Transparency refers to a process by which information about existing conditions, decisions, and actions is made accessible, visible, and understandable. It helps to promote accountability, by obliging decision-makers to make their decisions and the reasoning behind them known, and furthermore, to be answerable for such actions and decisions. Transparency is thus a check and balance and monitoring device, to ensure that stakeholders understand and can influence a company's performance and operations in their and the public's interest. Markets need information to function well. Shareholders need information to judge the quality of their investment.
Transparency is thus an important element to the efficient functioning of markets.
When actions and decisions are made visible and understandable, and the objectives and benchmarks by which the institution is judged made clear, poor decisions will not go unnoticed or unquestioned. Efforts to enhance transparency and accountability can thus help insulate firms and countries from systemic risks and contagion and avert a build up of financial imbalances and risk concentrations. The Working Group identified two serious gaps in transparency that were apparent in the Asian crisis. The second was the gap in incentives to use available information . Even though information was readily available to predict potential fragility in selected Asian economies, many banks, funds and corporations chose to ignore such warning signals.