Financial reporting quality and corporate innovation

This paper examines the relationship of financial reporting to corporate innovation. Given the importance of a high‐quality information system and coordination to innovation, I predict a positive association between financial reporting quality and future innovation. My empirical evidence is consistent with this prediction. I also find some evidence that the positive association between financial reporting quality and innovation is more pronounced for firms with intensive internal research and development activities and for firms in competitive industries. The main findings are robust to using an instrumental variable approach as well as controlling for alternative explanations. I find that firms with high‐quality financial reporting transform investment inputs into greater innovation outcomes and firm value. This study provides additional insight into the role of financial reporting quality and its relation to the real economy.     

The effect of financial reporting quality on corporate dividend policy

This study examines how financial reporting quality affects corporate dividend policy. We find that higher quality reporting is associated with higher dividends. This positive association is more pronounced among firms with more severe free cash flow problems and among firms with higher ownership by monitoring-type institutional investors. Further analysis of the relation between reporting quality and under?/over-payment of dividends suggests that reporting quality largely mitigates underpayment of dividends. Additionally, both a granger causality test and a difference-in-difference analysis of dividend changes around a quasi-exogenous reporting event yield evidence consistent with the direction of causality going from financial reporting to dividends. Overall, these findings are consistent with financial reporting quality acting as a governance mechanism that induces managers to pay dividends by disciplining free cash flow problems. Our findings support the view that dividends are the result of enhanced monitoring (Jensen 1986; La Porta, Lopez-de-Silanes, Shleifer, and Vishny 2000).     

The institutionalisation of corporate social responsibility reporting

This study examines corporate social responsibility reporting (CSRR) structures through a comparison of the disclosures in two countries with different social issues. The analysis is guided by a focus on the legitimisation offered by isomorphism. We compare the 2007 annual report and website (including standalone report) CSRR of a matched sample of 18 Australian and 18 South African mining companies. Among the 30 comparisons of disclosure patterns, 29 show no difference. We also provide examples of specific disclosures that show a remarkable level of similarity in CSRR and in the CSRR management structures adopted in the two countries. Our findings show similar overall patterns of CSRR in diverse settings, while differences in CSRR content at a more detailed level remain. For example, companies refer to the applicable national regulations and rules; as well as to their specific local communities. These findings provide evidence that the same reporting templates are used in CSRR globally. There is evidence to suggest that CSRR is institutionalised through professionalization and other means, suggesting a need to interpret CSRR characteristics and patterns as a reflection of global CSRR templates. Management intent or company-specific characteristics, such as social and environmental performance, do not necessarily drive CSRR patterns.     

The effect of financial reporting quality on corporate investment efficiency: Evidence from the Tunisian stock market

Positive Accounting Theory (Watts and Zimmerman, 1978) stipulates that financial reporting has two dimensions: market signaling and monitoring managerial behaviors. Through these signaling and stewardship means, a better financial reporting quality would have significant economic consequences in terms of efficient resources allocation, which results in improving firms’ investment decision. In this paper, we examine the impact of financial reporting quality on corporate investment efficiency. Our sample is based on 25 Tunisian listed companies for the period 1997–2013. The findings confirm that some characteristics of the financial information, namely, reliability and smoothness, appear to increase the investment inefficiency, while others, i.e., conservatism and relevance, seem have no significant effect on investment decisions. We attribute such results mainly to the contextual specificities of the Tunisian environment, such as, the institutional bodies and settings, the cultural values and some characteristics of the corporate governance system.     

Observations on corporate financial reporting in the name of politics

The paper argues a need to redraw the boundaries between politics, and academic and professional work in the corporate financial reporting field. The argument is pressed on grounds of intellectual honesty, in view of the under-determination by facts that can characterise social scientific theories, including accounting theories, that seek to legitimate or to change practice. An altered understanding of intellectual honesty is required of scholars and practitioners, one which seeks to maximise public awareness of the inherently disputable and questionable in the truth-claims of practices acting upon their welfares.     

Conditional conservatism and the yield spread of corporate bond issues

Building upon recent research which indicates that debt markets rather than equity markets shape financial reporting, this study examines how conditionally conservative financial reporting relates to the yield spread of corporate bond issues. Our findings suggest that the debt contract efficiency/information costs view of conditional conservatism, documented in private debt contracts, does not generalize to public debt contracts. Instead, a debt contract renegotiation costs perspective seems to better capture the dynamics of the public debt markets, with conditionally conservative reporting being associated with higher yield spread of corporate bond issues. Additional subsample test results indicate that the association between conditional conservatism and bond yield spreads is more pronounced in non-investment grade bonds, for bond issuers with more financial distress, and for bonds that are issued before the passage of the Sarbanes–Oxley Act. This study fills a gap in the conservatism literature, which focuses primarily on equity or private bank loan markets with traditional debt contract efficiency/information costs view.     

