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.     

Discretionary compliance with mandatory environmental disclosures: Evidence from SEC filings

We examine the determinants of adherence to U.S. Securities and Exchange Commission (SEC) mandated disclosures of environmental sanctions. Our sample includes non-superfund U.S. Environmental Protection Agency (EPA) sanctions between 1996 and 2005. Our results suggest that firms are more likely to provide sanction disclosures if they operate in environmentally sensitive industries, are subject to larger penalties and are voluntarily participating in a supplemental environmental project. Our results also suggest that firms are less likely to disclose sanctions involving judicial proceedings. Overall, we find that voluntary disclosure incentives impact compliance with mandatory reporting requirements. Although incentives exist for firms to comply with mandatory disclosures, our results suggest that increases in mandatory environmental accounting disclosures may not be effective under the current regulatory system despite the use of bright-line materiality thresholds. Our study contributes to the current and ongoing debate about the role and effectiveness of environmental risk disclosure mandates in providing information to the marketplace, as well as “mandated disclosure” rules in general. The value attributed to current and potential environmental disclosure regulations cannot be thoroughly understood without examining disclosure compliance with existing regulations. From an environmental and sustainability disclosure perspective, our findings are particularly germane since these disclosures focus on risks, liabilities, or other reputational shortcomings of the firm.     

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.     

Extent of corporate governance disclosure by banks and finance companies listed on Nepal Stock Exchange

Corporate governance disclosure has seen renewed interest by researchers, policy makers, and regulating bodies internationally, but has remained only an emerging construct in Nepal. The primary purpose of this study was to assess the extent of mandatory corporate governance disclosure in Nepal. The secondary purpose was to examine the associations between the extent of disclosures and five firm-specific characteristics. The third purpose was to assess the significant determinants to explain variations of disclosures. The study's sampling frame consisted of 125 banking and finance companies listed on Nepal Stock Exchange. A sample size of 59 companies was randomly selected. On average, companies disclosed 91% of items in the mandatory category, 48% in the voluntary category, and 74% in total. A significant positive correlation existed between governance disclosures and firm characteristics of size, leverage, and foreign ownership. There was no significant relation between governance disclosure and listing age or profitability. With regards to determinants, bank size was a significant predictor of governance disclosure. Three regression models for total disclosures (DScore), mandatory disclosures [DScore (M)], and voluntary disclosures [DScore (V)] with three predictors of size, leverage, and foreign ownership were significant and explained 47%, 24%, and 54% variations respectively in total, mandatory, and voluntary corporate governance disclosures in Nepal. This research provides guidelines to policy makers and standard setters for developing future regulations and accounting policies.     

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.     

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.     

International operations and voluntary disclosures by U.S.-based multinational corporations

This study uses analysts' ratings of firms' disclosures to examine how the differences between U.S. and foreign disclosure environments affects the voluntary disclosures of U.S.-based multinational corporations. We hypothesize that these different disclosure environments discourage U.S-based multinationals from releasing costly information to competitors. Examining how these differences impact U.S. MNCs' reporting may further our understanding of the relationship between voluntary disclosures and differences among countries' accounting standards. Furthermore, it may explain how convergence of mandated accounting standards might impact voluntary disclosures. Controlling for industry membership, firm size, profitability, earnings-return relations, and capital market activity, we find that U.S. firms with more extensive foreign operations tend to provide fewer voluntary disclosures. These results are most robust for informal and flexible disclosures, such as investor relations, where the findings indicate a negative relation between foreign operations and disclosure.     

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.     

The association between employee stock option disclosures and corporate governance: Evidence from an enhanced disclosure regime

This study examines the role of corporate governance in employee stock option (ESO) disclosures following the revision of AASB 1028 Employee Benefits in 2001. We find that, while firms do not fully comply with AASB 1028 ESO disclosures, they voluntarily provide other ESO disclosures. In relation to corporate governance measures that have a role in the financial reporting process, we find two corporate governance measures dominate our results—the quality of auditor and duality of the role of CEO and Chair of the Board of Directors. We show that, in general, external auditor quality has positive incremental association with both mandatory and voluntary ESO disclosures while the dual role of CEO and chairperson of the board is associated with lower levels of mandatory disclosure.     

