The disclosure policy of the firm in an efficient market

This study analyzes the information content of the financial reports of the management-controlled firm in an efficient market. The firm's disclosure fulfills two roles: it is the basis of the principal-agent contract—stewardship role, and it is an input to the market price informativeness (decision making) role. Optimal disclosure is derived as the outcome of the firm's owner-manager-potential buyer game. The seller and the buyer maintain principal-agent relationships with the manager, who alone observes verifiable and unverifiable information on the value of the firm. The market's price of the firm, as well as the manager's compensation, depend on the firm's reports. The firm's owner directs the manager to report verifiable information, at least, (due to the threat of coalition forming) and stewardship information, at most. The market's reaction to the financial reports depends on the information available to the market prior to their release.     

The response of Australian firms to AASB 138 disallowing the recognition of internally generated identifiable intangibles

This paper responds to a call by the Australian Accounting Standards Board to investigate how Australian firms responded to a perceived loss of information pursuant to AASB 138 (IAS38) which mandated the de-recognition of previously recognised internally generated identifiable intangibles, from its effective date of 1 January 2005. We find that the sample firms did not choose to provide alternative or substitute disclosure elsewhere in their annual report or financial statements anytime during our sample period (2005–2010). Prima facie, this is surprising given prior evidence from the value relevance literature that disclosures relevant to the value of internally generated intangibles are correlated with firm value and presumably informative for investors. However, we caution against the drawing of simple conclusions that this finding implies alternative disclosure may not be valuable. Rather, it is important to understand the forces or frictions that contribute to this result. Schipper (The Accounting Review, 82, 2007, 301) and Skinner (Accounting and Business Research, 38, 2008, 191) offer valuable insights into the potential issues such as the costs of alternative disclosure including proprietary costs of disclosing competitive information and, the lower credibility of financial disclosures outside of audited financial statements. These are important considerations in the on-going standard-setting debate on recognition versus disclosure of value relevant information on intangible assets.     

XBRL财务报告分类标准评价——基于财务报告分类与公司偏好的报告实务的匹配性研究

XBRL是网络财务报告向高级阶段发展的技术基础,可以改进信息的编报和使用。然而,XBRL财务报告生成和应用的一个关键问题是采用的财务报告分类与公司偏好的报告实务间能否很好的匹配,匹配性差将导致信息损失。本文仅针对财务报表附注项目,将12个行业117个上市公司2005年年报中披露的项目与上交所制定的《中国上市公司信息披露分类》标准中定义的相应标记匹配,发现二者间存在着较大的差异,并且行业间的差异不显著。我们认为XBRL网络财务报告目前还不适宜全面应用,当务之急是进一步修改完善分类标准。     

Earnings conference calls and stock returns: The incremental informativeness of textual tone

Quarterly earnings conference calls are becoming a more pervasive tool for corporate disclosure. However, the extent to which the market embeds information contained in the tone (i.e. sentiment) of conference call wording is unknown. Using computer aided content analysis, we examine the incremental informativeness of quarterly earnings conference calls and the corresponding market reaction. We find that conference call linguistic tone is a significant predictor of abnormal returns and trading volume. Furthermore, conference call tone dominates earnings surprises over the 60 trading days following the call. The question and answer portion of the call has incremental explanatory power for the post-earnings-announcement drift and this significance is primarily concentrated in firms that do not pay dividends, illustrating differences in investor behavior based on the level of cash flow uncertainty. Additionally, we find that a context specific linguistic dictionary is more powerful than a more widely used general dictionary (Harvard IV-4 Psychosocial).     

Information Disclosure to Employees and Rational Expectations: A Game-Theoretical Perspective

This paper analyses the voluntary disclosure strategies of a privately informed firm manager when the information is relevant to both a financial market for valuation purposes and a union for wage bargaining purposes. Disclosure of favourable information may adversely affect the terms under which the firm can secure the required flow of labour and may thus lead to a decrease in the firm's market value. The paper shows that both a full-disclosure and a nondisclosure equilibrium may exist, which contradicts an earlier analysis of the issue made by Pope and Peel (1981).     