A comprehensive comparison of corporate environmental reporting and responsiveness

This research is motivated by an interest in determining if there is an association between companies that have been identified as environmentally responsive according to an independent ranking and the quality and extent of their disclosures about their environmental impacts. We use the proactive approach to achieving legitimacy to develop the expectation that legitimacy theory can be used to predict a positive association between environmental responsiveness and disclosure. Using all forms of environmental reporting (both hard copy and website), we comprehensively assess the quality and extent of what is being reported and then match this assessment with an independent assessment of each company's environmental responsiveness. We find significant positive correlations between the independent ranking and our rankings based on the quality and extent of disclosure. This suggests that companies’ environmental disclosures reflect their environmental responsiveness and supports the expectations we developed in terms of legitimacy theory.     

The absence of corporate social responsibility reporting in Bangladesh

This paper aims to broaden the present corporate social responsibility (CSR) reporting literature by extending its focus to the absence of CSR reporting within a developing country, an area which, to date, is relatively under researched in comparison to the more widely studied presence of CSR reporting within developed Western countries. In particular this paper concentrates upon the lack of disclosure on three particular eco-justice issues: child labour, equal opportunities and poverty alleviation. We examine why this is the case and thereby illuminate underlying motives behind corporate unwillingness to address these issues. For this purpose, 23 semi-structured interviews were undertaken with senior corporate managers in Bangladesh. The findings suggest that the main reasons for non-disclosure include lack of resources, the profit imperative, lack of legal requirements, lack of knowledge/awareness, poor performance and the fear of bad publicity. Given these findings the paper raises some serious concerns as to why corporations would ever be expected to voluntarily report on eco-justice issues where performance is poor and negative publicity would be generated and profit impaired. Further research is still required to uncover current injustices and to imagine what changes can be made.     

The impact of corporate governance on Internet financial reporting

This study examines the association between corporate governance mechanisms and disclosure transparency measured by the level of Internet financial reporting (IFR) behavior. We measure corporate governance by shareholder rights, ownership structure, board composition, and audit committee characteristics. We develop a disclosure index to measure the extent of each sample firm’s IFR by presentation format, information content, and corporate governance disclosures. Results indicate that firms with weak shareholder rights, a lower percentage of blockholder ownership, a higher percentage of independent directors, a more diligent audit committee, and a higher percentage of audit committee members that are considered financial experts are more likely to engage in IFR. The findings suggest that corporate governance mechanisms influence a firm’s Internet disclosure behavior, presumably in response to the information asymmetry between management and investors and the resulting agency costs. Additional exploratory analysis indicates that the association between corporate governance and IFR varies with firm size. Our results suggest that new regulatory guidance in corporate governance leads to improved disclosure transparency via IFR.     

Aggregate insider trading and the prediction of corporate credit spread changes

Financial Markets and Portfolio Management - This paper shows that equity-based aggregate insider trading predicts future changes in US corporate credit spreads. Results suggest that the closer...     

Financial and external reporting research: the broadening corporate governance challenge

This study provides a critical examination of contemporary financial and external reporting research from a corporate governance perspective. Adopting Hines' social constructionist approach to financial reporting, the study investigates research into accounting publishing patterns, published reviews of major subject areas within financial and external reporting research, and interviews a sample of accounting professors in British universities. The findings reveal a strong North American economics and finance-based positivist influence, a largely uncritical acceptance of accounting's subservience to the demands of the market, a reluctance to engage major policy questions and broader reporting constituencies. These appear to be conditioned to a large degree by internal features and pressures within the academic research community. Evidence is presented for greater attention to major environmental shifts impacting accounting and communities globally, a reinvigoration of researchers' direct engagement with reporting constituents in the field, a revisiting of major accounting, business, social and environmental policy questions, and a preparedness to address today's major corporate governance concerns of communities and governments.     

Dynamics of credit spread moments of European corporate bond indexes

Traditional quantitative credit risk models assume that changes in credit spreads are normally distributed but empirical evidence shows that they are likely to be skewed, fat-tailed, and change behaviour over time. Not taking into account such characteristics can compromise calculation of loss probabilities, pricing of credit derivatives, and profitability of trading strategies. Therefore, the aim of this study is to investigate the dynamics of higher moments of changes in credit spreads of European corporate bond indexes using extensions of GARCH type models that allow for time-varying volatility, skewness and kurtosis of changes in credit spreads as well as a regime-switching GARCH model which allows for regime shifts in the volatility of changes in credit spreads. Performance evaluation methods are used to assess which model captures the dynamics of observed distribution of the changes in credit spreads, produces superior volatility forecasts and Value-at-Risk estimates, and yields profitable trading strategies. The results presented can have significant implications for risk management, trading activities, and pricing of credit derivatives.     

