A look at the public policy conflict regarding the discovery of accountants' tax accrual workpapers

This article focuses on the conflict in public policy between the need to provide the investing public with accurate information with regard to corporate financial statements and the need to provide the IRS with the necessary tools in order to assure corporate compliance with the tax laws of the country. The conflict arises because of the contention of the IRS that it is entitled to have access to an independent auditor's tax accrual workpapers on the one hand, and the contention by CPAs that such access will prevent adequate disclosure to the independent auditor. The article examines the policy questions on both sides of the issue and concludes that regardless of any decision by the Supreme Court in a pendingcase, Congress should pass legislation to resolve the conflict and clearly identify the scope of any previlage accorded with regard to tax accrual workpapers.     

Private disclosure and financial reporting

This article describes how large UK companies communicate with their institutional shareholders, and investigates how this private disclosure process relates to financial reporting. The article draws from case studies based on interviews with senior executives in 33 UK companies. Four insights into corporate disclosure arise from this case data. Firstly, a private disclosure process to institutional shareholders is outlined. Secondly, the private disclosure activity is recognised as a significant part of a larger corporate decision concerning public versus private voluntary disclosure. Thirdly, a range of factors are identified as encouraging private disclosure. These include the perceived limitations of financial reports (annual reports and interims), both as a disclosure mechanism in their own right and by comparison with private disclosure channels. Finally, despite these limitations, financial reports are recognised as a central component of a larger corporate disclosure system. The article therefore provides a novel insight in the role of financial reports in the larger corporate disclosure process, and ends by exploring new directions for research in financial reporting, including how the wider corporate disclosure system can be reformed in a systematic manner.     

金融稳定政策分析:以议程设定为例

传统上人们一直将金融稳定视为经济学问题。但近年来,越来越多的研究意识到金融稳定更是一项公共政策。本文分析了将金融稳定作为公共政策的原因,并以其议程设定为例分析了金融稳定的公共政策决策过程。在此基础上,将金融稳定的公共政策分析与经济学分析相结合,揭示其对我国金融稳定工作的启示,提出了相应的政策建议。     

A multinational test of determinants of corporate disclosure

This paper develops a model of cultural, national, and corporate factors that influence the financial disclosure of corporations. This model is then tested empirically using a sample of companies from 33 countries. The paper extends the literature on disclosure by considering a larger number of variables that represent determinants of disclosure and by empirically testing the model using a larger number of countries than prior studies. The model is tested using disclosure scores included in International Accounting and Auditing Trends. The model considers the influence of culture, national political and economic systems, and corporate financial and operating systems on the amount of corporate financial disclosure. The results of the regression model indicate that disclosure is influenced by culture, national systems, and corporate systems. The model developed is shown to provide a reasonably good explanation of the disclosure decision. Differences among the components of the model help explain differences in observed financial disclosure between companies in different countries and between companies within the same country. The results indicate that the financial-disclosure decision for a company is complex and influenced by many national and corporate factors.     

资本市场开放能否提高企业信息披露质量？——基于“沪港通”和年报文本挖掘的分析

提高信息披露质量对于改善上市公司治理结构和保护股东权益具有重要意义。本文利用2014年开通的“沪港通”机制这一准自然实验,研究资本市场开放是否提高了企业的信息披露质量。从2010-2019年A股上市公司年报文本中提炼可读性指标衡量信息披露质量,使用匹配和双重差分方法进行实证研究,发现“沪港通”机制实施以后,标的公司(纳入“沪港通”的A股上市公司)的信息披露质量显著提高。这一结论对不同的估计方法、样本区间及控制变量组均保持稳健。异质性分析表明,对于盈余操纵水平较高、股价信息含量较低的企业,资本市场开放能够更好地改善其信息披露质量。本文丰富了资本市场开放对企业行为和绩效影响的实证研究,为继续推进资本市场开放政策提供了理论依据。     

Evaluating the Effectiveness of Sustainability Disclosure: Findings from a Recent SASB Study

Early research into the relationship between corporate sustainability programs and financial performance suggests a positive relationship between strong sustainability performance and a lower cost of capital. As investors increasingly incorporate sustainability information into financial decisionmaking, the importance of high‐quality sustainability disclosure is growing. Just as investors have relied on financial disclosures based on generally accepted accounting principles (GAAP) to assess corporate risk, a market standard is needed to help companies disclose comparable sustainability information. To address this issue, the Sustainability Accounting Standards Board (SASB) conducted a recent analysis of the current state of sustainability disclosure in annual Securities and Exchange Commission (SEC) filings. The study reviewed the disclosures of over 700 U.S.‐and foreign‐domiciled companies, focusing on material sustainability topics as identified by SASB's industry‐specific accounting standards. The authors find large variations among different corporate sectors in the frequency and quality, as well as the focus, of their sustainability disclosures. Then, after examining in detail disclosures within the SASB Resource Transformation and Consumer Staples sectors, the authors suggest a number of possible drivers of this variation, including key sustainability and economic trends, while also presenting evidence of increasing investor interest in sustainability information. Although the authors' analysis was not intended to determine the extent to which the quality of sustainability disclosure affects investor returns, the findings provide a useful baseline for the as yet largely unexplored relationship between sustainability disclosure and corporate financial performance.     

