Do higher value firms voluntarily disclose more information? Evidence from China

This paper examines the effect of guanxi on the relation between firm value and voluntary disclosure of information about new investment projects in China's institutional setting. We find a negative relation between firm value and voluntary disclosure for firms that rely heavily on guanxi in their value creation (e.g. non-high-tech firms, and firms located in regions with underdeveloped institutions). By contrast, for firms that rely less heavily on guanxi and more on other sources of core competencies (e.g. high-tech firms, and firms in high-marketisation regions), we find a positive relation between firm value and voluntary disclosure. The moderating role of guanxi on the relation between firm value and voluntary disclosure is explained by firms conscientiously balancing the costs and benefits of voluntary disclosure relative to guanxi. Specifically, high guanxi-dependence firms refrain from detailed voluntary disclosures for fear of revealing sensitive information that may harm their guanxi. In contrast, low guanxi-dependence firms rely more heavily on voluntary disclosures to reduce information asymmetry and financing cost, with such incentives being particularly strong for high value firms. Our evidence has implications for research on motives for disclosure and regulation of financial reporting.     

The value relevance of corporate voluntary disclosure in the Middle-East: The case of Jordan

We examine whether higher voluntary disclosure, resulting from privatization and the accompanying governance reforms, enhances the value of privatized Jordanian firms. We use panel data for 243 firm-year annual reports (over a period of 9 years from 1996 to 2004) and employ univariate and multivariate tests in order to test our hypothesis,. We construct a governance index to proxy for the impact of privatized firms’ governance on voluntary disclosure. Also, we control for the endogeneity of voluntary disclosure in its relation with firm value. Our multivariate results indicate that voluntary disclosure is positively associated with firm value. We also find that firm value is associated with industry types as a proxy for size. However, we did not find that growth and liquidity are associated with firm value.     

Effects of prior voluntary disclosure on earnings announcements in an environment with low information and regulation

This study examines the association between levels of annual report voluntary disclosure and the market reaction to the next interim earnings announcement in a market with both low regulation and analyst following. We examine the first order effects of voluntary disclosure by using direct measures for both the level of voluntary disclosure, and the market effects of such disclosure. The results show that preannouncement voluntary disclosure significantly reduces the price and volume reactions in the earnings announcement period, and is consistent with the Kim and Verrecchia (1991a) framework and the Atiase and Bamber (1994) empirical findings. We extend the analysis to investigate trading behavior during the earnings announcement period, and observe the trading behavior predicted by Kim and Verrecchia (1991b, 1994). We conclude that voluntary disclosure in annual reports can be regarded as an important determinant of preannouncement information precision in markets with low regulation and analyst following, and observe the expected trading behavior as modeled in Kim and Verrecchia (1991a), and extended in Kim and Verrecchia (1991b, 1994).     

Voluntary Disclosure,Manipulation, and Real Effects

We study a model in which managers’ disclosure and investment decisions are both endogenous and managers can manipulate their voluntary reports through (suboptimal) investment, financing, or operating decisions. Managers are privately informed about the value of their firm and have incentives to voluntarily disclose information and manipulate their reports in order to obtain more favorable terms when issuing equity to finance a new profitable investment opportunity. The model shows that treating managers’ disclosure and investment decisions both as endogenous and allowing managers to manipulate their voluntary reports yields qualitatively different predictions from when the disclosure and investment decisions are considered separately and managers cannot engage in manipulation. The model predicts that managers’ disclosure strategy is sometimes characterized by two distinct nondisclosure intervals (contrary to traditional threshold equilibria of voluntary disclosure models) and that managers with intermediate news sometimes forego the new profitable investment opportunity. As such, the paper highlights the importance of considering the interdependencies between firms’ disclosure and investment decisions and provides new empirical predictions.     

