We investigate the effect of corporate governance on corporate transparency in Japan, as
indicated by the richness of the information environment for Japanese companies. We focus on
firms’ disclosure frequency, properties of analysts’ forecasts and the speed of price discovery as
indicators of corporate transparency. We find corporate governance in Japan is associated with
increased disclosure and greater analyst following, but not more timely price discovery. In
further analysis, we confirm board structure and composition are important factors influencing
the firm’s level of disclosure and its analyst following, as in Western countries. However,
analysts appear to be more optimistic about Japanese firms with better board structures when
forecasting future performance. Compensation structures and the level of directors’ share
ownership are other factors influencing the accuracy of analysts’ earnings forecasts. In contrast,
outside ownership by foreign investors has little influence. Our results are consistent with the
view that traditional Japanese corporate groupings and cross-shareholdings provide a strong
motivation for disclosure through monitoring and enforcement. Our results show Western style
corporate governance has a large role to play in disclosure by Japanese firms, but traditional
Japanese structures are still important to corporate transparency.