Fostering Stakeholder Engagement: The Role of Materiality Disclosure in Integrated Reporting

This paper studies the determinants of materiality disclosure among International Integrated Reporting Council (IIRC) Pilot Program companies implementing the IIRC Framework. In other words, it studies which variables influence the way in which such companies provides information about their materiality determination process. In order to test our hypotheses we performed a number of statistical analyses on a unique hand‐collected dataset including IIRC and non‐IIRC Pilot Program companies for the 2012 and 2013 fiscal years. Our results indicate that industry and some firm‐level characteristics (board size and diversity) do play a significant role in the determination of materiality disclosure, whereas the legal environment in which companies operate does not. Also, we found that IIRC Pilot Program companies disclosed more information about materiality than their competitors that did not join the program. This paper provides interesting insights for policy makers (in particular, the IIRC) and extends previous academic literature on integrated reporting. Copyright © 2016 John Wiley & Sons, Ltd and ERP Environment     

Enforcement of Optimal Disclosure Rules in the Presence of Moral Hazard

Abstract

This paper analyzes the role of disclosure enforcement mechanisms (such as SEC enforcement teams and corporate governance systems) in directing the disclosure practices of managers when the information is used by shareholders to monitor the manager. The paper establishes a role for a disclosure enforcement system by showing that in its absence it is impossible to simultaneously induce a manager to adopt the desirable disclosure strategy and use the disclosure efficiently to monitor him. The paper shows how the effectiveness of the disclosure enforcement system and the cost of disclosure influence (i) the economic viability of the disclosure enforcement system, (ii) the disclosure policy of the manager, and (iii) the value of including stock options in the manager's compensation package.     

The endogeneity bias in the relation between cost-of-debt capital and corporate disclosure policy

Abstract

The purpose of this paper is twofold. First, we provide a discussion of the problems associated with endogeneity in empirical accounting research. We emphasize problems arising when endogeneity is caused by (1) unobservable firm-specific factors and (2) omitted variables, and discuss the merits and drawbacks of using panel data techniques to address these causes. Second, we investigate the magnitude of endogeneity bias in Ordinary Least Squares (OLS) regressions of cost-of-debt capital on firm disclosure policy. We document how including a set of variables which theory suggests to be related with both cost-of-debt capital and disclosure and using fixed effects estimation in a panel data-set reduces the endogeneity bias and produces consistent results. This analysis reveals that the effect of disclosure policy on cost-of-debt capital is 200% higher than what is found in OLS estimation. Finally, we provide direct evidence that disclosure is impacted by unobservable firm-specific factors that are also correlated with cost of capital.     

Welfare Effects of Endogenous Information Acquisition and Disclosure in Duopoly Markets

Abstract

This paper investigates the interaction between firms' information acquisition decisions and disclosure of internally acquired information in a Cournot duopoly market under demand uncertainty. The main results are as follows. When the correlation between firms' demands is positive and sufficiently high, disclosure of information on demand uncertainty can enhance social welfare, given that the quality of firms' private information is constant. However, in the setting where firms' private information is endogenously determined, mandatory disclosure is not always desirable. This is because, when disclosure is mandated, firms acquire less precise information compared with the case where the acquired information is not disclosed; hence, their internal information environments are deteriorated. This can lead to unintended consequences such that disclosure regulation decreases social welfare.     

Determinants of Quantitative Information Withholding in Annual Reports

In recent years, the determinants of voluntary disclosure have been explored in an extensive body of empirical research. One major limitation of those studies is that none has tried to find out whether voluntary disclosures were occasional or continuous over time. Yet this point is particularly important, as the voluntary disclosure mechanism can only be fully effective if the manager consistently reports the same items. This paper examines the factors associated with the decision to stop disclosing an item of information previously published voluntarily (henceforth ‘information withholding’ or IW). To measure information withholding, we code 178 annual reports of French firms for three consecutive years. Although disclosure scores are relatively stable over time, we find that this does not mean there is no change in voluntary disclosure across the years. We document that IW is a widespread practice: on average, one voluntary item out of seven disclosed in a given year is withheld the following year. We show that information withholding is mainly related to the firm's competition environment, ownership diffusion, board independence and the existence of a dual leadership structure (separate CEO and chairman).     

