Voluntary disclosure of corporate political spending

In this paper, we study voluntary political spending disclosure, a widespread yet relatively unexplored corporate voluntary disclosure practice. Using an index created by the CPA-Zicklin Center that measures the level of voluntary political spending disclosure for S&P 500 firms, we examine firm-level characteristics associated with such disclosures, and their importance. We find that firms with greater political expenditures, direct political connections, higher investor activism, better corporate social responsibility performance and governance, and more industry competition tend to have a higher level of political spending disclosure. We also find that a higher level of political spending disclosure is positively associated with both the number of institutional investors and the proportion of shares owned by institutional investors, particularly socially responsible institutional investors, after controlling for the quality of other disclosures. The level of political spending disclosure is also associated with a higher analyst following, lower forecast error, and smaller forecast dispersion. Finally, we find that political spending disclosure enhances the positive relationship between annual corporate political spending and firm financial performance. Together, these results are consistent with the view that voluntary political spending disclosure helps align managers’ interests with those of shareholders.     

The language of US corporate environmental disclosure

We rely on prior work in environmental disclosure and corporate impression management to investigate whether there are self-serving biases present in the language and verbal tone used in corporations’ environmental disclosures. Specifically, we argue that the degree of bias in these narratives varies systematically based on firm environmental performance, hypothesizing that disclosures of worse environmental performers exhibit significantly more “optimism” and less “certainty” than their better-performing counterparts. We test our two hypotheses using a cross-sectional sample of corporate environmental disclosures contained in US 10-K annual reports. Utilizing the content analysis software DICTION to determine “optimism” and “certainty” scores for the disclosures, we find empirical support for both hypotheses. Our study contributes significantly to research in environmental disclosure by investigating bias in the use of language and verbal tone as a tool for managing stakeholder impressions and by finding empirical support for this role. Thus, the language and verbal tone used in corporate environmental disclosures, in addition to their amount and thematic content, should be considered when investigating the relation between corporate disclosure and performance.     

Institutional investors and corporate environmental and financial performance

We propose a conceptual framework to illustrate that when three conditions hold, institutional investors moderate a positive relation between corporate financial performance and corporate environmental performance. We explore heterogeneities across institution types to demonstrate the importance of each condition. The moderating effect works through the channels of expert consulting and effective monitoring. Our results have important policy and practical implications given the global trend of ownership concentration in institutional investors and the projection that by 2025, one out of three dollars under professional management will be invested in corporate social responsibility assets.     

Judge political affiliation and impacts of corporate environmental litigation

This study examines the role of judges' political affiliation in determining the outcomes of environmental lawsuits filed against public corporations and their economic impacts on the defendant firms. Drawing on legal theories of judicial decision making, individual judges are expected to play an important role in influencing lawsuit outcomes and consequently the sued firms' shareholder wealth. This study employs a hand-collected sample of environmental lawsuits filed in the U.S. Federal District Courts against public firms during 2000–2015, utilizing the random assignment of judges to lawsuits to combat endogeneity concerns. The empirical evidence shows that lawsuits with Republican-appointed judges are approximately 12% less likely to succeed in reaching a settlement compared with those adjudicated by Democratic-appointed judges, holding constant other lawsuit-, judge-, and firm-specific factors. Further, investors of defendant firms react more favorably to the outcome of a lawsuit adjudicated by a Republican-appointed judge compared with a Democratic appointee: the difference of 0.6% of market value during the three-day period surrounding the lawsuit conclusion represents a substantial saving of shareholder wealth. These significant differences are not attributable to alternative explanations, such as other judge idiosyncrasies or firm characteristics, and remain robust to a series of additional analyses. These empirical findings offer new insights into the significant impacts of judge political affiliation on corporate environmental litigation and provide novel evidence on the magnitude of their economic consequences.     

Perceived international environmental factors and corporate voluntary disclosure practices: An empirical study

Drawing upon the contingency theory of organisations, we identify a set of perceived international environmental factors and examine how these factors influence a company's voluntary disclosure levels. The perceived international environmental factors identified are (a) intensity of global competition, (b) international socio-political institutions, (c) international accounting standards, and (d) international financial institutions. Based on data collected from 100 Egyptian non-financial listed companies, the results of multiple regression analysis indicate that the level of a company's voluntary disclosure is positively and significantly associated with its perceived influence of (a) international socio-political institutions (such as the United Nations, the European Union, the Association of South East Asian Nations, the World Trade Organization, and the Organization for Economic Co-operation and Development), (b) international accounting standards, and (c) international financial institutions (such as the World Bank and the International Monetary Fund). Contrary to our expectations, our findings reveal no significant association between voluntary disclosure level and perceived intensity of global competition. Our study contributes to the international accounting disclosure field by providing evidence from Egypt that perceived international environmental factors may influence the type and level of accounting disclosures by organisations. These findings are also applicable to other emerging countries.     