The accounting treatment of intangibles – A critical review of the literature

Intangible investments have become the main value creators for many companies and economic sectors. However, these investments are rarely recognized as assets by current accounting standards. We provide a critical review of the literature on the consequences of this lack of accounting recognition of intangibles for the value-relevance of financial information, resource allocation in the capital market, growth of intangible investments, and the firm's market value. We then review recent empirical research on voluntary disclosure of information on intangibles. Our survey concludes that disclosure can considered as a solution to the negative consequences of non-recognition of intangibles in financial statements.     

Disclosure strategies among S&P 500 firms: Evidence on the disclosure of non-GAAP financial measures and financial statements in earnings press releases

This paper examines the prominence of non-GAAP financial measures in press releases, testing whether managers emphasize these adjusted performance measures relative to GAAP numbers in four different settings where their disclosure helps managers reach strategic earnings benchmarks on a pro forma basis when they would otherwise fall short using GAAP numbers. Moreover, this research investigates the information content of disclosures reconciling non-GAAP to GAAP earnings (and other financial statements). The data is hand collected from quarterly earnings press releases of a sample of S&P 500 firms during the 2001–2003 period. In this particular sample, the disclosure of non-GAAP financial measures is frequent. The results suggest that managers strategically give more prominence to non-GAAP measures than to GAAP figures when the GAAP earnings number falls short of a benchmark but the non-GAAP earnings number does not. This disclosure strategy may influence the perception of the firm's financial results. Furthermore, the results suggest that both the reconciliation and the non-GAAP income statement contain information useful for users.     

A Cognitive Theory of Corporate Disclosures

I analyze how disclosure policies and managerial cognitive abilities interact to influence stock prices, firm values, and the liquidity of financial markets. High cognitive ability assists in value-creation within private corporations, but also may enhance the success odds of strategies which mislead large numbers of financial market agents who have access to firms' disclosure statements. Thus, the equilibrium degree of misrepresentation in disclosures can increase with managerial cognitive capacity (or intellect). Equilibrium efforts at improving true expected values of firms are limited by expected gains from misrepresentation. I argue that agents may face very high costs of acquiring information in firms run by managers who are effective at misrepresenting their firms in disclosure statements. This indicates that contrary to extant theoretical literature, there may be a positive relation between liquidity and the degree of information asymmetry between management and outside investors.     

Voluntary Disclosure of Information in a Setting in which Endowment of Information has Productive Value

Abstract:  This paper introduces a model capturing managers' disclosure policies in settings in which disclosure is rewarded by the financial market because disclosure implies that managers are endowed with information and endowment of information may potentially improve the firm's productive efficiency. It provides sufficient condition for a threshold disclosure equilibrium to obtain and compares disclosure policies in a setting in which endowment of information improves the firm's productive efficiency with disclosure policies in a setting in which endowment of information has no impact on the firm's productive efficiency. Managers' disclosure policies are shown to depend crucially on whether the endowment of information is exogenous or endogenous. When the endowment of information is exogenous, an increase in the usefulness of information in improving the firm's productive efficiency leads to a decrease in the disclosure threshold and hence an increase in the amount of information disclosed. In contrast, when the endowment of information is endogenous, an increase in the usefulness of information in improving the firm's productive efficiency has no effect on the disclosure threshold but leads to a decrease in the probability with which information is acquired and hence a decrease in the amount of information disclosed. As, in the threshold disclosure equilibrium, the net present value of information acquisition arising from any increase in production efficiency is negative, an increase in the usefulness of information in improving the firm's productive efficiency thus reduces the inefficiency caused by information acquisition.     

