CAP Forum on E‐Business: The Management of Financial Disclosure on Corporate Websites: A Conceptual Model*

This paper addresses the impact of Internet financial reporting (IFR) on financial accounting theory by incorporating it into the general Gibbins, Richardson, and Waterhouse (GRW) (1990) disclosure‐management framework. The GRW model assumes that the firm has a relatively stable process of disclosure management. This process varies between two positions: one ritualistic and the other opportunistic. These dimensions can coexist in the same firm but, on average, the policy of a firm will be either more ritualistic or more opportunistic. Our survey of the financial information disclosed in traditional financial reporting (TFR) as compared with the website disclosures of a random sample of Canadian companies documents a significant difference between TFR and IFR, as well as a wide variability among the sample firms in their use of IFR content, format, and technology. We interpret this variability in the incremental difference of IFR over TFR as an indication that a firm's ritualistic or opportunistic behaviour under IFR is not different from its behaviour under TFR. Thus, the adapted GRW (1990) conceptual model appears to have the potential to support future research in the management of financial disclosure on corporate websites.     

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.     

The use of the Internet for corporate reporting in the Mercosur (Southern common market): The Argentina case

This study examines disclosure practices on the websites of companies listed on the Buenos Aires Stock Exchange. We perform content analysis to provide evidence on Internet reporting practices by 84 publicly traded firms. We also identify the characteristics of firms that communicate financial and non-financial information on the Internet. We find that companies in the financial and insurance, services and mining industries disclose more financial and non-financial information on their websites than companies in other industries. The average concentration of ownership is 68%, with 27% of the companies being controlled by foreign groups. Those companies with higher concentration disclose more financial and non financial information than companies with less concentration. Companies in the financial and insurance and service industries, utilize their websites for commercial purposes to facilitate access to customers to their accounts and also to sell services. This e-commerce usage of websites is less developed in other industries. About 71% of companies in the financial and insurance industry are included in the Merval25 index and are audited by Big 4. These companies are both larger in size and less profitable than companies in other industries. We find that profitability and leverage do not have significant effect on corporate Internet reporting practices and that growth has negative effect on corporate Internet reporting practices. We also find that companies in the mining sector provide significantly more disclosure about social responsibility indicating a desire to improve the public image of harming the environment. The results documented, herein, extend the literature on voluntary disclosure of financial and non-financial information using the Internet in emerging markets.     

Incremental Voluntary Disclosure on Corporate Websites,Determinants and Consequences

This study analyses the determinants and consequences of internet financial reporting (IFR). Our evidence indicates that firms use the internet to report complementary information on firm background, management forecasts, intangible assets and on social and environmental issues. Our results indicate that the decision to provide additional voluntary financial disclosures through corporate websites is mostly influenced by share turnover, the future profitability of the firm and the level of competition in the industry. Last, we find that the extent of voluntary disclosure on corporate websites is related positively to forecast accuracy, and negatively to the dispersion of analysts forecasts, suggesting that such disclosures provide useful information to analysts.     

Continuous reporting benefits in the private debt capital market

The study is an experiment, administered over the Internet, measuring the effect that continuous reporting has on a company's ability to secure private debt capital. Specifically, we test whether commercial loan officers would be more willing to increase the probablity of loan acceptance to a mid-sized company operating in a continuous reporting environment than they would a company that operates in a traditional reporting environment. We find that high risk companies providing financial information to the lender on a daily basis have a higher probability of loan acceptance than do companies providing financial information to the lender on a quarterly basis. We did not find any results for low risk companies, suggesting the potential benefits of continuous reporting might not accrue to those type companies. The results were robust for both new and existing banking relationship scenarios. We did not find any results for the interest rate variable. The results of this study have significant implications for companies determined to be high risk. Commercial loans are the life-support for many companies, and failure to secure a line-of-credit could have devastating consequences for these high-risk companies.     