Regulatory impact on voluntary climate change–related reporting by Australian government‐owned corporations

This paper concerns voluntary climate change–related reporting of government‐owned corporations (GOCs). We investigate whether the Australian National Gresenhouse and Energy Reporting Scheme (NGERS), a regulation stipulating the disclosure of greenhouse gas emissions to government, subsequently made publicly available on a Website, has a positive impact on the voluntary disclosure of climate change–related information not required by the regulation. We find that implementation of NGERS has a positive effect on voluntary climate change‐related disclosures by GOCs. Hence, mandating disclosure of organisations’ negative environmental performance, such as greenhouse gas emissions, can influence voluntary disclosures of a broad range of related information particularly in organisations that are not subject to capital markets incentives. However, upon later but concurrent implementation of a Carbon Tax after a highly partisan and divisive political debate, climate change–related disclosures by GOCs reduce, consistent with the de Villiers and van Staden (2006) argument that when disclosures might increase awareness of sensitive issues, avoidance of attention to the issue might be the best strategy to retain legitimacy.     

Family firm disclosure and accounting regulation reform in the Middle East: The case of Jordan

We examine the quality of accounting disclosures by family firms using mandatory and voluntary disclosures as proxies for the quality of disclosure. We find that family firms comply more fully with mandatory disclosure requirements than do non-family firms but they disclose significantly less voluntary information. We also document that the enhanced accounting regulation improves the strength of the association between family ownership and mandatory disclosure compliance. Another important finding is the greater disclosure, both mandatory and voluntary, for firms with high family ownership compared to firms with low family ownership.     

Financial Reporting and Supplemental Voluntary Disclosures

A standard result in the voluntary disclosure literature is that when the manager's private information is a signal correlated with the firm's liquidation value, mandatory disclosures substitute for voluntary disclosures. In this paper, we assume that the manager's private information complements the mandatory disclosure and show that the content and likelihood of a voluntary disclosure depend on whether the mandatory reports contain good or bad news. This different information asymmetry produces new, testable implications regarding the probability of and market reaction to voluntary disclosures. We also show that changes in mandatory disclosure regulations can have unintended consequences due to their effects on the manager's willingness to voluntarily provide supplemental disclosures.     

Voluntary disclosure practices by foreign firms cross-listed in the United States

This is one of the first large-scale studies to examine the voluntary disclosure practices of foreign firms cross-listed in the United States. We proxy for voluntary disclosure using three attributes of firms’ management earnings guidance: (1) the likelihood of issuance; (2) the frequency of earnings guidance; and (3) a guidance quality measure. After first establishing that market participants view these firms’ disclosures as credible and economically important (i.e., the disclosures are negatively related to analyst forecast errors and the implied cost of equity capital), we compare cross-listed firms’ disclosure practices with comparable US firms and explore variations in disclosure practices among cross-listed firms. We find that cross-listed firms issue less frequent and lower quality management earnings guidance than comparable US firms. We further show that the gap between US and cross-listed firms widened after passage of Regulation FD, a regulation which induced greater public disclosure of firm-specific information. Focusing on the sample of cross-listing firms, we show that firms from common-law countries disclose more than firms from code-law countries. Finally, our results indicate that cross-listed firms that do not list on an organized US exchange provide more frequent and higher quality disclosure than those that do list on organized exchanges.     

The Impact of IFRS Adoption and Corporate Governance Principles on Transparency and Disclosure: The Case of Borsa Istanbul

This article investigates whether mandatory and voluntary regulation and best governance practices enhance disclosure quality in an emerging market where code law tradition, dominant family ownership, and lax rules and implementation make it less likely for disclosure quality effects to be observed. We show that the Transparency & Disclosure (T&D) scores have improved for a sample of Borsa Istanbul (BIST) firms, and the firms that voluntarily adopted IFRS during 2003 and 2004 have significantly higher scores. However, in 2005, the year IFRS became mandatory, the T&D scores for mandatory and voluntary adopters were no longer significantly different. Multivariate analysis shows that the Corporate Governance (CG) principles and voluntary and mandatory adoptions of IFRS have all had significant positive effects on various T&D scores of the sample firms.     

Bank Capital and Risk: Is Voluntary Disclosure Enough?

