Women on boards and greenhouse gas emission disclosures

We apply institutional and board capital theory to examine whether women on boards are associated with disclosure and quality of corporate greenhouse gas (GHG) emissions related reporting. We examine the research problem in Australia in a period when no requirements existed for listed companies to appoint female directors or to report GHG emissions. This environment allows us to examine the association between women on boards and GHG emissions related disclosure in annual and sustainability reports in a voluntary setting. We find that companies with multiple female directors make GHG emissions related disclosures that are of higher quality.     

Does preventive regulation reduce stock price synchronicity? Evidence from Chinese annual report comment letters

Based on a sample of Chinese A-share listed firms from 2015 to 2018, this paper studies the impact of annual report comment letters (ARCLs) on firm stock price synchronicity. We find that after firms receive ARCLs, their stock price synchronicity decreases. Moreover, the longer the ARCLs and the more negative the ARCLs’ tone, the lower the resulting stock price synchronicity. The mechanism test shows that after firms receive ARCLs, the firms’ information disclosure increases in quantity and quality, external media attention increases, and the firms’ governance improves, reducing their stock price synchronicity. Further research shows that this negative association is more significant in firms with higher information asymmetry. This paper shows that the ARCL, an innovative application of the capital market supervision philosophy, is conducive to improving the quality of listed firms and to the healthy development of the capital market.     

Inter-and intra-organizational stakeholder arrangements in carbon management accounting

This research investigates the role of inter-organizational arrangements and intra-organizational activities as sub-parts of carbon management accounting to reduce greenhouse gas (GHG) emissions. We apply the concept of stakeholder engagement, normally utilized in sustainability reporting, to carbon management accounting and performance. We also examine if carbon management projects that encompass many functional areas aid in GHG emissions performance. Using a sample of firms headquartered in the United States with data available from the CDP, we apply the three-stage least squares (3SLS) method to test for the endogeneity of GHG emissions reporting and performance. We find that both inter-organizational and intra-organizational arrangements improve GHG emissions performance through carbon management processes and procedures. Our research contributes to the literature by providing insight into how companies work externally with their stakeholders and internally with multiple functional areas to implement carbon management projects that reduce GHG emissions.     

Should earnings thresholds be used as delisting criteria in stock market?

In Chinese stock market, firms reporting two consecutive annual losses are subject to special treatment (ST), with further losses causing the firms’ stocks to be suspended from trading or to be delisted. We argue that these earnings-based delisting requirements are misconstrued. Such policies drive financially healthy firms out of stock market, and induce listed firms to engage in rampant earnings manipulation in order to avoid delisting. The results carry important public policy implications for securities market regulation.     

Halo effect or fallen angel effect? Firm value consequences of greenhouse gas emissions and reputation for corporate social responsibility

Greenhouse gas (GHG) emissions are perceived to have negative consequences for society at large by contributing to potential climate change and represent a potential cash drain from firms from exposure to future regulatory, abatement, and compliance costs. Beginning in 2010, US companies are required to report their GHG emissions to the Environmental Protection Agency (EPA). We utilize these data for 2010–2014 to examine whether the possible adverse firm value impact of these GHG emissions is alleviated or exacerbated by the firm’s reputation for corporate social responsibility. Our findings suggest that there is no halo effect, i.e., a firm’s reputation for social responsibility (as reflected in its CSR score) does not protect the firm from the adverse firm value effects of GHG emissions. Rather, our findings suggest a fallen angel effect, i.e., for any given level of GHG emissions, the higher the firm’s CSR score, the greater the adverse impact on firm value. In other words, the decline in firm value due to the adverse impact of GHG emissions is compounded by the hit to the firm’s reputation for corporate social performance. Our paper contributes to the sparse prior US literature on the firm value effects of GHG emissions. Further, by providing scholarly evidence on the existence of a fallen angel effect, our findings suggest that boards and managers of firms that provide voluntary CSR disclosures cannot afford to be complacent about their GHG emissions.     