Financial reporting on the Internet by 2010: a consensus view

This paper reports the final results of a Delphi study into corporate financial reporting by 2010. Twenty UK experts in accounting and the Internet representing academics, auditors, regulators, reporting companies and users participated in the study. A three-dimensional conceptual framework was adopted consisting of the role of the Internet (i.e. problem solver or problem creator), the determinant of change (technological determinism, non-technological determinism or contingency perspective), and the pace of change (conservatism, gradualism or radicalism). The consensus view was that the financial reporting package would evolve into a core of general purpose, standardised information (in both the hard copy and Internet version) together with a non-core of general purpose and customised information. Radical changes suggested by prior studies such as real-time reporting and disclosure of raw data will not occur, at least to the core package. Auditors will be reactive and cautious, and regulators will adopt a minimalist approach. The fundamental dilemma of financial reporting in the Internet environment will be between standardisation and customisation.     

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.     

Environmental Disclosure and the Cost of Equity: The French Case

What is the impact of voluntary corporate environmental disclosures on the cost of equity? The present study will attempt to answer this question. The empirical research is based on companies listed in the French SBF 120 stock market index. In 2006, most of these companies devoted a section of their annual report to environmental actions, yet fewer than 20% of them actually published a separate report dedicated to the issue of sustainable development. Regardless of the selected medium, the environmental topics receiving the most attention in corporate reporting are pollution, natural resources and recycling. The determinants associated with environmental disclosure are: company size, financial leverage, and the number of financial analysts monitoring company stock. This study does not lead to concluding that companies disclosing environmental information necessarily lower the cost of equity.     

Mandatory Environmental Disclosures by Companies Complying with IASs/IFRSs: The Cases of France,Germany, and the UK

This study investigates whether the adoption of a single set of accounting standards, such as IASs/IFRSs, guarantees the harmonization of accounting practices within a country and across countries, or whether differences in reporting practices persist because of dissimilarities in reporting habits and institutional settings. To this end, we investigate whether the level of environmental disclosure under IFRSs is related to the size of the reporting firm, and the strength of legal and regulatory constraints on environmental disclosures in the country where the firm is domiciled. Results indicate (1) that environmental disclosures imposed by IFRSs increase with firm size, and (2) that firms domiciled in countries with constraining environmental disclosure regulations (i.e., France and the UK) report more on environmental issues than firms domiciled in countries with weakly constraining regulations (i.e., Germany). This suggests a strong impact of national regulations on IFRS reporting. Taken as a whole, our results support the view that IFRSs are not applied consistently across firms and across countries, notably because of persistence of reporting traditions and discrepancies in national legal requirements.     

Sustainability Risk Disclosure Practices of Listed Companies in Australia

This paper investigates the extent to which the top 100 ASX listed companies disclosed economic, environmental and social sustainability risk factors during the 2014/15 financial year in light of the changes introducing Recommendation 7.4 to the third edition of the Corporate Governance Principles and Recommendations in 2014. While all companies complied with the Recommendation, questions of substance over form were raised because some companies had risks that were not disclosed according to Recommendation 7.4. Our conclusion outlines how this research contributes to the growing literature on sustainability and corporate governance. We add to the continuing debate on mandatory versus voluntary disclosures, advocating that Australia may need to introduce mandatory guidelines, beyond the ASX, to regulate the disclosure of material economic, environmental and social risks. Additionally, we conclude that Recommendation 7.4 is unlikely to substantially change Australian corporate reporting and disclosure practices – that, for most companies, it is ‘business as usual’. However, under business as usual, we can naturally expect to see further increases in sustainability and alternative reporting frameworks, such as integrated reporting, as well as increasing use of the Internet to report and disclose sustainability risks.     