This paper considers whether banks have an incentive to disclose accurate information concerning their risk and capital adequacy. State-of-the-art capital regulation relies on quantitative capital requirements, bank supervision, and public disclosure of information to the markets. Is voluntary regulatory disclosure of risk information sufficient to achieve policy objectives? The game-theoretic model of this paper suggests that voluntary disclosure can be usefully supplemented with other regulatory tools, in particular with direct supervision and financial market discipline.     

The Nature of the Interaction between Mandatory and Voluntary Disclosures

This paper demonstrates the crucial role that firms' mandatory disclosures play in determining their voluntary disclosure strategies. It also shows how a firm's propensity for providing voluntary disclosures relates to various features of the mandatory disclosure environment and disclosure regulation. The special case of choosing between aggregated and disaggregated disclosures serves as an illustration of the model's applicability.     

Does voluntary balance sheet disclosure mitigate post-earnings-announcement drift?

Theory suggests that balance sheet information such as total assets, total equity, or total liabilities complements earnings information in helping investors assess a firm’s profitability and estimate earnings growth. The voluntary disclosure of balance sheet information at earnings announcement could help investors gather and process this information at a lower cost. We therefore predict that voluntary balance sheet disclosure at the time of an earnings announcement helps investors promptly understand the implication of current earnings news for future earnings and subsequently reduces post-earnings-announcement drift (PEAD). Consistent with these predictions, our results show that when firms provide voluntary balance sheet disclosures, the earnings response coefficient in the event window is significantly higher and the corresponding PEAD is significantly lower. We further find that the impact of voluntary balance sheet disclosure on PEAD is more pronounced when the magnitude of balance sheet value surprise is larger, when balance sheet value is more informative about future earnings, when earnings uncertainty is higher, or when information cost is higher, consistent with our conjectures that helping investors to better understand future earnings performance and lowering information costs are key mechanisms underlying the effect of voluntary balance sheet disclosure on PEAD.     

Voluntary disclosure of financial information by French firms: Does the introduction of IFRS matter?

This paper addresses the relationship between mandatory and voluntary information. The introduction of IFRS in 2005 modified mandatory information requirements and influenced the content and level of the discretionary information disclosed by firms. This background allows us to test whether the complementary or substitution hypothesis dominates. A French firm data panel is used to empirically analyze the consequence of IFRS introduction. Referring to the 2003–2008 period gives a long-term perspective and allows us to identify discretionary communication policies by building a proprietary voluntary disclosure score. We find that voluntary disclosure policies experienced an upward swing with the introduction of IFRS, giving support to the complementary hypothesis. We also demonstrate a dynamic relationship between disclosure and the dispersion of analysts' earnings forecasts. The practical implication of the paper is to show that firms' discretionary communication policies follow both a long-term and a short-term component to meet analysts' demands for information. Our contribution is to refer to a long-term sample in one country where the environment and regulation context is homogenous. Our disclosure score index seems to be a good measure to outline that idiosyncratic communication policies are complex and strategic.     

The association between privatisation and voluntary disclosure: Evidence from Jordan

This paper investigates the impact of privatisation on the extent of corporate voluntary disclosure in Jordan.We conduct a longitudinal examination using 243 annual reports of 27 privatised firms in Jordan over a period of nine years from 1996 to 2004. Employing univariate and pooled regression models our results show that privatisation is positively associated with voluntary disclosure. Specifically, we find that accounting regulation reforms and foreign investments accompanying privatisation have a significant impact on the levels of accounting disclosure in Jordan. Our study provides evidence on the role of privatisation in improving the disclosure culture as an important pre‐condition for the development of active capital markets.     

Voluntary Disclosure, Earnings Quality, and Cost of Capital

We investigate the relations among voluntary disclosure, earnings quality, and cost of capital. We find that firms with good earnings quality have more expansive voluntary disclosures (as proxied by a self‐constructed index of coded items found in 677 firms' annual reports and 10‐K filings in fiscal 2001) than firms with poor earnings quality. In unconditional tests, we find that more voluntary disclosure is associated with a lower cost of capital. However, consistent with the complementary association between disclosure and earnings quality, we find that the disclosure effect on cost of capital is substantially reduced or disappears completely (depending on the cost of capital proxy) once we condition on earnings quality. Extensions probing alternative proxies show that our findings are robust to measures of earnings quality and cost of capital, but not to other measures of voluntary disclosure. In particular, we find opposite relations for voluntary disclosure measures based on management forecasts and conference calls, and we find no relations for a press release based measure.     

