Auditor Lobbying for Accounting Standards: The Case of Banks and Savings and Loan Associations

This study examines auditor lobbying on seven proposed US accounting standards which affect banks and savings and loan associations. Evidence is provided in support of the Watts and Zimmerman (1982, 1986) theory on auditor lobbying. Watts and Zimmerman (WZ) hypothesise that auditor lobbying is a function of the client-manager position and a set of wealth effect variables. These variables may provide an incentive for auditors to disagree with their clients on proposed accounting issues. The WZ model is modified by including an audit risk variable. Results show that the model is statistically significant and that the identified wealth and audit risk effects are significant explanatory variables of auditor lobbying behaviour.     

The Methodology of Early Accounting Theorists

If, as Watts and Zimmerman (1986) suggest, a unique methodological foundation is the hallmark of a mature discipline, accounting fails to qualify. In this article, methodological arguments of accounting theorists in the first part of this century are examined. 'Pattern Modeling' is suggested as a basis for methodological appraisal. The conclusion reached is that the major theoretical works in accounting were methodologically unsophisticated-particularly in comparison with other disciplines such as economics.     

Revisiting the relation between environmental performance and environmental disclosure: An empirical analysis

Previous empirical evidence provides mixed results on the relationship between corporate environmental performance and the level of environmental disclosures. We revisit this relation by testing competing predictions from economics based and socio-political theories of voluntary disclosure using a more rigorous research design. In particular, we improve on the prior literature by focusing on purely discretionary environmental disclosures and by developing a content analysis index based on the Global Reporting Initiative sustainability reporting guidelines to assess the extent of discretionary disclosures in environmental and social responsibility reports. This index better captures firm disclosures related to its commitment to protect the environment than the indices employed by prior studies. Using a sample of 191 firms from the five most polluting industries in the US, we find a positive association between environmental performance and the level of discretionary environmental disclosures. The result is consistent with the predictions of the economics disclosure theory but inconsistent with the negative association predicted by socio-political theories. Nevertheless, we show that socio-political theories explain patterns in the data (“legitimization”) that cannot be explained by economics disclosure theories.     

Improvement in clinical trial disclosures and analysts’ forecast accuracy: evidence from the pharmaceutical industry

This paper examines whether financial analysts use the information contained in clinical trial disclosures to improve their forecast accuracy for pharmaceutical companies. Findings indicate that the improved clinical trial disclosures due to a quasi-regulation issued by the International Committee of Medical Journal Editors (ICMJE) significantly reduce analysts’ long-term forecast error. In addition, a propensity-score matching analysis provides additional strong evidence that issuance of the 2005 ICMJE’s regulation is accompanied by an average 45 % decrease in long-term forecast error, and a more than 50 % decrease in long-term forecast dispersion. This study contributes to the accounting literature regarding nonfinancial disclosures by providing the first insights into financial analysts’ use of clinical trial disclosures in their forecasts of future earnings. In addition, because the major event examined in this study is a quasi-regulation issued by the ICMJE, we provide additional insights on the effectiveness of industry-initiated regulations (or quasi-regulations) on nonfinancial disclosure practice.     

Can less environmental disclosure have a legitimising effect? Evidence from Africa

Organizational legitimacy theory predicts that corporations will do whatever they regard as necessary in order to preserve their image of a legitimate business with legitimate aims and methods of achieving it. Legitimacy is mostly used in the social and environmental accounting research (SEAR) literature to support the idea that social disclosures will be maintained at present levels, or increased over time, to avert legitimacy crises. However, the SEAR literature contains some references to reasons for, and incidents of, reductions in social disclosures. We submit that legitimacy theory predicts these reductions as much as it predicts maintaining or increasing disclosure levels.We conduct a content analysis of more than 140 corporate annual reports over a 9-year period in order to identify the trends in environmental disclosure by South African companies over time. We find a reduction in environmental reporting after an initial period of increases for both Mining companies and Top-100 industrial companies. The decrease for Mining companies was bigger than that for Top-100 companies, both overall and when the results were split between specific and general information. The publication of general and specific information increased from 1994 to 1999; disclosure of specific information then declined by five times more than the decline in disclosure of general information. These trends are consistent with legitimacy theory and we conclude that legitimising objectives may also be served by changing the type (general/specific) or reducing the volume of environmental disclosures.     