Determinants of Voluntary Disclosure of Sales in Small Private Companies in Belgium

Small businesses are the backbone of the economy in many countries. In Europe, for example, small companies represent more than 90 per cent of all companies (e.g., Lukacs, 2005 ). Although these companies represent such an important portion of the economy, few studies have examined their voluntary disclosure decisions. Because small companies have certain unique characteristics compared with their larger counterparts, the general applicability of past voluntary disclosure studies to small companies is questionable. Drawing on agency and proprietary cost theory, this study investigates whether ownership, competition, and accountant factors influence the decision to disclose financially sensitive information on a voluntary basis. Our results (using an e‐mail questionnaire to small private companies in Belgium, n = 1,068) indicate that nearly 40 per cent of the responding companies are not aware of their disclosure behavior. For companies that are aware of their disclosure behavior, the logistic regression analysis demonstrates that factors relating to the separation of ownership and control, namely the type of ownership and number of shareholders, are among the most important determinants in the voluntary disclosure decision of small private companies. Companies with at least one legal entity as an owner of a company are less likely to disclose, while companies with more shareholders are more likely to disclose. We also provide evidence that perceived competition and the default setting of the accounting software used have a significant influence on the voluntary disclosure behavior.     

CEO and Outside Director Equity Compensation: Substitutes or Complements for Management Earnings Forecasts?

Abstract

This study examines how the equity compensation of chief executive officers (CEO) and that of outside directors affect management earnings forecasts (MFs) and the relationship between these two positions in terms of compensation. Our evidence reveals that CEO (director) equity compensation is positively associated with MF likelihood, frequency, and accuracy when director (CEO) equity compensation is not high. However, an increase in director (CEO) equity compensation is not effective in improving disclosure quality when the level of CEO (director) equity compensation is already high. These results suggest that the two incentive mechanisms act as substitutes when both are intensively used in the context of MF disclosure.     

On the Relationship between Voluntary Disclosure,Earnings Smoothing and the Value-Relevance of Earnings: The Case of Switzerland

Abstract

This paper examines whether voluntary disclosure by Swiss firms constrains the use of discretionary accruals to smooth earnings, and explores the effect of voluntary disclosure on the value relevance of earnings. We focus on Swiss firms because Switzerland's financial reporting system provides managers with extensive discretion in corporate disclosure, and there are important variations in the level of information provided in their annual reports. We consider that managers can choose two different ways to voluntarily convey information, either through the quality and quantity of annual report disclosure or, through compliance with International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS) or US Generally Accepted Accounting Principles (GAAP). Relying on a simultaneous equations approach, our results suggest that Swiss firms use discretionary accruals to smooth earnings. However, this relation is reduced for firms that voluntarily disclose more information in their annual report or comply with IAS/IFRS or US GAAP. Moreover, we show that discretionary accruals of high disclosers or of firms voluntarily complying with IAS/IFRS or US GAAP receive a lower valuation weight.     

Disclosure Regulation in Duopoly Markets: Proprietary Costs and Social Welfare

Abstract

The argument of proprietary costs is commonly used by firms to object against proposed disclosure regulations. The goal of this paper is to improve our understanding of the welfare consequences of disclosure in duopoly markets and to identify market settings where proprietary costs are a viable argument for firms to remain silent. We, therefore, solve the optimal disclosure strategies and distinguish two different potentially costly effects of disclosing private information: the strategic information effect and the market information effect. We identify the market settings for which a regulator prefers to impose disclosure regulation so as to maximise consumer surplus or total surplus. Regulation may be necessary because (i) the increase in welfare outweighs proprietary costs to the firms, or (ii) firms are trapped in a prisoners' dilemma. The first primarily applies to Bertrand competition with demand uncertainty and, to a lesser extent, to Cournot competition. The second applies primarily to Cournot competition and Bertrand competition with cost uncertainty.     

