Accruals quality vis-à-vis disclosure quality: Substitutes or complements?

The impact of accruals quality and disclosure quality on stock returns is a topical issue in market-based accounting research. Most of the debate is centred on their incremental ability to predict future earnings. Recent studies suggest that higher information risk proxied by either lower accruals quality or lower disclosure quality results in higher stock returns. This paper examines the relationship between accruals quality and disclosure quality, and investigates whether they are complements or substitutes in explaining the time-series variation in portfolio returns. Applying portfolio groupings, we find a positive association between accruals quality and disclosure quality, suggesting that firms with higher disclosure quality engage less in earnings management and have higher accruals quality. Asset pricing tests show that an accruals quality factor and a disclosure quality factor explain the time-series variation in the excess returns of similar sets of portfolios. This suggests that they contain similar information and confirms the substitutive nature of accruals quality and disclosure quality factors.     

The extent of corporate governance disclosure and its determinants in a developing market: The case of Egypt

This paper assesses the extent of corporate governance voluntary disclosure and the impact of a comprehensive set of corporate governance (CG) attributes (board composition, board size, CEO duality, director ownership, blockholder ownership and the existence of audit committee) on the extent of corporate governance voluntary disclosure in Egypt. The measurement of disclosure is based on published data created from a checklist developed by the United Nations, which was gathered from a manual review of financial statements and websites of a sample of Egyptian companies listed on Egyptian Stock Exchange (EGX). Although the levels of CG disclosure are found to be minimal, disclosure is high for items that are mandatory under the Egyptian Accounting Standards (EASs). The failure of companies to disclose such information clearly shows some ineffectiveness and inadequacy in the regulatory framework in Egypt. Moreover, the phenomenon of non-compliance may also be attributed to socio-economic factors in Egypt. Therefore, it is expected that Egyptian firms will take a long time to appraise the payback of increased CG disclosure. The findings indicate that that—ceteris paribus—the extent of CG disclosure is (1) lower for companies with duality in position and higher ownership concentration as measured by blockholder ownership; and (2) increases with the proportion of independent directors on the board and firm size. The results of the study support theoretical arguments that companies disclose corporate governance information in order to reduce information asymmetry and agency costs and to improve investor confidence in the reported accounting information. The empirical evidence from this study enhances the understanding of the corporate governance disclosure environment in Egypt as one of the emerging markets in the Middle East.     

An empirical study of the determinants of UK oil and gas voluntary disclosures

Significant oil and gas firm market value is derived from their physical reserve quantum, assets which are not recorded on their statements of financial position. This article provides empirical evidence regarding voluntary disclosure of such reserves in line with the previously unresearched UK sector with regard to its unique reporting guidelines. The study considers both the reporting of the reserve quantum and the quality of that reporting. This article seeks to inform the International Accounting Standards Board’s (IASB’s) on-going consideration of mineral resource reporting. Listed companies are considered to evidence forms of reserve disclosure with a logistical regression approach applied to measure determinants of reporting. The risk associated with mineral reporting reserves is hypothesized as the key disclosure driver whilst controlling other relevant variables. The majority of firms disclosed reserve quantities in some form but only a minority disclosed in line with recommended practice, disclosure quality being more variable between companies. The findings indicate that a voluntary disclosure approach is ineffective, partially explained by agency related behaviour. Risk, proxied by the stage of production, drives reserve disclosure showing that producer firms are more likely to disclose reserve quantum balances and of a significantly higher quality.     

Disclosure quality vis-à-vis disclosure quantity: Does audit committee matter in Omani financial institutions?

Review of Quantitative Finance and Accounting - We examine the impact of audit committee (AC) characteristics (e.g. AC foreign members, AC female members, AC members with multiple directorships, AC...     