Voluntary disclosure,greenhouse gas emissions and business performance: Assessing the first decade of reporting

This study explores the empirical relationships between GHG emissions and an extensive range of business performance measures for UK FTSE-350 listed firms over the first decade or so of such reporting. Despite the popular and policy generated environmental imperatives over this period—along with growing evidence of the corporate added-value of having an ‘environmental conscience’, voluntary disclosure of emissions has been slow to adopt by firms. The leading contribution is to present clear evidence of a non-linear relationship, initially increasing with firm performance and then decreasing. An extensive pattern of non-reporting of emissions is also observed over time, and prior literature has introduced questions of endogeneity existing between firm performance and emissions. Steps are taken to ensure confidence/robustness of the results to these concerns. Accordingly, a two-stage (Heckman-type) selection model is used to analyse the emissions-performance nexus conditional upon the firm choosing to report (i.e. treating the choice to report as being endogenously determined with firm performance). From this—in addition to confirming the robustness of the non-linear relationship—it can be observed that the decision to report emissions is not directly influenced by wider social/governance disclosure attitudes of a firm, thus suggesting that firms disassociate environmental responsibility from social responsibility.     

审计师更换时机对年报及时性和审计质量的影响

上市公司出于不同的动机,选择在不同的时间进行审计师更换,因而对年报的及时性和审计质量产生了不同影响。本研究发现,较晚更换审计师的上市公司,相对于较早更换审计师的上市公司,不仅其财务报告的及时性显著较差,而且审计质量也明显较低。     

Firm Value and the Quality of Sustainability Reporting in Australia

This paper investigates the relationship between firm value and the quality of Australian listed corporations’ sustainability reporting. We examine whether firms that make higher‐quality sustainability disclosures exhibit systematically higher equity prices, through either (or both) cost of capital or expected future performance effects. Using proprietary data obtained from a specialist responsible investment research firm, we document a significant negative association between quality sustainability reporting and the cost of equity capital for ASX 200 firms from 2003–2005, and a significant positive association between expected future performance and the quality of sustainability reporting. We also test for industry‐specific associations and find that our main results are driven heavily by the reporting behaviour of, and market response to, firms in environmentally sensitive industries.     

The effect of fair disclosure regulation on timeliness and informativeness of earnings announcements

This paper examines the effect of Korea’s fair disclosure regulation on the timeliness and informativeness of earnings announcements. The present regulation for Korean listed firms requires that if a company’s sales revenue, operating income (or loss) and net income (or loss) have changed by over 30% compared to the prior year, the firm must disclose this information through a preliminary financial report (PFR) even before the company is audited by external auditors. To analyze the effects of this policy, we first investigate the timeliness of preliminary financial report disclosures. We examine the extent to which Korean listed companies actually comply with the requirement for prompt notification of information concerning material changes in financial performance. Second, we investigate the informativeness of preliminary financial reports by analyzing differential stock market reactions to different timings of preliminary financial report disclosures. Our empirical results reveal that more than half of our sample firms release their preliminary financial reports after external audits are completed, thereby potentially invalidating the effectiveness of the regulation. In addition, we find that preliminary financial reports have information value only if they are disclosed prior to annual audit report dates. This finding supports the notion that timeliness increases the informativeness of preliminary financial report disclosure by curbing insiders’ ability to potentially profit from their information advantage.     

Corporate Social Responsibility,Tax Aggressiveness,and Firm Market Value

This paper examines the relationship of corporate social responsibility (CSR), tax aggressiveness, and firm market value. An economic model has been developed to show that profit‐maximization firms are willing to incur additional costs in CSR, such as paying more taxes, as long as they can differentiate their products from non‐CSR firms, and that socially conscious consumers will buy products from CSR firms at prices higher than those of non‐CSR firms. The empirical study in this paper indicates that the higher the CSR ranking of a firm, the less likely a firm is to engage in tax aggressiveness. It also indicates that a reputation of higher CSR will enhance firm market value. Using Canadian companies listed in the S&P/TSX 60 index, I find that both firms’ five‐year effective tax rates and annual effective tax rates are positively associated with their overall CSR scores as well as with their social scores. Firms’ five‐year effective tax rates are also positively associated with their governance index. I also find that firms’ overall CSR ranking and governance scores are positively associated with their market value.     