Reporting accountant appointments and accounting restatements: Evidence from UK private companies

In recent years, regulators have exempted an increasing number of companies from the requirement to appoint auditors, yet little is known about the role of the accounting profession in preparing and validating the financial statements of unaudited companies. In this paper, we examine empirically the factors associated with the appointment of reporting accountants. We then provide novel evidence on whether unaudited UK small private companies are less likely to restate their annual accounts when they have been prepared by an external accountancy firm (i.e., a reporting accountant). Based on a cross sectional analysis of a large sample of small private unaudited UK companies, we find that, in accordance with the ‘confirmation hypothesis’, larger companies that voluntarily disclose more financial information are more likely to appoint a reporting accountant. We also find that the accounts of companies with a reporting accountant are significantly less likely to be restated than those without. This result is more pronounced for companies disclosing more financial information and for those employing a larger accounting firm. Given the dwindling number of private companies opting for audits, our findings contribute to debates on the role of the accounting profession in enhancing private company financial reporting quality.     

Determinants and features of voluntary disclosure in the Chinese stock market

This paper offers in-depth analysis of the determinants and features of voluntary disclosure based on information in the annual reports of 1066 Chinese firms listed on the Shanghai and Shenzhen Stock Exchanges. This extensive sample represents about 80% of all public companies in China. Our findings suggest that voluntary disclosure in China is positively related to firm size, leverage, assets-in-place, and return on equity and is negatively related to auditor type and the level of maturity or sophistication of the intermediary and legal environments. We also find some evidence to suggest a quadratic convex association between state ownership and voluntary disclosure. However, our analysis provides no evidence that extensive disclosure benefits public companies in China in the form of a lower cost of equity.     

VOLUNTARY DISCLOSURE OF FINANCIAL SEGMENT DATA: NEW ZEALAND EVIDENCE

This paper reports on the voluntary financial disclosure of segment data by New Zealand companies and relates the extent of quantified segment disclosure to firm-specific characteristics. The extent of voluntary segment disclosure varies across a sample of 29 firms listed on the New Zealand Stock Exchange. The extent of quantified segment disclosure is significantly related to firm size, financial leverage, but not to assets in place, earnings volatility or a the importance of foreign funding to the firm.     

Public companies' cybersecurity risk disclosures

Though cybersecurity risks are significant and could materially affect business operations and the integrity of financial reporting, there is limited empirical research on the cybersecurity risk disclosure trends and practices of public companies. In this study, we conduct a longitudinal study of the content and linguistic characteristics of public companies' cybersecurity risk disclosure practices as well as factors that may drive disclosure trends. The results show that the two most commonly disclosed cybersecurity risks are risks of service/operation disruption and risks of data breach. Item 1A of the 10-K Report is the most commonly used disclosure location, but some companies also use Items 1 and 7 to disclose regulation risks and cyber incidents, respectively. The length of cybersecurity risk disclosures increases linearly during the period of our study. This increase is associated with the issuance of SEC guidance (2011 and 2018), industry, overall cybersecurity risks in the general environment, company size, and prior cybersecurity breach incidents. Disclosures have also become more difficult to read in general. They are more difficult to read as firm size increases and are easier to read as the proportion of intangible assets increases or after an executive change. Firms have increased their usage of litigious words in their disclosures. Bigger firms, on average, tend to use less litigious language, but companies in industries with high business information technology intensity (e.g., consumer services, software and services, and banking) tend to use more litigious language than other companies.     

Disclosure Of Audit Committees by Public Companies in Australia 1988–1990

The existence of audit committees in public companies can improve the quality of the financial reporting process, aid the actual and perceived independence of both the internal and external auditors, and improve financial statement users' confidence in the quality of the information. These benefits will be enhanced by disclosure of audit committees in the financial statements. This study examined the incidence and form of the disclosure of audit committees in annual reports by major Australian public companies over the period 1988–1990. The results showed that disclosures by larger companies increased during this time. Rates of disclosure varied considerably depending on the auditor and was positively associated with the size of the organisation. Companies with audit committees are encouraged to consider enhanced methods of disclosure such as those outlined in AUP 31 Communication with an Audit Committee.     

