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.     

Enforcement and disclosure under regulation fair disclosure: an empirical analysis

While Regulation Fair Disclosure (FD) was designed to benefit investors by curbing the selective disclosure of material non‐public information to ‘covered’ investors, such as analysts and institutional investors, it can also impose costs. This paper finds that FD levies three kinds of enforcement and disclosure costs. First, investors cannot recover as part of an SEC enforcement action the gains to covered investors from their alleged use of the non‐public information. Second, investors lose because the market responds negatively to an SEC enforcement announcement. Third, investors suffer because some companies post their FD filings well after the due date, without earlier public disclosure.     

Bonuses and Non-Public Information in Publicly Traded Firms

Recent research in accounting explores how firms use “individual” or “non-financial” measures of performance in executive compensation contracts. We model a firm that conditions bonus payments to executives on information that is not available to those outside the firm. This raises two issues. First, market participants may use the magnitude of such payments to infer the non-public information. Second, because information that is non-public is, by extension, non-verifiable, the firm cannot write explicit contracts based on it. Combining the relational incentive contracts and financial signaling literatures, we examine equilibria of a signaling game in which bonus payments from a firm to a manager convey non-public information regarding the firm’s future cash flows. Our main result is that increases in corporate myopia can, under some conditions, lead to increased profits. This finding is contrary to that typically found in financial signaling models.     

Debt, bargaining, and credibility in firm–supplier relationships

We examine optimal leverage for a downstream firm relying on implicit (self-enforcing) contracts with a supplier. Performing a leveraged recapitalization prior to bargaining increases the firm's share of total surplus. However, the resulting debt overhang limits the range of credible bonuses, resulting in low input quality. Optimal financial structure trades off bargaining benefits of debt with inefficiency resulting from overhang. Consistent with empirical evidence, the model predicts that leverage increases with supplier bargaining power (e.g., unionization rates) and decreases with utilization of non-verifiable inputs (e.g., human capital).     

The association between employee stock option disclosures and corporate governance: Evidence from an enhanced disclosure regime

This study examines the role of corporate governance in employee stock option (ESO) disclosures following the revision of AASB 1028 Employee Benefits in 2001. We find that, while firms do not fully comply with AASB 1028 ESO disclosures, they voluntarily provide other ESO disclosures. In relation to corporate governance measures that have a role in the financial reporting process, we find two corporate governance measures dominate our results—the quality of auditor and duality of the role of CEO and Chair of the Board of Directors. We show that, in general, external auditor quality has positive incremental association with both mandatory and voluntary ESO disclosures while the dual role of CEO and chairperson of the board is associated with lower levels of mandatory disclosure.     

The effect of globalization and legal environment on voluntary disclosure

We examine how interactions with foreign capital, product, and labor markets affect the disclosure practices of non-U.S. multinational firms. Drawing on literature related to multinationals, country-level legal institutions, and accounting disclosures, we expect that the relation between globalization and voluntary disclosure will be conditioned by the legal environment in a firm's home country. Specifically, while firms from countries with a strong legal environment (e.g., common-law countries) already face pressure for good disclosure, globalization can increase the benefits associated with good disclosure to firms from weak legal environments (e.g., civil-law countries). We use a self-constructed voluntary disclosure index and hand-collected disclosure and foreign activity data for 643 non-U.S. firms from 30 countries for 2003. We find a significant interaction between globalization and the legal environment. This indicates that for the same level of globalization, there is more voluntary disclosure for firms based in weak legal environments. Our results suggest that globalization is an important variable that has been overlooked in much of the previous cross-country research.     

Voluntary disclosure of reasons for auditor changes and the capital market reaction to information disclosure

This study examines the association between firm attributes and management’s voluntary disclosure of the reason(s) for auditor changes and evaluates the capital market reaction to information disclosure of the auditor change events accompanied by preexisting red flag and non-red flag issues. We find that managers are more likely to disclose the reason(s) for auditor changes when those changes occurred because of benign business reasons or if the reasons do not indicate the presence of any underlying operating or financial reporting problem. On the other hand, managers are less likely to disclose the reason(s) for auditor changes when those changes are preceded by red-flag situations. Furthermore, auditor changes accompanied by preexisting red-flag situations are viewed negatively by the capital market, implying that the full disclosure of reasons for auditor changes is informative to investors. This observation is supported further by our market-based analyses, which consistently show that auditor changes accompanied by prevailing red flag issues are valued incrementally in the market above and beyond the reportable events (under FRR No. 31) and auditor-initiated changes. The study contributes to the recent policy debate related to mandating the disclosure of the reason(s) for auditor switches. Specifically, the results support the recent debates that the current voluntary disclosure regime results in selective disclosure practices that are likely to contribute to the general lack of transparency with respect to auditor changes.     