The quality of financial reporting in China: An examination from an accounting restatement perspective

This study uses restatements to reveal the poor quality of past accounting information reported within China’s capital market. We show that up to a quarter of listed firms in mainland China explicitly admitted the poor quality of their financial information by restating their previous financial reports between 1999 and 2005. Many of these firms managed their earnings mainly via below-the-line items to avoid losses and promote survival, rather than to support refinancing goals. Such poor-quality financial reporting is more likely among firms that have weaker profitability and a shareholder base that is state-controlled, with diffused ownership and a relatively low proportion of shares held by institutional investors. Furthermore, we find the market to be relatively insensitive to such admissions. Investors’ reactions capture only the earnings information of the current reported year, rather than also reflecting the concurrently revealed correction of past financial reporting. However, the equity market does not completely ignore the earnings information. Investors’ reliance on earnings is merely low relative to the mature US market. These findings demonstrate that accounting credibility in China has low value; providing poor-quality financial information bears little cost because various market mechanisms fail to deter such behavior. Nevertheless, regulators’ ongoing efforts to enhance the quality of financial information and disclosure among listed firms are still fruitful. The frequency of restatements decreased over our sample period, which reinforces the current regulatory prospects and strategies for further improving China’s capital markets.     

The spillover effect of disclosure rules and materiality thresholds: Evidence from profit warnings issued in Hong Kong market

Dual-listed firms simultaneously follow the relevant rules in their home country and in their cross-listed country. In contrast, other firms only listed in the cross-listed country are only subject to the local regulations. Previous literature has found evidence that cross-listing can improve firms’ information transparency because of more stringent listing rules in the cross-listed country. The existing research, however, has not paid enough attention to the potential influence of dual-listed firms and their home country institutional factors (e.g. unique disclosure policies) on other firms only listed in the cross-listed country (i.e. spillover effect). In the Hong Kong market, Chinese dual-listed firms are under the mandatory profit warning regulation of mainland China, but other firms listed only in Hong Kong only need to follow the voluntary disclosure rule of the Hong Kong Stock Exchange. Such a setting provides us with the opportunity to investigate a spillover effect, i.e. whether these Chinese dual-listed firms influence their peers only listed in Hong Kong to release profit warnings. We find that firms only listed in Hong Kong are more likely to issue profit warnings if their Chinese dual-listed peers have also issued warnings. We further find that this spillover effect increases with the market capitalization of Chinese dual-listed firms and increases with the market share of these firms before they dominate the industry. Lastly, due to an underlying duty to disclose material information in Hong Kong, the spillover effect is weaker for firms with large earnings surprises.     

Intellectual Capital Reporting Practices of the Top Australian Firms

Using content analysis of annual reports of the top 20 firms (by market capitalisation) listed on the Australian stock exchange in 2004, this paper describes the state of intellectual capital reporting practices in Australia. The paper also compares the results with a previous Australian study by Guthrie and Petty (2000) and reconfirms that reporting of intellectual capital is yet to be done within a consistent framework. Although most of the reporting was done through qualitative, rather than quantitative, statements, an encouraging shift towards quantitative reporting is evident.     

Voluntary Adoption of the IFRS and Industry-Level Comparability: Evidence from Korean Unlisted Firms

This study examines the role of industry-level comparability with regard to voluntary adoption of the international financial reporting standards (IFRS) by unlisted firms in Korea. Mandatory adoption of the IFRS for listed firms in 2011 inhibits financial statement comparability between listed and unlisted firms. Our empirical findings reveal that unlisted firms in industries with higher ratios of listed firms tend to adopt the IFRS voluntarily. After this adoption, such unlisted firms seem to attract greater investment in the public debt market.     

Carbon disclosure,emission intensity and cost of equity capital: multi-country evidence

This study examines the joint effect of carbon disclosure and greenhouse gas (GHG) emissions on firms’ implied cost of equity capital (COC). Based on 4655 firm-year observations across 34 countries, we find firms’ GHG emission intensity to be positively associated with COC. However, we find also that the penalty linked with higher COC is moderated by extensive carbon disclosure. We provide evidence that the extent of carbon disclosure helps reduce the premium required by investors to compensate for poor carbon performance. Our study provides insights to policymakers, investors and managers on the combined effect of carbon disclosure, and emission intensity.     