Risk disclosures on the second tier markets of the London Stock Exchange

The identification, management and disclosure of risks have been the subject of recent legislation, directives and reporting standards issued across a number of international jurisdictions. To inform the disclosure debate, this paper provides a detailed analysis of the risk warning disclosures of initial public offering (IPO) companies and the factors that drive such disclosures. We find that risk disclosures of IPO companies contain a greater proportion of forward‐looking information but a lower proportion of information on internal controls and risk management than the disclosures of listed companies. We find evidence that such disclosure has increased across time but that larger directors’ shareholdings are associated with a reduction in risk disclosure.     

The possibility and utility of positive accounting theory

Watts & Zimmerman's Positive Accounting Theory (Englewood Cliffs, NJ: Prentice-Hall, 1986) celebrates the growth of “scientific” accounting research in the U.S.A. and the intellectual progress it has made. The extent to which this sort of research does follow the precepts of empiricist philosophies of science, however, is a matter of some debate. Moreover, the coherence and applicability of the methodological rules Watts & Zimmerman claim to follow is questionable. In particular, the Popperian research programme is of doubtful utility for accounting researchers. Particular characteristics of social phenomena also raise doubts about the feasibility of engineering models for theory-based social technologies. These doubts about the epistemological and practical value of “positive accounting theory” lead to an alternative, sociological. explanation of its growth and institutionalisation in academic accounting research.     

The impact of country institutional factors on firm disclosure: Cybersecurity disclosures in Chinese cross-listed firms

This paper explores differences in qualitative disclosures between Chinese firms that cross-list in the US and their US domestic counterparts that reflect firm-level cybersecurity awareness. Consistent with the strong regulatory framework in China externalizing cybersecurity and thus reducing the need to disclose individual company cybersecurity awareness, we find that relative to their US domestic counterparts, Chinese cross-listed firms in the US provide less cybersecurity disclosure. However, market valuation of these cybersecurity disclosures is higher for Chinese cross-listed firms, suggesting that the market more favorably views Chinese firm disclosures that communicate a greater level of internalized cybersecurity awareness. We also explore the effect of institutional setting on market valuation of cybersecurity awareness through an event study surrounding the arrest of Huawei’s CFO. This event highlighted cybersecurity weaknesses at Huawei, potentially more generally challenging the effectiveness of Chinese cybersecurity policies. We find a negative stock market reaction to the event, but only for our Chinese sample. These results provide evidence that the market’s view of company cybersecurity awareness is sensitive to changes in perceptions of companies’ institutional setting.     

Managing Public Impressions: Environmental Disclosures in Annual Reports

Through the juxtaposition of theory and a meso-level empirical illustration of the environmental disclosures included in the annual reports of Canadian public companies operating in the mineral extraction, forestry, oil and gas, and chemical industries over the 1982 to 1991 period, the current study attempts to increase our understanding of the role and functioning of environmental disclosures. Our analyses focus on three concerns: the influence of external pressure on environmental disclosures in annual reports, including the amount and types of strategies used in disclosure; the characteristics of environmental disclosure vis-á-vis other “social” disclosures; and the association between environmental disclosures and actual performance. We question whether such disclosures highlight positive environmental actions, obfuscate negative environmental effects or both.     