Factors driving embodied carbon in international trade: a multiregional input–output gravity model

ABSTRACT

Concerns about the effects and consequences of climate change have notably increased in recent decades. Despite large advances in the understanding of this phenomenon, further research into the determinants of gas emissions is necessary, to shed light on the responsibilities of producers and consumers, and their potential contribution to mitigation strategies. This paper studies the trajectories and determinants of carbon embodied in world trade during a period of 15 years. Our methodology relies on a multiregional input–output model, environmentally extended. Drawing on data from the World Input–Output Database, we estimate embodied emissions in bilateral flows. Then, we assess the determinants of CO₂ emissions embodied in trade, combining input–output modelling with trade gravity panel data analysis. This paper offers a methodological approach that explains and quantifies the underlying factors of carbon trade, integrating the production and consumption perspectives and considering the geographical, structural and institutional context of countries.     

Corporate Responsibility Reporting and its Determinants in Comparative Perspective – a Review of the Empirical Literature and a Meta‐analysis

For four decades, reporting on corporate responsibility by businesses has been the subject of empirical research. In the 1970s and 1980s, studies mostly originated from Anglo‐Saxon and Western European countries. During the last two decades research on responsibility reporting was increasingly undertaken in emerging and developing countries as well – always following the reporting practices of the respective businesses. Consequentially, a very large number of studies exist today. Many of these have empirically investigated the determinants of responsibility reporting and examined whether internal factors like size and industry or external factors like stakeholder pressures have an impact on disclosure. Thus, the purpose of the following paper is twofold. First, it seeks to provide an overview of the existing literature in order to facilitate further research. Overall, 186 studies have been examined for the determinants which they considered and have been grouped according to their geographical origin. This provides for an analysis of whether academics from different regions have taken different approaches to the empirical examination of responsibility reporting and if their results differed. The findings show that scholars across regions have taken different paths in empirical research, but indications for a variation in the impact of specific determinants on reporting are weak. Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment.     

The Determinants of Intra-European Foreign Direct Investment Flows: Market Integration and Policy Issues

SUMMARY

This paper reviews the literature on the determinants of foreign direct investment (FDI) and the European Community (EC), especially the few studies concerned with intra-European FDI. It applies international business theory to investigate the determinants of FDI flows within the EC over the period 1984–89. The key results are that the models found contrast with the standard US-EC literature, and also differ within the EC. Real variables assume the greatest importance, although financial variables do appear significant. The pattern of findings suggests that the growth of intra-EC FDI is linked to the adoption of a pan-European FDI strategy by EC firms, largely prompted by EC market integration.     

Corporate Compliance with Non-Mandatory Statements of Best Practice: The Case of the ASB Statement on Interim Reports

ABSTRACT

This paper contributes to our understanding of compliance with non-mandatory statements of best practice. Specifically, we examine the efficacy of agency-related mechanisms on the degree of disclosure compliance with the ASB Statement on interim reports. Using data drawn from a sample of 259 UK companies listed on the London Stock Exchange, we show that although overall disclosure compliance is high (74.5% of the items of information being disclosed), companies do not fully comply with the ASB Statement on interim reports. We employ an ordinary least square (OLS) regression model to establish whether selected company-specific and corporate governance characteristics (proxying for agency-related mechanisms) are related to the degree of disclosure compliance. Our results indicate that multiple listing, company size, interim dividend and new share issuance are positively associated with the degree of compliance. We also find that the degree of disclosure compliance is positively associated with auditor involvement, audit committee independence and audit committee financial expertise. These results have important implications for policy because they suggest that whilst agency-related mechanisms may motivate compliance with best practice non-mandatory statements, full compliance may be unattainable without regulations.     

How cultural dimensions,legal systems,and industry affect environmental reporting? Empirical evidence from an international perspective

Past research has paid little attention to the impact of stakeholder engagement, cultural, legal, and industrial contexts on environmental disclosure. Thus, the aim of this paper is to explore how these three institutional factors affect the reporting of environmental information by companies in different countries. This research draws on institutional theory: normative isomorphism, coercive isomorphism, and mimetic isomorphism. This study uses the generalised method of moments procedure. The findings show that the legal system and certain cultural dimensions such as individualism, uncertainty avoidance, long‐term orientation, and indulgence are determinants of voluntary disclosure of environmental information (individualism and indulgence—negatively; uncertainty avoidance and long‐term orientation—positively), particularly when companies belong to industries with high environmental risk.     