Voluntary disclosures and information production by analysts

We analyze the voluntary disclosure decision of a manager when analysts scrutinize the quality of disclosure. We derive an equilibrium in which managers voluntarily disclose unfavorable information only if sufficiently precise, but disclose favorable news with lower levels of accuracy. We show that analysts cover good news disclosures with higher scrutiny. To the extent analysts rely on mandatory financial reports to interpret voluntary disclosures, we show that more precise financial reports may lead to more precise but less frequent voluntary disclosures. Moreover, a slant toward conservatism in financial reports can lead to less precise yet more frequent voluntary disclosures.     

Smoke and Mirrors? Disclosures in the Marijuana Industry in Canada

Licensed producers (LPs) of marijuana in Canada are embedded in a highly competitive industry where they raise funds from investors to finance their growth. They face substantial risks from the uncertain legal status of marijuana and from its unsettled health and safety consequences. We argue that this context stands to have implications for the disclosures of firms in the marijuana industry. We rely on a multicase study of three large Canadian LPs to explore their mandatory and voluntary disclosures during the third quarter of 2018. We find that their mandatory interim disclosures are largely consistent with disclosure rules that target marijuana operations. We also find that they make voluntary disclosures relevant for their context (e.g., about risks from legal, health, and safety consequences), and that there is variation in these disclosures. We use our findings as a springboard for discussing the antecedents of mandatory and voluntary disclosures in the marijuana industry (i.e., proprietary costs, investor interest, detection costs of selective disclosures), and their consequence (i.e., lack of comparability). We offer suggestions for future research.     

The usefulness of firm risk disclosures under different firm riskiness,investor-interest,and market conditions: New evidence from Finland

To date, there is only meager research evidence on the usefulness of mandatory annual report risk disclosures to investors. Although it has been argued that corporate disclosure decreases information asymmetry between management and shareholders, we do not know whether investors benefit from high-quality risk reporting in a highly regulated risk disclosure environment. In this paper, we performed association tests to examine whether the quality of firms' mandatory risk disclosures relate to information asymmetry in the Finnish stock markets. In addition, we analyzed whether the usefulness of risk disclosures depends on contingency factors such as firm riskiness, investor interest, and market condition. We demonstrate that the quality of risk disclosure has a direct negative influence on information asymmetry. We also document that risk disclosures are more useful if they are provided by small firms, high tech firms, and firms with low analyst coverage. We also found that momentum in stock markets affects the relevance of firms' risk reports.     

A theory of voluntary disclosure and cost of capital

This paper explores the links between firms’ voluntary disclosures and their cost of capital. Existing studies investigate the relation between mandatory disclosures and cost of capital and find no cross-sectional effect but a negative association in time-series. In this paper, I find that when disclosure is voluntary firms that disclose their information have a lower cost of capital than firms that do not disclose, but the association between voluntary disclosure and cost of capital for disclosing and nondisclosing firms is positive in aggregate. I further examine whether reductions in cost of capital indicate improved risk-sharing or investment efficiency. I also find that high (low) disclosure frictions lead to overinvestment (underinvestment) relative to first-best. As average cost of capital proxies for risk-sharing but not investment efficiency, the relation between cost of capital and ex ante efficiency may be ambiguous and often irrelevant.     

Voluntary Environmental Disclosures by Large UK Companies

Abstract:  This paper examines the patterns in voluntary environmental disclosures made by a sample of large UK companies. The analysis distinguishes between the decision to make a voluntary environmental disclosure and decisions concerning the quality of such disclosures and examines how each type of decision is determined by firm and industry characteristics. We find that larger, less indebted companies with dispersed ownership characteristics are significantly more likely to make voluntary environmental disclosures, and that the quality of disclosures is positively associated with firm size and corporate environmental impact. We find significant cross-sector variation in the determinants of both the participation and quality decisions. Furthermore, the manner of this variation differs between the two.     

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.     