Revisiting carbon disclosure and performance: Legitimacy and management views

With corporate disclosure of carbon emissions rapidly increasing, the long-standing question remains whether carbon disclosure has any influence on the improvement of carbon performance. Previous studies of environmental disclosure and performance have predominantly focused on whether disclosure is a substitute for poor performance. Little attention has been devoted to the more important question about how changes in disclosure may lead to subsequent changes in performance over time. Following the rationales taken by the legitimacy and management perspectives, we revisit the relationship between carbon disclosure and performance, with a focus on changes that disclosure may (or may not) create. Using a change analysis of Global 500 companies and their carbon emission and disclosure data released between 2008 and 2012, this study finds that the change in carbon disclosure levels is positively associated with a subsequent change in carbon performance (examined through direct and indirect carbon emission intensities). Thus, regardless of whether disclosure has been used as a legitimising tool for prior poor performance, this study confirms that carbon disclosure motivates companies and creates an ‘outside-in’ driven effect for subsequent change and improvement in carbon performance. However, the association between changes in carbon disclosure and performance is relatively weaker in high energy-intensive firms.     

Compensation Design and Career Concerns of Fund Manager

We develop an optimal incentive contract for the fund manager with career concerns. Drawing upon the framework of Gibbons and Murphy (1992), we restructure the performance of fund manager with emphasis on the multiplicative effect of previous effort on the latter period, and derive the positive cross-period linkage of fund managers efforts. In particular, our study derives that a greater first-periods effort by the fund manager will induce more second-period effort and greater compensation in either fixed or variable (performance-related) portion of the payment. Though the total performance related pay might increase as the result of greater effort in the previous period, we show that the pay-performance sensitivity in the second period will decline. Moreover, the initial wealth increase will motivate the fund manager to exert more effort and induce better performance, but decrease the pay-performance sensitivity in the second period.JEL Classification: G2, J33, J41     

Real effects of financial reporting and disclosure on innovation

This paper reviews the literature on the real effects of financial reporting and disclosure on corporate innovation, highlighting both the possible channels of influence and the potential challenges that researchers face when attributing causal effects. We discuss the concept of innovation, emphasising the specific characteristics that make investments in innovation difficult to report. We then provide a review of the nascent work relating disclosure to innovation, which we organise around three channels: financing, compensation and learning. Finally, we discuss recent efforts aimed at increasing the quality of corporate disclosures, including disclosures of firms’ innovative activities. Throughout the paper, we highlight the trade-offs of disclosure (reduced information asymmetry and increased proprietary costs), which are particularly exacerbated in the context of corporate innovation.     

Impression management: dual language reporting and voluntary disclosure

The presentation of corporate disclosure may be explained by impression management. The relative extent of corporate disclosure may be related to information costs. This paper links these two theoretical perspectives by comparing the extent of voluntary disclosure in companies that have chosen to present a dual language approach to reporting, relative to the disclosure provided by companies choosing to report only in one language. The analysis shows that voluntary disclosure is higher in companies that have higher visibility through dual language reporting and whose investors face higher information costs. The analysis also shows that voluntary disclosure by companies reporting only in one language is associated with domestic visibility in market listing and type of industry, while that of companies reporting in two languages is associated with responding to market pressures.     

Public Disclosure of Forward Contracts and Revelation of Proprietary Information

Financial executives of firms engaged in forward contracting have raised concerns that mandated disclosure of those contracts would reveal proprietary information to rival firms. This paper considers the basis for those concerns in the framework of a duopoly in which one privately informed producer enters the forward market prior to production. In choosing its forward position, the firm considers the effects of that position on the forward price and second stage product market competition with its rival. Two regimes are considered: mandated disclosure and no disclosure. Under the former, the contracting firm faces a tension between exploiting its information advantage in the forward market and attempting to influence the production decision of its rival. On average, in equilibrium, the contracting firm gains a first-mover advantage, but at the cost of revealing its private information to its rival and extracting less expected gains from uninformed forward market participants. In contrast, with no disclosure, the contracting firm cannot influence rival firm beliefs, but extracts more expected gains from its private information in both the forward and product markets. On balance, the contracting firm prefers no disclosure. Moreover, parameterizations exist such that the rival also prefers that regime. These findings explain the opposition of respondents to draft proposals of Statement of Financial Standards No. 133.     