An investigation of SEC “Speech GAAP”

This study investigates the financial reporting regulation effects of the Securities and Exchange Commission (SEC) staff comments made during the American Institute of Certified Public Accountants (AICPA) Annual Current SEC & Public Company Oversight Board (PCAOB) Developments Conference in Washington, D.C. (SEC Conference). At this conference, the SEC staff communicates its preferences about areas where it believes companies are misapplying GAAP (Generally Accepted Accounting Principles). We call this communication SEC Speech GAAP. One outcome of the SEC Conference may be that companies re-evaluate their previous financial reporting by restating their financial statements. We find, first, that firms with restatement issues similar to those covered at the SEC Conference experience a decrease in the association between earnings and future cash flows after the restatement. Second, we find little market reaction to the disclosure of restatements related to SEC Conference issues, but the disclosure of non-conference related restatement issues has a significantly negative affect on investors’ valuation decisions. Our findings suggest that SEC Speech GAAP is associated with financial statements that are less informative to investors and investors find the valuation consequences of restatements prompted by SEC Speech GAAP to be less important than the valuation consequences for restatements prompted for other reasons.     

Why regulate private firm disclosure and auditing?

Private firms face differing financial disclosure and auditing regulations around the world. In the US and Canada, for example, private firms are generally neither required to disclose their financial results nor have their financial statements audited. By contrast, many firms with limited liability in most other countries are required to file at least some financial information publicly and are also required to have their financial statements audited. This paper discusses and analyzes the reasons for differential financial reporting regulation of private firms. We first discuss various definitions of a private firm. Next, we examine theoretical arguments for regulating the financial reporting of these firms, particularly related to public disclosure and auditing. We then provide new survey-based evidence of firms’ and standard setters’ views of regulation. We conclude by identifying future research opportunities.     

表外披露性质解读及其启示:剩余控制权视角

本文从剩余控制权视角对表外披露进行解读:从信息生产和提供来看,经营者会计信息的剩余控制权更多地体现在表外披露信息上;从市场监管来看,表外披露规定体现了各国证券监管机构对证券市场的剩余监管权。这对理解现行财务报告模式及其发展有重要的意义。     

Information Quality of Interim Financial Statements

Expressing concern about the Canadian capital market environment, Boritz (2006) suggested that the accounting and auditing profession may be paying limited attention to quarterly reports. This study investigates whether fourth‐quarter adjustments are significantly different from the previous three, thereby limiting the reliability or faithful representation of the firms' results for each quarter. This study includes four years (2003–2006) of quarterly financial information of 353 Canadian public companies. Our results indicate that the volatility of net income in each of the first three quarters is considerably lower than in the final quarter. While lower volatility can improve predictability, the resulting relevance may be limited. The low volatility of reported earnings in the first three quarters suggests that either earnings management is taking place or that management may not be exercising sufficient care at the end of each of the first three quarters on the measurements that generally accepted accounting principles call for and readers of financial statements expect. This could result in quarterly financial statements that do not faithfully represent the underlying resources and obligations of the reporting firms at the end of the quarter, or the firm's performance during the quarter. Our findings support Boritz's proposition for increased audit requirements for interim reports and changes in the approach to the annual audit to integrate it more closely with interim financial reporting.     

Board interlocks and the diffusion of disclosure policy

We examine whether board connections through shared directors influence firm disclosure policies. To overcome endogeneity challenges, we focus on an event that represents a significant change in firm disclosure policy: the cessation of quarterly earnings guidance. Our research design allows us to exploit the timing of director interlocks and therefore differentiate the director interlock effect on disclosure policy contagion from alternative explanations, such as endogenous director-firm matching or strategic board stacking. We find that firms are more likely to stop providing quarterly earnings guidance if they share directors with previous guidance stoppers. We also find that director-specific experience from prior guidance cessations matters for disclosure policy contagion. The positive effect of interlocked directors on the likelihood of quarterly earnings guidance cessation is particularly strong for firms with interlocked directors who experienced positive outcomes from prior guidance cessation decisions. Overall, our evidence is consistent with interlocked directors serving as conduits for information sharing that leads to the spread of corporate disclosure policies.     