Intangible Assets and Firms' Disclosures: An Empirical Investigation

This study examines how research and development (R&38;D) and advertising expenditures affect firms' disclosures. Generally accepted accounting principles (GAAP) mandate that these expenditures be immediately expensed in financial reports, despite the fact that they often benefit the firm for longer periods. Prior studies find, however, that investors consider intangible assets in their valuation of firms. These studies argue that current GAAP, by not recognizing the value generated by these assets, severely impairs the usefulness of accounting reports. I investigate if firms with higher levels of R&38;D and advertising expenditures place greater reliance on voluntary, and therefore more flexible, disclosures such as voluntary publications and investor relations. Using analysts' ratings of firms' disclosures, I find that firms with higher levels of intangible assets are more likely to receive significantly higher ratings for their investor relations programs or voluntary publications than for their annual reports. These findings suggest that firms with higher levels of intangible assets emphasize supplemental disclosures because mandated accounting disclosures inadequately present their financial performance. These results have important policy implications for regulators and investors since they indicate that voluntary disclosures, which are unregulated and unaudited, are an important means of disclosure for these firms.     

Information dissemination on intellectual capital in mergers and acquisitions: purchase price allocations,press releases and business press

In order to reduce information asymmetries in relation to a firm's current decisions and long-term strategy, firms must consistently provide information to stakeholders. This paper investigates intellectual capital (IC) information disclosed in mergers and acquisitions (M&A) provided through three different disclosure channels (voluntary press releases, related newspaper articles and subsequent mandatory corporate disclosures in the notes to the financial statements). For a sample of 215 randomly selected US and European M&As, we analyse 215 press releases, 1025 newspaper articles and 215 purchase price allocations. Our findings suggest that IC disclosure in press releases is not perceived as informative and qualitative forward-looking IC information in voluntary corporate disclosures appears to lack credibility. Moreover, we empirically demonstrate interdependencies across the three disclosure channels. The business press seems to filter IC information provided in press releases. The amount of IC disclosure in the notes to the financial statements is positively associated with prior IC disclosure in newspaper articles, but negatively associated with IC disclosure in press releases. The managements of acquirer firms appear to pay attention to news coverage and public opinion. However, both voluntary and mandatory corporate disclosures appear to substitute rather than complement each other.     

Do Family Firms Provide More or Less Voluntary Disclosure?

We examine the voluntary disclosure practices of family firms. We find that, compared to nonfamily firms, family firms provide fewer earnings forecasts and conference calls, but more earnings warnings. Whereas the former is consistent with family owners having a longer investment horizon, better monitoring of management, and lower information asymmetry between owners and managers, the higher likelihood of earnings warnings is consistent with family owners having greater litigation and reputation cost concerns. We also document that family ownership dominates nonfamily insider ownership and concentrated institutional ownership in explaining the likelihood of voluntary disclosure. Using alternative proxies for the founding family's presence in the firm leads to similar results.     

The effect of globalization and legal environment on voluntary disclosure

We examine how interactions with foreign capital, product, and labor markets affect the disclosure practices of non-U.S. multinational firms. Drawing on literature related to multinationals, country-level legal institutions, and accounting disclosures, we expect that the relation between globalization and voluntary disclosure will be conditioned by the legal environment in a firm's home country. Specifically, while firms from countries with a strong legal environment (e.g., common-law countries) already face pressure for good disclosure, globalization can increase the benefits associated with good disclosure to firms from weak legal environments (e.g., civil-law countries). We use a self-constructed voluntary disclosure index and hand-collected disclosure and foreign activity data for 643 non-U.S. firms from 30 countries for 2003. We find a significant interaction between globalization and the legal environment. This indicates that for the same level of globalization, there is more voluntary disclosure for firms based in weak legal environments. Our results suggest that globalization is an important variable that has been overlooked in much of the previous cross-country research.     

Disclosure Practices by Family Firms: Evidence from Swedish Publicly Listed Firms

Abstract

I investigate the effect of family ownership on firms’ disclosure practices in their annual reports. In specific, I study Swedish publicly listed firms, which are typically characterized by controlling owners that have a strong influence in the corporate governance decisions of the firm, including corporate disclosures. To measure disclosure, I construct a comprehensive disclosure index covering information on (1) corporate governance, (2) strategic and financial targets and (3) notes to the financial statements. The results reveal that overall, family firms provide less disclosure in annual reports than non-family firms do. The finding is consistent with the premise that through their management positions, family owners can directly monitor managers and avoid costly public disclosures. Overall, the results suggest that ownership structure of firms is important to consider in understanding firms’ disclosure incentives, particularly in settings where controlling owners play a significant role in the governance of the firm.