DEFINITION of 'Transparency'

The extent to which investors have ready access to any required financial information about a company such as price levels, market depth and audited financial reports. Classically defined as when "much is known by many", transparency is one of the silent prerequisites of any free and efficient market.

When transparency relates to information flow from the company to investors, it is also known as "full disclosure".

BREAKING DOWN 'Transparency'

Transparency helps to prevent the corruption that inevitably occurs when a select few have access to important information, allowing them to use it for personal gain. Reduced price volatility also tends to be a byproduct of a transparent market because all the market participants can base decisions of value on the same data.

There are dozens of federal regulations in place to ensure transparency in our markets. Companies also have a strong motivation to provide disclosure, as transparency is generally rewarded through the stock's performance.

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