企业社会责任信息披露能缓解融资约束吗？——基于A股上市公司的实证分析

目前,国内对于企业社会责任信息披露实施后果的研究还为数不多。本文从融资约束这一视角进行实证研究,以2010~2011年Ａ股上市公司为样本,考察了企业社会责任信息披露缓解融资约束的能力。研究结果显示,企业社会责任信息披露质量越高,面临的融资约束程度越低,并且企业社会责任信息披露缓解融资约束程度还受所有权性质和所在区域的影响。     

Litigation Risk and Corporate Voluntary Disclosure: Evidence from Two Quasi-Natural Experiments

Abstract

We examine the effect of litigation risk on corporate voluntary disclosure using two quasi-natural experiments, which have substantial and opposing impacts on the litigation risk of firms headquartered in the Ninth Circuit. We find that firms in the Ninth Circuit decrease (increase) the quantity and quality of their voluntary disclosure, relative to control firms, when their litigation risk is lowered (elevated). The pre-treatment test shows an indistinguishable trend between treatment and control firms. A battery of robustness checks indicates that our results are not driven by alternative explanations. We hypothesize and find that the impact of litigation risk is more pronounced when firms have bad news and that firms are more likely to preempt bad news through voluntary disclosures when litigation risk is elevated. Overall, results from both experiments suggest that litigation risk causally increases corporate voluntary disclosure.     

沪深股市首发新股盈利预测的实证研究

上市公司盈利预测信息是确定股票上市后股价走势的重要依据,它对投资者的投资行为具有引导作用。国外的盈利预测实证研究兴起于上世纪70年代末期,而国内这方面的研究还刚刚起步。本文通过对国内资本市场的盈利预测的研究,分析了新上市公司盈利预测情况及其可靠性。     

Following the money: The political determinants of E-fiscal transparency in US states

ABSTRACT

This research utilizes a unique panel data set (2009 to 2013) on the evolution of US state fiscal transparency websites and explores the political determinants of E-fiscal transparency. The dynamic panel data analysis reveals that divided government and Democratic governor exert a positive effect on state e-fiscal transparency, while the effect of political polarization is shown to be negative. Furthermore, there is some evidence to show that the fiscal variable of debt stock moderates the relationship between democratic political ideology and state E-fiscal transparency. Finally, there is a positive spillover effect in state E-fiscal transparency.     

The Relationship between Voluntary Disclosure and Independent Directors in the Presence of a Dominant Shareholder

Abstract

Differently from prior studies that examine the role of stand-alone control systems within the relationship between owners and managers, our study investigates the correlation between two control mechanisms – voluntary disclosure and independent directors – in companies characterized by the presence of a dominant shareholder that is supposed to mitigate the classical agency problem. Based on agency theory, we hypothesize that the two mechanisms tend to coexist, since the presence of either one reduces the costs of introducing the other. Two further effects – the reputation and the domino effect – contribute to determine a positive relationship between the two mechanisms. We carried out the empirical analysis on 175 non-financial Italian listed companies, all controlled by a dominant shareholder. Voluntary disclosure is measured through three alternative disclosure indexes. Independent directors are identified not only according to a formal/legal definition, but also through stricter criteria. The empirical test is based on a multivariate analysis controlling for size, residual ownership diffusion, leverage, profitability and labour pressure. Results support our hypothesis and are robust to alternative criteria to identify dominant shareholders. Our study contributes to a better understanding of the relationship between different control mechanisms in particular agency settings.     

Evidence in development of sustainability reporting: a case of a developing country

Current development in social accounting presents an interesting phenomenon. Companies are increasingly engaging in sustainability initiatives and reporting their activities in annual reports, company websites and other media of communication. Unlike previous studies, which have mainly used ex post content analysis of annual reports or other published data to study the relationship between disclosure and possible determinants, this study starts with an interview with the local preparer before the data is triangulated to determine the significant possible determinants. The interview findings are interpreted through institutional theory for possible identification of determinants. Initially, the interview findings indicate that all three mechanisms of isomorphism, the coercive, the normative and the mimetic, contribute to Malaysian company sustainability reporting. However, the regression results prove that only a government linked company in the plantation industry, which is large in size, has a significant amount of sustainability reporting. Copyright © 2010 John Wiley & Sons, Ltd and ERP Environment.