A comparison of voluntary and mandated climate change-related disclosure

This study draws on legitimacy theory to investigate the relationship between mandatory disclosure of greenhouse gas emissions by companies that are subject to specific environmental legislation (the Australian National Greenhouse Energy Reporting Act 2007) and the level of voluntary environmental disclosures. Using a sample of 535 observations, we find that i) Overall, legislation-affected companies increase their disclosures compared with non-affected companies, ii) As many companies reduce their disclosures as increase them, iii) there is an increase in the level of emissions volume disclosures in legislation-affected companies compared with the same company pre-implementation, iv) legislation-affected higher emitters have higher levels of voluntary disclosures. These findings are consistent with legitimacy theory, which predicts differential disclosures in circumstances to avoid scrutiny.     

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.     

Litigation environment and auditors’ decisions to accept clients’ aggressive reporting

This study contributes to accounting and auditing literature by addressing two empirical questions: (1) whether litigation environment affects auditors’ decisions to accept clients’ aggressive reporting and (2) whether litigation environment, client business risk, and client retention pressure interact and jointly affect auditors’ decisions to go along with clients’ preferred accounting choices. Fifty-nine (59) US and sixty-one (61) Hong Kong auditors employed by the Big-4 accounting firms participated in this study. The result shows that litigation environment has a significant effect on auditors’ decisions. Auditors who practice in more litigious environments tend to be less willing to go along with clients’ aggressive reporting than those who practice in less litigious environments. This study also confirms that there is a significant interactive effect between litigation environment, client business risk, and client retention pressure on auditors’ decisions to accept clients’ aggressive reporting choices. Implications of the empirical findings for policymakers, standard-setting organizations, and international accounting firms, as well as directions for future studies, are discussed.     

Disentangling Managers’ and Analysts’ Non‐GAAP Reporting

Researchers frequently proxy for managers’ non‐GAAP disclosures using performance metrics available through analyst forecast data providers (FDPs), such as I/B/E/S. The extent to which FDP‐provided earnings are a valid proxy for managers’ non‐GAAP reporting, however, has been debated extensively. We explore this important question by creating the first large‐sample data set of managers’ non‐GAAP earnings disclosures, which we directly compare to I/B/E/S data. Although we find a substantial overlap between the two data sets, we also find that they differ in systematic ways because I/B/E/S (1) excludes managers’ lower quality non‐GAAP numbers and (2) sometimes provides higher quality non‐GAAP measures that managers do not explicitly disclose. Our results indicate that using I/B/E/S to identify managers’ non‐GAAP disclosures significantly underestimates the aggressiveness of their reporting choices. We encourage researchers interested in managers’ non‐GAAP reporting to use our newly available data set of manager‐disclosed non‐GAAP metrics because it more accurately captures managers’ reporting choices.     

The influence of institutional contexts on the relationship between voluntary carbon disclosure and carbon emission performance

This article examines the relationship between the level of voluntary carbon disclosure (VCD) and carbon emission performance and how the institutional context influences this relationship. Using a sample of Global 500 firms participating in the Carbon Disclosure Project (CDP) over the period 2008–2015, the evidence shows a negative relationship between voluntary carbon disclosure and carbon emission performance, which is consistent with the legitimacy theory that VCD may be undertaken for the purposes of legitimation. However, stringent carbon institutions appear to restrict legitimation attempts and help better reflect underlying performance.     

Inter‐temporal changes in analysts’ forecast properties under the Australian continuous disclosure regime

Corporate disclosure regulations are important mechanisms for investor protection. This study examines the inter‐temporal changes in analysts’ forecast properties over the period 1988–2001 as Australia’s continuous disclosure regulation and enforcement intensity changed. The effectiveness of the continuous disclosure regime has been a question of interest since its inception, but research in this area is limited. Our results suggest that analysts’ forecast accuracy and dispersion improved for sample firms in response to the proposal and introduction of continuous disclosure regulations. However, following increased enforcement from 1998, analysts’ forecast dispersion deteriorated for small firms, possibly due to a decrease in private information received by financial analysts as regulators became more proactive in enforcing the ban on selective disclosure.     