Voluntary forward-looking statements driven by corporate governance and their value relevance

This paper examines the impact of corporate governance on the level of voluntary disclosures of forward-looking statements in the narrative sections of annual reports. It also examines whether the forward-looking statements that are driven by governance are informative about future earnings. This analysis is drawn from a large-scale sample of UK FTSE All-Share companies for financial years ending within the period January 1996–December 2007. We find that corporate governance influences companies’ decisions to voluntarily disclose these statements. The main drivers are directors’ ownership, board size, board composition, and the duality of the CEO’s role. These results suggest that better corporate governance improves reporting practice. We further find that the forward-looking statements of well governed firms improve the stock market’s ability to anticipate future earnings. Our findings have important implications for policy makers and regulators because they confirm that the effectiveness of corporate governance in the practice of disclosure is a function of certain characteristics and that the voluntary forward-looking statements of well governed firms contain value relevant information for investors.     

Corporate governance and financing decisions by Saudi companies

This paper aims to contribute to the corporate governance literature in emerging economies by examining the effect of some corporate governance mechanisms on financing decisions in Saudi Arabian listed companies. A multiple regression model is used to examine the association between financing decisions and corporate governance mechanisms for a sample of 37 listed Saudi companies. In particular, we examine the effect of board size, ownership concentration and corporate governance reporting on the debt-to-equity ratio. Corporate governance reporting is measured by the content analysis approach. After controlling for companies＇ profitability and their growth opportunities, we found that both board size and ownership concentration are positively associated with debt-to-equity ratio. We limit our analysis to a small sample of firms that use the internet to communicate corporate governance information between October 2005 and January 2006. The findings suggest that managers are likely to choose higher financial leverage when they have stronger corporate governance （large number of directors on the board and higher ownership concentration）. However, we did not find any statistical association between corporate governance disclosure and debt-to-equity ratio. This suggests that firm＇s asymmetric information is not an important driver of the financing decision of Saudi Arabian companies. This might be due to the nature of the Saudi business environment. We strongly believe that this paper provides a novel contribution to the existing literature as we are the first to examine this issue in Saudi Arabia.     

Determinants and value relevance of UK CEO pay slice

This paper studies the CEO pay slice (CPS) of UK listed firms during the period 2003 to 2009. We investigate the determinants of CPS. We study the links between CPS and measures of firm performance. We find that firms with higher levels of corporate governance ratings and those with more independent boards tend to have higher CPS. In addition, we find that CEOs are more likely to receive lower compensation when they chair the board and when they work in firms with large board size. We also find that higher CPS is positively associated with firm performance after controlling for the firm-specific characteristics and corporate governance variables. We get compatible results when we examine the association between equity-based CPS and firm performance. Our results remain robust to alternative accounting measures of firm performance. Our results suggest that high UK CPS levels do indeed reflect top managerial talent rather than managerial power.     

The board's role in risk disclosure: an exploratory study of Italian listed state-owned enterprises

The determinants of risk disclosure in the annual reports of listed state-owned enterprises (SOEs) have yet to be fully explored. This paper examines the potential impact of the composition of the boards of directors and other company-specific features on risk disclosure levels. The presence of women on a board made a significant difference to risk disclosure, as did the age of board members. Board directors having an accounting or finance/business qualification affected risk disclosure negatively; company size and an internet visibility were positively related to risk disclosure. Although an Italian study, the lessons here will have application to academia and to practitioners, policy-makers and standard-setters worldwide.     

The substitutive relation between voluntary disclosure and corporate governance in their effects on firm performance

Review of Quantitative Finance and Accounting - Prior literature shows that financial disclosures and corporate governance both impact firm performance. This paper documents an important topic that...     

Understanding the Determinants of RiskMetrics/ISS Ratings of the Quality of UK Companies' Corporate Governance Practice

We examine the determinants of RiskMetrics/ISS Ratings of the quality of UK companies' corporate governance practice and investigate whether corporate governance mechanisms and firm specific characteristics affect these ratings. We also investigate the association between firms' financial distress and these ratings. Using data for nonfinancial Financial Times Stock Exchange (FTSE) 250 firms over the 2003 to 2009 period, we find that board independence, managerial ownership, institutional ownership, firm size, and profitability are associated with firms' corporate governance ratings. In addition, we find that more independent directors on the board, more institutional ownership, and larger size lead to a high level of board‐related ratings. Finally, we find no association between corporate governance ratings and financial distress. Copyright © 2012 ASAC. Published by John Wiley & Sons, Ltd.