Good disclosure doesn't cure bad accounting—Or does it?: Evaluating the case for SFAS 158

This paper investigates whether the newly required recognition of the funded status of defined benefit (DB) plans under SFAS 158 is incrementally value relevant in its adoption year (2006) relative to the corresponding amounts which were previously disclosed from both equity investor and credit rating perspectives. In equity valuation models, we use a sample of 878 firms (1756 firm years) offering DB plans in 2005 (disclosure year) and 2006 (recognition year), and find no incrementally significant association with market prices of newly recognized amounts under SFAS 158 over the same information that was disclosed pre-SFAS 158. Our credit rating tests, using a sample of 428 DB firms (856 firm years) for 2005 and 2006 also show no differential impact of recognition over disclosure. Overall, we find that equity investors price the SFAS 158-imposed pension differential while credit rating agencies do not, regardless of whether such information is recognized or disclosed in the financial statements. Our results are consistent with efficiency in both equity and credit markets with respect to pension information and suggest that SFAS 158 has not changed the way market participants in aggregate use pension-related financial statement information.     

CAPITALIZATION OF INTEREST, MATERIALITY JUDGMENT DIVERGENCE AND USERS'INFORMATION NEEDS

A review of the international literature surrounding the concept of materiality yields no existing standards, no consensus of opinions, and little consistency of judgments. This study examines the initial application by auditors in the United States of SFAS No. 34 to comparative financial statements. The study finds that, relative to net income or net plant, the amount of capitalized interest judged to be material covers the same range of values as the amount judged to be immaterial. Such overlap suggests that the basis for disclosure or nondisclosure is not at all clear and that comparison of one firm's results with another may be hampered. The suggestion is made that the most immediate solution to this problem is disclosure and communication of the materiality guidelines used by the preparer of the (inancia1 statements.     

Investment Opportunity Set and Voluntary Disclosure of Prospective Information: A Simultaneous Equations Approach

Abstract:   This paper examines empirically the relationship between the level of disclosure of prospective information and the investment opportunity set for firms in New Zealand. Using a systems (two‐stage least squares) approach that explicitly controls for potential endogeneity between disclosure and IOS, we find that the level of prospective information disclosure is significantly and positively related to IOS in both specifications in our simultaneous analysis. Further, we document that prospective information disclosure is positively related to firm size and new security offerings, and is not related to inside ownership and firm profitability. IOS is positively impacted by a firm's investments in fixed assets and its profitability. Finally, we find that forward looking disclosure levels are positively related to the proportion of outside directors on the board and negatively related to barriers to entry, but these findings are not robust across alternative model specifications.     

Bringing the Future Forward: The Effect of Disclosure on the Returns-Earnings Relation

This paper studies how firm disclosure activity affects the relation between current annual stock returns, contemporaneous annual earnings and future earnings. Our results show that firms with relatively more informative disclosures "bring the future forward" so that current returns reflect more future earnings news. We also find that changes in disclosure activity are positively related to changes in the importance of future earnings news for current returns. These results suggest that a firm's disclosure activity reveals credible, relevant information not in current earnings, and that this information is incorporated into the current stock price.     

企业集团财务信息的充分披露

信息需求者在需要关于企业集团整体财务信息的同时,也同样需要多样化的其他方面的财务信息,以满足决策的需要。本文认为,企业集团财务信息需求的多样化表现在许多方面,其中以对特殊行业子公司财务信息和母公司本身财务信息方面的需要表现得最为突出。本文对特殊行业子公司纳入合并范围带来的问题进行了分析,并指出应当披露企业集团中特殊行业子公司的财务信息;同时,本文对母公司财务报表披露的必要性和披露方式进行了分析讨论。     

IFRS adoption and analysts’ earnings forecasts: Australian evidence

We study 145 large listed Australian firms to explore the impact of international financial reporting standards (IFRS) adoption on the properties of analysts’ forecasts and the role of firm disclosure about IFRS impact. We find that analyst forecast accuracy improves, and there is no significant change in dispersion in the adoption year, suggesting that analysts coped effectively with transition to IFRS. However, we do not observe the expected relationship between firms’ IFRS impact disclosures in their financial statements issued at the end of the transition year with forecast error and dispersion in the adoption year. The results question the timeliness and usefulness of financial statement disclosure, even in a setting where disclosure was mandated by accounting standards (AASB 1047 and AASB 1) and firms had strong incentives to provide information to analysts.