Transparency and firm innovation

•Transparency promotes a firm's innovative effort and efficiency.•Transparency directly boosts managers’ innovative effort, through its implicit contracting role, by reducing managerial career concerns, rather than indirectly, through improved access to external financing.•Transparency enhances innovative efficiency through its governance role in facilitating more efficient allocation of R&D capital.•The benefit of transparency for innovation is attenuated in environments with higher proprietary cost.