Institutional investors and corporate environmental costs: The roles of investment horizon and investor origin

Using an international data set that quantifies corporate environmental costs, we analyze the influence of institutional investor ownership, particularly investment horizon and investor origin, on the monetized environmental impact generated by their investee firms. Institutional investor ownership is negatively related to corporate environmental costs. This effect is driven by long-term foreign institutional investors, especially investors from advanced economies. Corporate environmental costs are negatively correlated with firm valuation and positively correlated with the cost of equity. Since corporate environmental costs are not reflected in environmental, social and governance ratings, our results shed new light on the role of institutional investors in shaping corporate environmental impact.     

The changing trends of corporate social and environmental disclosure within the Australian gambling industry

This study examines how the corporate social and environmental disclosure (CSD) practices of a sample of gambling companies operating within Australia appears to change around the time of three specific interrelated Australian government initiatives; the Productivity Commission, 1999, Australia's Gambling Industries, Report No. 10, the subsequent establishment of the Ministerial Council on Gambling and the MCG‐initiated National Framework on Problem Gambling. Drawing upon three complementary theories, namely legitimacy, stakeholder and institutional theory, our analysis of the extent and type of CSD in the annual reports of gambling companies over a 15 year period suggests that CSD is a response to social pressures created around the time of these initiatives.     

Corporate environmental disclosure and political connection in regulatory and leadership changes: The case of China

With a rapid increase of corporate environmental disclosure in developing countries, more attention is drawn to the extent to which this increase is influenced by corporate political connection. This paper focuses on China, a country experiencing increasing tensions between fast economic growth and heavy environmental pollution, complicated by high levels of political connections. A more important context in China is a historical leadership change entangled with significant regulatory reform to tackle corruption in 2013–14. Using hand-collected data from heavily polluting companies in 2012 and 2015 respectively, this study finds that there is a positive association between political connections of corporate chairmen and environmental disclosure levels in 2015 but not in 2012, suggesting that corporate disclosure behaviour has become more politically motivated after the regulatory and leadership change. There has been a significant improvement in environmental disclosure quality and this improvement is prominent in firms with politically connected chairmen. Although the regulatory change to eliminate corruption has led to substantial reductions in political connections of CEOs and senior executives, change associated with corporate chairmen is marginal. These results imply that the improvement of environmental disclosure is related more to the greater political intervention enabled by the leadership shift and power consolidation during the anti-corruption campaign than to the regulatory change to reduce political shield.     

Voluntary disclosure and corporate innovation

Review of Quantitative Finance and Accounting - We examine whether a firm’s voluntary disclosures, proxied by management earnings forecasts, affect its innovation activity. A firm making more...     

Green credit policy and corporate access to bank loans in China: The role of environmental disclosure and green innovation

This research assesses the effectiveness of China's green credit policy. We explore whether firms with better external environmental disclosure and internal green innovation receive more bank loans because of green credit, and utilize a panel of 1086 listed Chinese manufacturing enterprises from 2012 to 2017 to test our hypotheses. The results suggest that firms with higher environmental disclosure quality do not obtain more loans, and only green innovation promotes access to corporate loans. We show that the underlying cause of this phenomenon is corporate green-washing, which is prevalent in soft environmental disclosure and hinders enterprises from obtaining more loans. Our findings contribute to the literature on green credit policy, corporate green innovation, environmental disclosure, and green-washing, and provide a reference for companies, banks, and governments to make decisions.     

The effect of legislation on corporate disclosure practices

This article investigates the effect of the Financial Reporting Act of 1993 (FRA) on mandatory disclosure practices of companies listed on the New Zealand Exchange Limited. The FRA gave statutory backing to financial reporting standards in New Zealand and made non-compliance illegal. Using both univariate and multivariate analyses, we examine the association between (a) the levels of compliance with mandatory disclosure by the companies in our sample, and (b) disclosure regulatory regimes that prevailed in New Zealand before and after the implementation of the FRA. We find that mean corporate disclosure compliance levels in the periods after the enactment of the FRA are significantly higher than those in the periods before the enactment of the legislation. After controlling for the effects of other mandatory disclosure-related variables documented in prior studies, we also find that the improvement in corporate disclosure compliance behaviour is the result of the implementation of the FRA. Alternative specifications of the primary regression model indicate that those findings are robust.     

The interaction between corporate tax structure and disclosure policy

When socially desirable behaviors are deemed difficult to legislate, tax code is often called upon to indirectly achieve the desired ends. Adjustments to tax policy have been employed to spark investment, encourage charitable donations, and discourage tobacco consumption, to name a few examples. This paper demonstrates that tax policy may also be an effective means of encouraging welfare enhancing disclosures by firms. Further, by inducing disclosures of the right types of information while discouraging revelation of other types, tax policy proves to be a more versatile instrument than direct regulatory attempts which can mandate (but not prohibit) disclosures. The intuition behind our results is that when firms make decisions to disclose (or withhold) pieces of private information, such a decision is often made with an eye on the potential for a large payoff. In such cases, progressive taxes can dampen the appeal of big payoffs and better align the incentives of firms with those of consumers. In short, while progressive taxes may be criticized for curbing aggressiveness, it is precisely such a decrease in aggressiveness that can prompt efficient sharing of information.     