Underlying Problems in Discounted Cash Flow Appraisal

This paper analyses the environmental disclosure practices of Australian corporate entities. The paper documents three separate but related investigations. First, in a review of a sample of annual reports for the 1991 financial year, it is apparent that environmental disclosure practices adopted by the sample are self-laudatory, with companies promoting positive aspects of their environmental performance, but failing to disclose negative aspects. Second, in a review of corporate disclosure practices in the period 1980 to 1991, environmental disclosure made by the sample significantly increases across time. This change is linked to an apparent increase in societal concern relating to environmental issues. Finally, using a questionnaire administered to environmental lobby groups, it appears that the extent of corporate environmental disclosure is positively associated with the environmental lobby groups' concern about the environmental performance of companies within particular industries.     

Fraudulent financial reporting in China: Evidence from corporate renaming

Using a sample of listed Chinese companies during 2010–2019, we examine whether corporate renaming is associated with fraudulent financial reporting. We find that companies that change their corporate names without making underlying changes to business fundamentals are more likely to commit financial reporting fraud. The positive association between corporate renaming and financial reporting fraud is more pronounced for non-state-owned enterprises and companies with a lower ownership concentration. There is further evidence that corporate renaming is more likely to be associated with disclosure-related fraud (e.g., failure to disclose or delayed disclosure) and that the likelihood of fraudulent behavior increases with the frequency of corporate renaming. Overall, the findings of this study provide evidence of a new red flag for regulators and investors investigating financial fraud. This study is timely and has policy implications for market regulators hoping to establish and improve emerging capital markets in which the information environment is generally considered weak and opaque.     

上市公司舞弊性财务报告及其防范与监管——基于中国证券监督委员会处罚公告的分析

舞弊性财务报告是全世界经济社会和会计职业界关注的重大问题。我国目前也面临其挑战。本文以中国证券监督委员会2002—2006年处罚公告中涉及的上市公司舞弊性财务报告为依据,对我国上市公司舞弊性财务报告的主要类型、手段等进行了统计分析。分析发现,舞弊公司表外舞弊严重,所占比重大;同时存在多种舞弊类型,典型的是虚假利润表和虚假披露;虚构销售业务、虚增资产、隐瞒对外担保分别成为虚假利润表、虚假资产负债表和虚假披露的最主要舞弊手段;舞弊公司同时采用多种舞弊方法,且舞弊行为持续年限在两年以上,最长的达9年。本文最后提出了相应的防范与监管建议。     

Stock price crash risk and internal control weakness: presence vs. disclosure effect

This study examines the stock price crash risk for a sample of firms that disclosed internal control weaknesses (ICW) under Section 404 of the Sarbanes‐Oxley Act (SOX). We find that in the year prior to the initial disclosures, ICW firms are more crash‐prone than firms with effective internal controls. This positive relation is more pronounced when weakness problems are associated with a firm's financial reporting process. More importantly, we find that stock price crash risk reduces significantly after the disclosures of ICWs, despite the disclosure itself signalling bad news. The above results hold after controlling for various firm‐specific determinants of crash risk and ICWs. Using an ICW disclosure as a natural experiment, our study attempts to isolate the presence effect of undisclosed ICWs from the initial disclosure effect of internal control weakness on stock price crash risk. In so doing, we provide more direct evidence on the causal relation between the quality of financial reporting and stock price crash risk.     

Information asymmetry,corporate disclosure,and the capital markets: A review of the empirical disclosure literature

Financial reporting and disclosure are potentially important means for management to communicate firm performance and governance to outside investors. We provide a framework for analyzing managers’ reporting and disclosure decisions in a capital markets setting, and identify key research questions. We then review current empirical research on disclosure regulation, information intermediaries, and the determinants and economic consequences of corporate disclosure. Our survey concludes that current research has generated a number of useful insights. We identify many fundamental questions that remain unanswered, and changes in the economic environment that raise new questions for research.