Voluntary disclosure,mandatory disclosure and the cost of capital

We examine the association between a firm's cost of capital and its voluntary and mandatory disclosures. We include two types of mandatory disclosure: those that are a function of periodic reports that are realizations of ex‐ante reporting systems and those that arise due to specific corporate events. To capture a firm's voluntary and event‐driven mandatory disclosures, we use information the firm provides via 8K filings. To capture periodic mandatory disclosures, we use earnings quality measures derived from the literature. Consistent with endogenous relations predicted by theory, we find that voluntary disclosure and both types of mandatory disclosure are correlated, although only event‐driven mandatory disclosures are significant in models that explain voluntary disclosure. We also find that the cost of capital is generally influenced by each of these disclosure types. We also find that controlling for periodic mandatory disclosure does not affect the relationship between voluntary disclosure and the cost of capital, while controlling for event‐driven mandatory disclosure sometimes affects the relationship depending on the measures used. Our study suggests that a firm's disclosure environment includes the three types of disclosure examined, although the inclusion of mandatory disclosures does not affect the measured association between voluntary disclosure and the cost of capital.     

Value relevance of voluntary disclosure in the annual report

This paper examines whether the level of voluntary disclosure affects the association between current returns and future earnings. Economic theory suggests that firms might find it advantageous to provide additional pieces of information (i.e. voluntary disclosure) to investors and analysts. Our results indicate that more voluntary disclosure does not improve the association between current returns and future earnings (i.e. current returns do not reflect more future earnings news). This finding raises the question of whether voluntary information in the annual report contains value‐relevant information about future earnings or if investors are simply not capable of incorporating voluntary information in the firm value estimates.     

Incentives for voluntary disclosure

Rule l0b-5 of the 1934 Securities and Exchange Act allows investors to sue firms for misrepresentation or omission. Since firms are principal–agent contracts between owners – contract designers – and privately informed managers, owners are the ultimate firms’ voluntary disclosure strategists. We analyze voluntary disclosure equilibrium in a game with two types of owners: expected liquidating dividends motivated (VMO) and expected price motivated (PMO). We find that Rule l0b-5: (i) does not deter misrepresentation and may suppress voluntary disclosure or, (ii) induces some firms to adopt a partial disclosure policy of disclosing only bad news or only good news.     

Product market competition and the disclosure of supply chain information

We investigate how product market competition affects corporate voluntary disclosure decisions, specifically regarding supply-chain information. Our results, based on a sample of manufacturing companies listed in China from 2010 to 2016, show that companies in more competitive industries disclose less customer/supplier information. The main results stand through several robustness tests. Further analyses show that the negative relationship between product market competitiveness and supply-chain information disclosure is stronger when the disclosure contains more incremental information and when competitors are more capable of gaining competitive advantage using the disclosed information. Our study contributes to the understanding of both the relationship between product market competition and voluntary disclosure decisions and the regulation of information disclosure to build a transparent capital market.     

信息披露制度变迁与欺诈管制

在自愿信息披露制度下,资质优良、业绩不俗的公司有动力通过自愿信息披露突出自身竞争优势。本文具体分析了自愿信息披露行为作为一种信号传递机制必须满足的三个假设,即理性的管理者、知情投资者和真实信息披露;在自愿信息披露弱化的三种情况下,强制信息披露制度成为提升信息披露的必然手段,信息披露制度也由自愿向强制转变,但同时伴随信息披露制度的变迁产生了新的联合欺诈行为;因此,信息欺诈贯穿整个信息披露制度的变迁过程,无论强制披露制度还是自愿披露制度,其根本目的在于对信息欺诈的禁止,但欺诈并没有因制度的变迁而消失,所以解决信息欺诈的关键在于建立反欺诈管制,只有这样才能从根本上阻止信息欺诈的行为。