'Publishing your private affairs to the world': corporate financial disclosures in the UK 1900-24

The main intention of this paper is to consider the disclosure practices of quoted UK companies during an important period of change in financial accounting practice, the first quarter of the twentieth century. The paper focuses in particular on levels of disclosure, as indicated by the volume of information provided, and on more qualitative aspects of disclosure practice. Our knowledge of the patterns of disclosure practices over time is deficient, despite the work of a number of accounting historians, and is based upon a limited amount of primary evidence. The paper reviews current perspectives on the corporate financial disclosures of the period, provides new evidence on disclosure practices in the form of an analysis and comparison of the published and internal records of thirty quoted companies operating in four major industrial sectors in the UK during the period 1900-24 and draws some conclusions.     

Disclosure Overload? An Empirical Analysis of International Financial Reporting Standards Disclosure Requirements

Despite the positive effects of the adoption of International Financial Reporting Standards (IFRS) noted in the literature, standard setters have issued reports suggesting that the required disclosures in IFRS have become too burdensome and should be reduced. We examine this disclosure overload problem by testing whether the disclosure reduction recommendations of the Excess Baggage Report issued by professional accounting bodies from Scotland and New Zealand in 2011 are associated with companies’ disclosure incentives and are value relevant for a sample of 196 Australian listed companies. The Excess Baggage Report classifies current IFRS disclosure requirement items into three categories: Retain; Delete; and Disclose if Material. We find that Retain items are disclosed the most, followed by those classified as Disclose if Material, and then by Delete items. Only Retain items are significantly associated with companies’ disclosure incentives. We also find that these disclosure categories are value relevant, especially for below-median profitability firms. Our findings may provide input to the IASB’s ongoing Disclosure Initiatives project.     

Evaluating the Effectiveness of Sustainability Disclosure: Findings from a Recent SASB Study

Early research into the relationship between corporate sustainability programs and financial performance suggests a positive relationship between strong sustainability performance and a lower cost of capital. As investors increasingly incorporate sustainability information into financial decisionmaking, the importance of high‐quality sustainability disclosure is growing. Just as investors have relied on financial disclosures based on generally accepted accounting principles (GAAP) to assess corporate risk, a market standard is needed to help companies disclose comparable sustainability information. To address this issue, the Sustainability Accounting Standards Board (SASB) conducted a recent analysis of the current state of sustainability disclosure in annual Securities and Exchange Commission (SEC) filings. The study reviewed the disclosures of over 700 U.S.‐and foreign‐domiciled companies, focusing on material sustainability topics as identified by SASB's industry‐specific accounting standards. The authors find large variations among different corporate sectors in the frequency and quality, as well as the focus, of their sustainability disclosures. Then, after examining in detail disclosures within the SASB Resource Transformation and Consumer Staples sectors, the authors suggest a number of possible drivers of this variation, including key sustainability and economic trends, while also presenting evidence of increasing investor interest in sustainability information. Although the authors' analysis was not intended to determine the extent to which the quality of sustainability disclosure affects investor returns, the findings provide a useful baseline for the as yet largely unexplored relationship between sustainability disclosure and corporate financial performance.     

Cultural Secrecy and Anti‐corruption Disclosure in Large Multinational Companies

This paper analyses the relation between countries’ cultural characteristics and anti‐corruption disclosure. In particular, it extends prior research and examines whether country‐level secrecy also appears to impact differences in this type of disclosure, while controlling for factors previously shown to matter. Using Transparency International ratings of disclosures on anti‐corruption efforts by large multinational firms and an ordinal regression analysis, the paper documents that companies from more ‘secretive’ countries have significantly lower levels of anti‐corruption disclosure.     

企业社会责任报告鉴证意见是否具有信息含量——来自我国上市公司的经验证据

近年来,我国上市公司披露企业社会责任报告的现象越来越多,企业保证社会责任报告质量的方式有两种:一是独立第三方出具的企业社会责任报告鉴证意见;二是企业董事会对企业社会责任报告质量出具的自我承诺。这两种保证形式是否具有信息含量是大家所关心的问题。本文以沪深两市2009—2010年披露企业社会责任报告的940家上市公司为研究对象,依据信号传递理论,运用事件研究法研究发现:企业社会责任报告鉴证意见具有正向的市场反应,而董事会承诺不具有市场反应。根据我国的制度背景、理论分析和实证结果,从如何完善我国的企业社会责任报告鉴证标准、鉴证主体、鉴证客体、政府部门对董事会承诺的监管重点等方面提出了政策建议。     