Can third-party online sales disclosure help reduce earnings management? Evidence from China

Alternative data plays an increasingly important role in investment and commodities market analysis. This study empirically investigates the effect on earnings management of disclosure of third-party online sales as a type of alternative data. We show that earnings management is reduced with the public disclosure of a firm’s third-party online sales data in a well-known Chinese financial database. Our results are robust to a series of endogeneity corrections and robustness checks. We also find that the negative association between third-party online sales disclosure and earnings management is more pronounced in firms with an opaque external information environment, weaker corporate governance, a higher proportion of online sales relative to total sales, and when sales are more likely to be the target of manipulation. Our results indicate that third-party online sales disclosure reduces earnings management by decreasing its benefits and increasing the risk of its detection. Our findings yield important implications for regulators and policy makers.     

The Impact of Recognition Versus Disclosure on Financial Information: A Preparer's Perspective

We investigate whether recognition on the face of the financial statements versus disclosure in the footnotes influences the amount that financial managers report for a contingent liability. Using an experiment with corporate controllers and chief financial officers, we find that financial managers in public companies expend more cognitive effort and exhibit less strategic bias under recognition than disclosure. This difference appears to be associated with capital market pressures experienced by public company managers as we find that both the cognitive effort and bias exhibited by private company managers are unaffected by placement. As a result, public company managers make higher liability estimates for recognized versus disclosed liabilities. Their liability estimates are similar to those of private company managers for recognition but lower than private company managers’ estimates for disclosure. Our results have implications for auditors and financial statement users in evaluating recognized versus disclosed information for public and private companies.     

Discovering an accountant's tax accrual workpapers: Should auditors join the priveleged few?

This article explores the legal controversy over the limits of the Internal Revenue Service's (IRS) power to summons documents in an investigation of corporate income tax liability. The controversy focuses upon IRS access to an independent auditor's tax accrual workpapers. Required by federal securities laws, these workpapers record the accountant's predictions of the likelihood of successful IRS challenges to aggressive corporate tax positions. Routine IRS access to the tax accrual workpapers would stifle management's candid disclosure of questionable tax positions to the auditors. This article defines the limits of an auditor's work-product privilege premised on the social need for full disclosure of a company's contingent tax liabilities to assure the setting aside of adequate reserves to cover those contingencies. While the privilege should serve to protect those investing in American businesses, its primary purpose is to maintain a public trust in the integrity of certified financial statements.     

信用债违约特征与市场展望

从总量的角度来看,信用债违约主体数量呈现上升的趋势,违约主体的行业、地区分布相对较为分散,各主体的违约特征呈现多元化的趋势,受经济增速下行压力加大、民企再融资收紧、股票质押爆仓等因素的影响较为明显。结合微观企业违约的最新特点,在信用风险分析的过程中需要重点关注企业是否发生了投资激进、短债长投、公司治理风险、财务舞弊等问题。建议正本清源,加强对财务造假的惩治力度,强化企业信息披露,推进社会信用体系建设,发挥民营企业信用缓释工具作用。     

ESG disclosure and financial performance: Moderating role of ESG investors

This study discusses the effect of environmental, social, and governance (ESG) disclosure on corporate financial performance. This study uses a sample of non-financial listed companies from 2000 to 2020 and applies the staggered difference-in-differences technique to eliminate the endogeneity problem. Findings show that ESG disclosure has a favorable effect on corporate financial performance. This conclusion remains robust after a series of robustness tests, including the parallel trend test, Goodman-Bacon decomposition, replacement of dependent variables, system GMM estimate, the placebo test, etc. ESG disclosure has heterogeneous effects on financial performance. The positive effect of ESG disclosure on corporate financial performance is more pronounced in companies with ESG investors and companies with longer inception, high media attention, and high agency costs. In addition, investors with ESG preferences exert a substantial moderating effect on the link between ESG disclosure and financial performance connection. We arrive at two conclusions in the extended analysis. One is that ESG disclosure attracts ESG investors. Another is that ESG investors also play a positive moderating role in the connection between ESG ratings and financial performance.     