Stock-market disruptions and corporate disclosure policies

We examine managers’' disclosure decisions in response to non-fundamental price shocks. Using mutual fund fire sales as a source of market disruption, we show some firms respond by issuing earnings guidance. Others, especially firms with weaker performance and more short-term-oriented investors, engage in accrual-based earnings management. To identify the efficacy of firm disclosure choices, we examine passage of Sarbanes-Oxley and Regulation Fair Disclosure and show that they increased reliance on guidance rather than earnings management. The shift is associated with faster post-fire-sales price recovery, suggesting enhancing information disclosure rather than manipulation is effective in mitigating the effect of market disruptions.     

US cross-listing and corporate disclosure policy

We investigate whether cross-listing in the US contributes to impound more earnings information into stock prices. Our results indicate that US exchange cross-listings are not associated with more future earnings news reflected in current prices, in accord with the view that such mechanism does not improve the information environment of non-US firms. This main finding is robust to many aspects of our methodology.     

Director capital and corporate disclosure quality

Conventional wisdom regarding board effectiveness emphasizes the role of board composition and incentives in alleviating conflicts of interest. We argue that board capital, however, may be a more important aspect of board efficacy since directors are the highest level agents of shareholders, meet infrequently, and shareholders have limited recourse for poor decision-making. In contrast, shareholders and the SEC can sue/prosecute directors for conflicts of interest or bias. One role of the board involves determining the depth and degree of the firm’s financial disclosures. To test the idea that high capital boards seek to provide greater disclosure quality to investors, we manually collect data on director attributes and apply factor analysis to measure the networking, educational, and experience capital of the board. The results indicate that board capital is positively related to disclosure quality, with differing key attributes for inside and outside directors. These results are robust to 2SLS and difference-in-difference approaches.     

Equity home bias and corporate disclosure

I show that more comprehensive corporate disclosure reduces investors’ uncertainty about domestic companies’ payoffs at no cost, thereby decreasing investors’ equity home bias toward a country. Since investors should base their investment decisions on valid and easily interpretable company information only, more comprehensive disclosure will reduce the home bias only if domestic securities law is sufficiently stratified and domestic companies use international accounting standards. Using panel data for 38 countries from 2003 to 2008 I find that more comprehensive disclosure reduces investors’ home bias, though significantly only for countries that sufficiently enforce their securities law and implement international accounting standards.     

The relation between environmental performance and environmental disclosure: a research note

Previous studies of the relation between environmental performance and environmental disclosure have consistently documented a lack of significance. This study examines the relation between 1990 annual report environmental disclosures for a sample of 131 US companies and their environmental performance as based on toxics release data from 1988 (made available in 1990). In contrast to the previous examinations, results indicate that, controlling for firm size and industry classification (two factors previously shown to be related to the extent of environmental disclosure), there is a significant negative relation between performance and disclosure for the sample firms. However, the disclosure level of firms from non-environmentally sensitive industries is more affected by toxic release levels than is the disclosure of firms from environmentally sensitive industries.     

Customer information disclosure and corporate financing constraints

We examine the impact of voluntary customer information disclosure by Chinese-listed companies on their financing constraints from the perspective of information transparency. The results show that voluntary disclosure can alleviate financing constraints, and the effect is pronounced when detailed customer information is disclosed. Analyst following and information opacity are used as a proxy for information transparency to test the mediating effect, and it is found that voluntary disclosure reduces financing constraints by increasing information transparency. In addition, the results indicate that when industry competition is fierce and the quality of internal control is low, disclosure of customer information has a more pronounced effect on the alleviation of financing constraints. Policymakers and corporate decision-makers should be aware that voluntary customer information has great significance for the improvement of information environment in China's capital market.     

Cross-border regulatory enforcement and corporate voluntary disclosure

In this study, we find that foreign firms cross-listed in the US issue significantly more and better-quality management earnings forecasts after their home countries sign the Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (MMoU), a nonbinding arrangement established by the International Organization of Securities Commissions to enhance the cross-border enforcement of securities laws. Specifically, we find that after the MMoU, relative to their domestic counterparts in the US, foreign firms cross-listed in the US are not only more likely to issue management earnings forecasts but also issue them more frequently. They also tend to issue better-quality earnings forecasts, as measured by lower surprise, higher precision, greater timeliness, more disaggregation, lower optimism and fewer errors. We find that the observed effects of the MMoU signing are stronger for cross-listed firms from countries with weaker institutional environments, resulting in greater enforcement concerns after the MMoU, and for firms with less foreign institutional ownership before the MMoU. Collectively, our findings support the conjecture that after a US-listed foreign firm's home country enters the MMoU, the firm has more incentives to engage in voluntary disclosure due to greater concerns about regulatory enforcement and increased information demand from investors.