Comparative analysis of environmental,social, and governance disclosures

We examine the level of environmental, social, and governance (ESG) sustainability disclosure by firms between two regimes where disclosure is mandatory versus voluntary. We use the regulatory environment between the United States (US) and European Union (EU) to compare ESG disclosures. Firms in the US are currently under a voluntary disclosure regime. In contrast, EU members are under a mandatory disclosure regulatory regime that began in 2017. We find that EU firms outperform US firms under voluntary disclosure requirements (2007–2016), and the ESG disclosure of EU firms further improves relative to US firms after the implementation of the mandatory disclosure in Europe in 2017. Our results suggest that the 2017 adoption of disclosure guidelines in the EU is associated with improvements in EU firms' ESG disclosure. Our results regarding the value-relevance of ESG disclosure support a move toward mandatory ESG disclosures. Results support current initiatives that have been taken by global regulators and stock exchanges in recommending and requiring globally listed companies to disclose their ESG sustainability information to portray accurate and comprehensive corporate reporting. The results further our understanding of how firms from different institutional environment settings may have disclosed their ESG practices, thus providing opportunities for future research.     

Voluntary disclosures of intangibles information by U.S.-listed Asian companies

This paper provides evidence on the voluntary disclosure of intangibles information for U.S.-listed Asian companies. The paper examines the following issues: (1) the effect of firm size, ownership concentration, proportion of foreign revenue, and leverage on voluntary disclosures of intangibles information by U.S.-listed Asian companies; and (2) the use of international standards, and the effect of domestic and global culture on those disclosures. Results indicate that larger firms, firms with greater ownership dispersion, and firms with lower leverage provide more voluntary disclosure of intangibles information. The paper also documents that companies from countries that are more individualistic provide more voluntary disclosure of intangibles information than companies from countries that are collectivist. Therefore, it appears that domestic culture does affect the voluntary disclosure of intangibles information in the U.S. This paper uses the index developed for Portuguese companies by Oliveira, Rodrigues, and Craig (2006), to measure voluntary disclosures of intangibles information thereby providing external validity to their instrument.     

Textual risk disclosures and investors’ risk perceptions

We examine the association between changes in companies’ textual risk disclosures in 10-K filings and changes in stock market and analyst activity around the filings. We find that annual increases in risk disclosures are associated with increased stock return volatility and trading volume around and after the filings. Increases in risk disclosures are also associated with more dispersed forecast revisions around the filings. In contrast to prior literature documenting resolved uncertainties in response to various types of company disclosures, our findings suggest that textual risk disclosures increase investors’ risk perceptions. However, the results are less pronounced for firm-level disclosures that deviate from those of other companies in the same industry and year. These results lend support for critics’ arguments that firm-level risk disclosures are more likely to be boilerplate.     

An analysis of proxy statement leadership structure justification disclosures

The Dodd-Frank Act’s qualitative disclosure requirements have prompted a call in the accounting literature for greater qualitative disclosure scrutiny. In this paper, we investigate the informativeness of qualitative leadership justification disclosures required by Section 972 of the Dodd-Frank Act. The disclosures are divided between justifying combining the CEO and Chairman of the Board (CEO Duality) and splitting these two positions (split structure). We use content analysis in our investigation. We discover that the two types of justifications are very different. The split structure disclosures tend to be ‘boiler plate’ and lack informativeness. In contrast, our tests suggest that CEO Duality justifications are informative. Our tests suggest that disclosures’ intensities in CEO Duality firms are positively associated with an increasing volume of information that supports CEO Duality as the more appropriate leadership structure choice. Additionally, our test results show that leadership disclosures change users risk perception, but only for CEO Duality firms. This suggests that investors believe in and are using the disclosures when making their investment decisions.