投连险与基金信息披露的比较分析

与国际通行做法相比,我国投连险投资账户多履行了一个资产组合管理职能,这就使得投连险投资账户与基金具有了一定的可比性。本文基于投连险与基金信息披露的比较视角,指出了我国投连险信息披露存在的问题,并从保险公司、监管部门、社会力量三个方面提出了相应的对策。     

Engagement partner specialization and corporate disclosure transparency

This paper explores the association of audit partners' industry specialization with corporate disclosure transparency and the latter's informativeness. The distinctive institutional designs of partner signature requirement and Information Disclosure and Transparency Ranking System (IDTRS) adopted in Taiwan allow us to empirically address the issue. We posit and find that the rankings from the IDTRS are higher for firms audited by industry specialist engagement partners than for firms audited by non-specialist engagement partners. Additionally, the results show that the probability of informed trade (PIN) proxy for information asymmetry is negatively associated with the rankings for clients of industry specialist engagement partners, but not for clients of industry non-specialist engagement partners. The results are robust with respect to alternative estimation method and alternative measures of industry specialization. Overall, the evidence suggests that industry specialist engagement partners enhance the credibility of corporate disclosure transparency, through which information asymmetry is further declined. The evidence provides policy implications to the partner signature requirement adopted in Taiwan and China.     

Voluntary disclosure of accruals in earnings press releases and the pricing of accruals

This study investigates firms’ decisions to disclose accruals information in earnings press releases versus to provide it only in 10-Q filings and the impact of this disclosure on the pricing of accruals. I find that firms disclose accruals in their press releases when earnings alone are a weak indication of cash flow performance and that following these disclosures the accruals information is fully impounded into stock prices. The evidence suggests that when investor demand for accruals is likely to exist and firms disclose the information in earnings press releases, the mispricing typically associated with accruals is mitigated.

Extent of environmental disclosure of U.S. and Canadian firms by annual report location

This study discusses various influences on firms to provide additional environmental disclosure and empirically measures and analyzes the extent of actual environmental disclosures included in the annual reports of firms in the U.S. and Canada. The environmental disclosure content provided in the annual reports of firms is evaluated based on environmental reporting guidelines published by the American Institute of Public Accountants and the Canadian Institute of Chartered Accountants. In general, the results indicate that U.S. firms provided a significantly higher level of environmental disclosure than did Canadian firms. Also, firms in each nation varied significantly in the amount of environmental disclosure provided in each of four annual report sections.     

Word-of-mouth communication,noise-driven volatility,and public disclosure

This paper examines how a firm adjusts its disclosure quality in response to technological innovations that improve investors' private information. We show that more precise private information can endogenously amplify supply shocks and, hence, increase noise-driven (or non-fundamental) price volatility. We study how the firm reacts to such changes and derive a necessary and sufficient condition under which the firm improves its disclosure quality when investors are informed with better private signals. We then apply our model to study investors' private word-of-mouth communication. Our analysis highlights a “dark side” of word-of-mouth communication and a call for better public disclosure even if private communication is assumed to be unbiased and truthful. We provide empirical predictions regarding how price volatility, market depth, and firms’ disclosure qualities would change as technological innovations, such as social media, facilitate information sharing among investors.     

中外企业社会责任报告信息披露比较

本文通过对中国石油和壳牌石油2006~2009年度社会责任报告在形式和内容上的比较,分析了中外企业社会责任报告披露的异同之处,然后对改进我国企业社会责任报告披露提出了一些重要启示:统一社会责任报告的编制框架;完善利益相关方的参与和信息反馈机制;开展社会责任报告第三方审验;社会责任报告内容要体现平衡原则;选择适当的社会责任报告披露形式以提高披露的效果。     

Determinants and consequences of voluntary disclosure in an emerging market: Evidence from China

In this paper we examine empirically the determinants of voluntary disclosure in the annual reports of Chinese listed firms that issue both domestic and foreign shares and determine if the cost of debt capital is related to the extent of voluntary disclosure. We find the level of voluntary disclosure is positively related to the proportion of state ownership, foreign ownership, firm performance measured by return on equity, and reputation of the engaged auditor. There is no evidence, however, that companies benefit from extensive voluntary disclosure by having a lower cost of debt capital.     

Environmental disclosure and environmental risk: Sceptical attitudes of UK sell-side bank analysts

In responding to the mixed evidence on the decision-usefulness of environmental disclosures to capital market participants, this paper examines the decision-usefulness, to sell-side bank analysts, of annual report environmental narratives. In doing so it focuses mainly on the materiality of environmental reporting and the perceived importance of environmental risks in the assessment of bank risk profile and valuation. Noting that banks themselves have recognised the importance of environmental filtration of loan decisions, this paper seeks to examine the attitudes of a prominent reporting user group (19 London-based sell-side bank analysts) towards environmental reporting and the materiality of environmental risks. Findings showed that recognition of the materiality of environmental risks in banks is uncommon among sell-side analysts and that environmental narratives are often ignored and regarded as perfunctory. The findings are discussed in terms of the role of analysts in the reporting information ‘supply chain’ and how the analysts’ frame of reference may limit the inclusion of longer-term issues, such as the environment, in their analysis.