ORIGINAL RESEARCH article
Front. Psychol.
Sec. Personality and Social Psychology
Volume 16 - 2025 | doi: 10.3389/fpsyg.2025.1626829
Corporate Transparency and the Disposition Effect
Provisionally accepted
- School of Business, East China University of Science and Technology, Shanghai, China
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The disposition effect describes investors' irrational behavior of selling profitable assets too soon while holding onto losing assets for too long. This study examines the impact of transparency at the firm level on the disposition effect of individual investors who hold that company's stock. Our results show that an increase in corporate transparency significantly reduces the disposition effect. Further analysis reveals that for companies with greater transparency, when the held stock is profitable, investors' confidence in holding it increases, leading to a reduced bias toward selling profitable stocks. When the stock is held at a loss, investors' confidence in holding it weakens, but they often perceive the loss as temporary and maintain confidence in the company's long-term prospects, thus exacerbating the bias toward holding losing stocks. The effect of increased transparency on the selling behavior of profitable stocks is greater than its effect on the selling behavior of losing stocks. Overall, an increase in corporate transparency significantly reduces the disposition effect.
Keywords: Corporate transparency, Disposition effect, Irrational behavior, Individual investors, Firm level
Received: 11 May 2025; Accepted: 02 Sep 2025.
Copyright: © 2025 Chen and Ren. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.
* Correspondence: Fei Ren, School of Business, East China University of Science and Technology, Shanghai, China
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