Dynamical analysis of corporate bonds based on the yield spread term-quality surface

Our aim of this research is to propose a model which estimates implied relative credit reliability from the yield spread of defaultable bonds and evaluates their spread risk. We introduce “yield spread term-quality surface” (YSTQS) which is defined on the space of duration and credit reliability of the issuers, and express their yield spread. First, we review the general pricing theorem of defaultable bonds with unpredictable recovery in the no-arbitrage context based on the external hazard rates. Second, we show that the dynamics of state variables determine the shape of the YSTQS, and they drive the YSTQS if the loss-adjusted hazard rates are described by a function of them. Finally, we show an empirical analysis of our model with daily yield spread, duration, and the credit ratings of corporate bonds.

The contingency theory of corporate reporting: Some empirical evidence

This research explores the proposition that certain disclosure and measurment practices in corporate reporting are contingent upon environmental uncertainty, technology and organisation size. The findings show that while the disclosure of forecast information is associated with environmental homogeneity, certain measurement practices are primarily influenced by company size. The results cast doubt on the general applicability of Watts and Zimmerman's (Accounting Review, January 1978, pp. 112–133) theory, and may have a number of implications for the setting of Accounting Standards.     

The influence of corporate governance mechanisms on the quality of financial reporting and auditing: Perceptions of auditors and directors in Singapore

This study uses two hypothetical cases to examine the perceptions of auditors and directors in Singapore about corporate governance practices relating to the quality of financial reporting and auditing. In the first case, the strength of the audit committee, the existence of an internal audit function and the strength of a corporate code of conduct were manipulated. All three variables were perceived to have some influence on financial reporting and audit quality. However, some interesting differences were found between the perceptions of auditors and directors. Auditors place more weight on the internal audit function, possibly due to their familiarity with the role that internal audit can play in reducing audit risk and enhancing controls. Directors have more confidence in board enforcement of a strong code of conduct, possibly reflecting the view that this encourages staff to adhere to higher ethical standards. In the second case, audit partner rotation, outsourcing of internal audit services and whether the audit firm audited all companies within a group were manipulated. Auditors believed that their ability to resist management pressure was enhanced when they audited all companies within the group. No significant differences were found for the other variables, suggesting that neither group believes that these practices impair audit independence.     

The political significance of corporate social reporting in the United States of America

Recognizing that corporate social reporting may soon assume a new significance in the U.S.A., this article reviews the reasons for this and discusses the responses to date. In looking at the current state of practice in the area, particular consideration is given to disclosure experiments initiated by a number of major U.S. business enterprises.     

How much of the corporate bond spread is due to personal taxes?

Existing term structure models of defaultable bonds have often underestimated corporate bond spreads. A potential problem is that investors’ taxes are ignored in these models. We propose a pricing model that accounts for stochastic default probability and differential tax treatments for discount and premium bonds. By estimating parameters directly from bond data, we obtain significantly positive estimates for the income tax rate of a marginal corporate bond investor after 1986. This contrasts sharply with the previous finding that the implied tax rates for Treasury bonds are close to zero. Results show that taxes explain a substantial portion of corporate bond spreads.     

RETRACTED: User's perception of corporate reporting: evidence from Saudi Arabia

This article has been retracted by the Editors in response to the findings of an Investigation Panel appointed by Cardiff University.Reason: The Investigation Panel of Cardiff University concluded that the article made unauthorised use of the original thought and findings of Abdulrahman M.H. Alrazeen (1999), The Quality of Annual Financial Reports of Saudi Corporations: Users' Perceptions and Companies' Practices, Ph.D. Thesis, Cardiff University. The Investigation Panel also concluded that “…the striking similarities in the text and narrative were the result of plagiarism.”     

Financial reporting and corporate political connections: An analytical model of interactions

We analyze the interactions between accounting institutions and corporate political connections (CPCs). We present a model where a costly policy depends on the perceived economic condition of a firm. This policy and the valuation of the firm by capital market participants create incentives for the firm to manipulate its financial reports. A politician has some discretion over the policy and can use it to favor a connected firm. Our analysis reveals that the firm’s financial reporting is determined by the interplay of an accounting standard, enforcement strictness, and the salience of the policy for the firm. The possibility to manipulate the financial reports imposes an upper boundary on the value of political connectedness which does not exist if only truthful reporting is possible. The reason is that a low credibility of reported figures leads only to a weak revision of the policy. In general, the value of CPCs is highest when the financial reporting regime evenly splits between firms in good and bad economic condition. Our analysis further suggests that while connected firms generally report being in good condition more often than non-connected firms do, the effect of CPCs on absolute reporting manipulation depends on policy salience. If policy salience is low, connected firms exhibit a higher absolute degree of manipulation than non-connected firms do; the opposite holds if policy salience is high.