The effect of SFAS 131 on the stock market’s ability to predict industry‐wide and firm‐specific components of future earnings

This study examines the impact of SFAS 131 on the extent to which stock prices incorporate industry‐wide and firm‐specific components of future earnings. By decomposing earnings into industry‐wide and firm‐specific components, this paper finds that the firms that aggregated segments under the old rule experience significant acceleration in the incorporation of future earnings into current stock prices upon adoption of SFAS 131. However, the acceleration of future earnings is mostly driven by the improved incorporation of industry‐wide components of future earnings, which indicates the market’s ability to predict firm‐specific components is not significantly changed. Supplemental analysis suggests that the reduced geographic earnings information is one possible reason for lack of improvement in incorporating firm‐specific earnings into price.     

Responding to a corruption crisis through disclosure and remedial action: The case of Petrobras

This case study adopts a positivist perspective to examine how Petroleo Brasileiro S.A (“Petrobras”), a high-profile company in its native Brazil with multiple listings including in Brazil and the US, responded to a major corruption scandal arising in 2014. We consider Petrobras's response both in terms of its visible activities – i.e. in relation to anti-corruption and compliance (“ACC”) disclosures in its annual report (AR) and sustainability report (SR), as well as actioned remedial policies that constitute the crisis plan – and how the company went about interacting with stakeholders during and after the immediate crisis period. We conducted a content analysis of ACC disclosures and assessed Petrobras's remedial activities in the eight-year period 2010–2017 as disclosed in its ARs, SRs and press releases. We find firstly that, consistent with legitimacy theory, Petrobras responded by voluntarily and substantially increasing its relevant disclosures so as to regain legitimacy, a finding which mirrors those found elsewhere following corruption and environmental crises. Secondly, the unique corporate governance situation at Petrobras combined with the fact that leadership was allegedly implicated in the scandal, led the post-crisis management team to undertake a series of remedial actions that prioritised the need to take and maintain executive control and independence from the government, whilst at the same time carefully managing the relationship with this influential stakeholder: - actions which argue strongly in favour of stakeholder-agency theory and multiple agency theory interpretations of the nature of stakeholder interactions that transpired during the crisis period of disequilibrium, and which precluded the type of stakeholder dialogue seen in some previous environmental crisis situations. Finally, we show that Petrobras's crisis management response actions align well with models of trust repair and legitimacy management, and suggest the company considered it had successfully regained legitimacy by 2017.     

Investor behaviour in response to Australia’s capital gains tax

We calibrate the effect of Australia’s Capital Gains Tax (CGT) on share prices and market activity. Based on a large sample drawn from all listed Australian companies for the years 1994–2007, we find significant tax‐loss selling (TLS) of shares that lost value over the financial year, which is reflected in unusually high trading volume and more sell orders in June and a rebound in July. There is some evidence that small mining stocks are particular targets for TLS. Interestingly, the 1999 CGT reforms, which introduced concessions for long‐term capital gains, did not reduce the incidence of TLS.     

Analysts’ and Investors’ Reactions to Consistent Earnings Signals

We investigate (1) whether the trajectory of the current‐quarter earnings expectation path (defined by the signs of the forecast revision and the earnings surprise) provides information about future firm performance, and (2) the extent to which analysts and investors react to that information. Our results indicate that analysts underreact more to earnings information revealed by consistent‐signal earnings expectation paths than to earnings information communicated by inconsistent‐signal expectation paths. We also find that the current earnings expectation path provides incremental explanatory power for future abnormal returns, even after controlling for the sign and magnitude of the earnings surprise. Overall, our evidence is consistent with underreaction stemming from analysts’ and investors’ bias in processing the information in consistent‐signal earnings expectation paths.     

Exploring attitudes to financial reporting in the Australian not‐for‐profit sector

The current level of satisfaction among different stakeholders about the current approaches and practises of financial reporting of not‐for‐profit (NFP) entities is underexplored ( Christensen and Mohr, 2003 ; Lee, 2004 ; Gray et al., 2006 ; Parker, 2007 ). This paper uses content analysis to examine submissions to the 2008 Australian Senate Economics Standing Committee for its inquiry into the disclosure regimes of charities and NFP organisations, which aimed to explore attitudes about financial reporting in the NFP sector. Financial reporting is viewed as an important part of accountability, but the sector identifies deficiencies in the current regime in terms of consistency, efficiency and transparency. Respondents to this inquiry believed that a sector‐specific accounting standard was important. Financial reporting standards, regulations and legal structures should be uniform across the entire sector, but with some variation allowed for smaller NFPs. The cost of complying with standards was a significant issue for smaller NFPs.     

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.