Financial controller turnover: An early warning sign of deteriorating financial reporting quality

This study examines the relation between financial controller turnover and public firms’ financial reporting quality. Exploiting a special institutional setting in China, where financial controllers along with CEOs and CFOs are required to attest to the accuracy and completeness of firms’ annual reports, we find that: (a) financial controller turnover is negatively associated with financial reporting quality, (b) the negative relation between financial controller turnover and financial reporting quality is more pronounced in non-state-owned enterprises, in firms with weaker corporate governance, and in areas with higher regulatory enforcement intensity, and (c) financial controller turnover is not related to real earnings management. Further analyses show that financial controller turnover is associated with the incidence of subsequent financial report restatements and enforcement actions by the China Securities Regulatory Commission (CSRC). Financial controller turnover also precedes top executive turnover and can be viewed as an early warning sign of deteriorating financial reporting quality. Such information content is incremental to that of top executive turnover. Our analyses also show that firms with financial controller turnover have higher initial stock returns but underperform their counterparts in the long run.     

The Informational Role of Short Sellers: The Evidence from Short Sellers’ Reports on US‐Listed Chinese Firms

Using US‐listed Chinese firms as the setting, this paper studies a novel channel through which investors can acquire information about firms’ financial reporting quality, that is, the reports published voluntarily by short sellers. I find that short sellers tend to target firms that have financial reporting red flags and that exhibit ‘good’ operating performance and stock valuations. Targeted firms experience an average three‐day cumulative abnormal return (CAR) of ?6.4%, and ?13.6% for initial coverage of the firm, and the CARs are more negative when the reports allege more severe misconduct of the firms. Non‐targeted firms also experience losses in value following short seller reports, especially when they hire the same non‐Big 4 auditors as targeted firms and when their earnings quality is poor. In comparison, analysts fail to perform proper due diligence and are much less effective than short sellers in exposing misreporting risk in Chinese firms.     

The effect of board composition on the informativeness and quality of annual earnings: Empirical evidence from Greece

This study examines how the informational quality of annual accounting earnings, varies according to the size and composition of the board of directors of publicly listed firms within the Greek capital market. Data analysis over a period of five years (2000-2004) revealed that the informativeness of annual accounting earnings is positively related to the fraction of outside directors serving on the board, but it is not related to board size. Additionally, firms with a higher proportion of outside board members proved to be more conservative when reporting bad news but on the contrary they do not display greater timeliness on the recognition of good news. Finally, firms with a higher proportion of outside directors report earnings of higher quality compared to firms with a low proportion of outside directors. Our results are robust to several sensitivity tests controlling for endogeneity, firm's fixed effects and alternative models for the estimation of discretionary accruals.     

Government assisted earnings management in China

As the socialist system in China embraces the market economy, it has created many conflicts of interests and collusion between firms and different layers of governments. The central government in China sets regulations to ensure the quality of firms listed in the capital market, while local governments engage in inter-jurisdictional competition for more capital, and their interests are aligned with listed firms through the stringent IPO quota system. This paper examines how local governments in China help listed firms in earnings management to circumvent the central government’s regulation. We find that local governments provide subsidies to help firms boost their earnings above the regulatory threshold of rights offering and delisting. Moreover, this collusion between government and listed firms in earnings management exists mainly in firms controlled by local governments.     

避免亏损的盈余管理程度:上市公司与非上市公司的比较

本文以非上市公司盈余管理程度作为基准,运用参数估计的方法,对股票市场是否提高了公司盈余管理程度的问题进行研究。研究结论显示,1998年至2004年我国上市公司与非上市公司每年都存在避免亏损的盈余管理;在上市公司中,盈余管理公司比例为15.87%,它们提高ROA数据0.0122;在非上市公司中,盈余管理公司比例则只有5.49%,它们提高ROA数据0.0009。上市公司盈余管理频率大约为非上市公司的3倍,平均盈余管理幅度大约为非上市公司的13倍;两类公司盈余管理程度差异随着时间的推移而不断增大,因为非上市公司盈余管理程度在年度上的分布比较稳定,而上市公司盈余管理程度则随着时间的推移而不断增大。研究结论表明,股票市场提高了公司的盈余管理程度。