The impact of multi-dimensional corporate transparency on us firms’ credit ratings and cost of capital

This study examines corporate transparency in the US market for a sample of 319 S&P 500 firms. We examine whether a number of disparate measures of corporate transparency used by other researchers are distinct, cohere as measures of a single factor of corporate transparency, or capture multiple different dimensions. Next, we begin to examine the impact of corporate transparency, conceived in the broadest sense, and not limited to financial reporting, on US firms. We develop a model of corporate transparency based on a broad definition and framework proposed by Bushman, Piotrowski and Smith, which we extend in several ways, and then study the effect of corporate transparency on cost of debt, credit rating, and cost of equity. First, we find that corporate transparency is neither a unitary concept nor merely an ambiguous term for multiple distinct concepts: factor analysis of ten corporate transparency variables identifies four independent underlying dimensions: public disclosure information, intermediary information, earnings quality information and insider information. Second, we find that corporate transparency has significant power to explain cross-sectional variation in credit rating and cost of capital. More specifically, (i) credit rating, cost of debt, and beta are significantly associated with disclosure information transparency; (ii) credit rating, cost of equity, and beta are significantly associated with intermediary information transparency; and (iii) cost of equity and beta are significantly associated with insider information transparency. Our findings offer a more comprehensive evaluation of corporate transparency than prior studies, and we demonstrate direct economic implications for both US firms and markets.     

Political/Policy Uncertainty,Corporate Disclosure,and Information Asymmetry*

Political/policy uncertainty causes significant disruption to capital markets around the world. This review synthesizes recent studies on this topic and provides suggestions for future research in this fast-growing area. Specifically, this review focuses on three areas of research: (i) the measurement of political/policy uncertainty, (ii) the impact of political/policy uncertainty on financial analysts' forecasts, and (iii) the impact of political/policy uncertainty on corporate disclosure. We find that political/policy uncertainty affects both corporate disclosures and financial analysts' forecasts and that these effects interact with information asymmetry in capital markets. Furthermore, we find that companies strategically change their disclosure practices during periods of heightened political/policy uncertainty.     

Carbon Disclosure,Financial Transparency,and Agency Cost: Evidence from Chinese Manufacturing Listed Companies

Given the constraints on carbon emissions due to their impact on global warming, carbon disclosure has become an important way to deliver signals to the market. We examine the benefits associated with carbon disclosure from the standpoint of corporate social responsibility (CSR) for China’s manufacturing industries from 2010 to 2014. We divide corporations into heavily polluting and non-heavily polluting groups in order to control the industry factor. Based on the Principal-Agent Theory, we empirically test the relationship between carbon disclosure and financial transparency, and we evaluate the effect of carbon disclosure on agency costs and operations. Our results highlight that carbon disclosure is negatively associated with agency costs. However, we do not find enough evidence to prove what role financial transparency plays in the relationship between carbon disclosure and agency cost. Therefore, the influence of financial transparency as a mechanism is not yet clear. This study provides a way to look at the intentions of firms that disclose carbon information, and it also enhances the literature on carbon disclosure and agency costs in China based on Chinese data.     

The choice between private and public capital markets: The importance of disclosure standards and auditor discipline to countries divesting state-owned enterprises

For a sample of 1866 privatizations from 37 countries, we estimate the impact of disclosure standards and legal institutions that discipline auditors on the method chosen to divest state-owned enterprises. The agency conflict between minority and controlling shareholders can impede a government from privatizing by selling its stake to diffuse investors in the public capital market with a share-issue privatization (SIP) that typically generates important spillover economic benefits, rather than an asset sale to a small group of buyers. However, prior research implies that accounting transparency plays a natural role in preventing controlling shareholders from siphoning corporate resources by helping minority investors identify any diversionary practices. After controlling for firm-level and other country-level characteristics, we find that SIPs become more likely when countries mandate strict disclosure standards, although this result is sensitive to model specification. In comparison, we provide strong, robust evidence that SIPs are more likely in jurisdictions that relax the burden of proof in civil lawsuits and criminal prosecutions against auditors, leading to more credible financial statements. From a policy perspective, our cross-country research suggests that investors value reforms that subject auditors to more severe private and public enforcement over several other legal determinants, including enhancing disclosure standards.     

Disclosure regulation and public policy a sociohistorical reappraisal

This study questions contemporary precepts concerning the SEC's disclosure system as being both ahistorical and asocial. The authors suggest that disclosure was but one of several modes for resolving the contradiction between an individualistic, market-based public philosophy and increasing economic concentration and centralization. When understood in these terms, the securities acts are seen not as fundamental changes in public policy but as part of an ongoing attempt to maintain an ideological, social, and economic status quo.     

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.     

非财务信息披露与分析师预测——基于深市上市企业社会责任报告的实证检验

以深市上市企业披露的社会责任报告作为非财务信息的替代变量,实证检验了非财务信息披露质量与分析师盈利预测的关系。多元回归分析结果表明,企业社会责任报告披露质量越好,其分析师盈利预测越精确,并且在财务透明度低的企业中,这种正向关系更显著。这说明社会责任报告披露的这类非财务信息对分析师预测不仅具有信息含量,而且能够通过对财务信息的补充作用,缓解财务不透明对分析师预测精度的不利后果。