, suggesting that investors view transparent firms as more resilient to regulatory and reputational shocks. At the same time, complex or boilerplate disclosure can increase processing costs and skepticism, weakening these benefits. The article concludes that investor risk perception acts as a key intervening mechanism linking transparency, market outcomes, and firms capital costs for diverse types of firms.