Determinants of Financial Ratio Disclosure Patterns of Australian Listed Extractive Companies

We investigate the disclosure patterns of Financial Ratios (FRDs) within the annual reports of 111 Australian listed resource companies over the period 2002 to 2006. Disclosure of financial ratio information increased over this period with a significant increase in disclosures recorded in the first full‐year annual report prepared following adoption of IFRS. The results of logistic regression analysis demonstrate that income tax and firm size are factors that are significantly associated with financial ratio disclosures. This study contributes to an understanding of the extent, trends and rationale behind resource firms’ financial ratio disclosure practices in Australia.     

Disclosure Practices by Family Firms: Evidence from Swedish Publicly Listed Firms

Abstract

I investigate the effect of family ownership on firms’ disclosure practices in their annual reports. In specific, I study Swedish publicly listed firms, which are typically characterized by controlling owners that have a strong influence in the corporate governance decisions of the firm, including corporate disclosures. To measure disclosure, I construct a comprehensive disclosure index covering information on (1) corporate governance, (2) strategic and financial targets and (3) notes to the financial statements. The results reveal that overall, family firms provide less disclosure in annual reports than non-family firms do. The finding is consistent with the premise that through their management positions, family owners can directly monitor managers and avoid costly public disclosures. Overall, the results suggest that ownership structure of firms is important to consider in understanding firms’ disclosure incentives, particularly in settings where controlling owners play a significant role in the governance of the firm.     

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.     

Risk reporting quality: implications of academic research for financial reporting policy

In this paper, I survey empirical research on the relevance of firms’ financial report information for the evaluation of their risk. I recommend that financial reporting policymakers require or encourage firms to enhance their risk reporting quality in four ways. First, firms should report comprehensive income statements that: (1) use fair value or a similarly information-rich accounting measurement attribute and (2) separate the components of comprehensive income that are primarily driven by variation in cash flows from those that are primarily driven by variation in costs of capital. Such comprehensive income statements would provide users of financial reports with the flexibility to calculate alternative summary accounting numbers and to perform different types of risk assessment analyses. Second, firms should conduct and disclose the results of back-tests of prior significant accrual estimates, indicating any identified trends in and drivers of revisions to those estimates, and describing the effects of those revisions on current or future summary accounting numbers. Third, firms should aggregate and present risk disclosures in tabular or other well-structured formats that promote the usability of the information. Identifying existing best disclosure practices and encouraging new best practices are the most natural way to do this. Fourth, for model-dependent risk disclosures, firms should disclose the primary historical and forward-looking attributes of the models and their implementation in practice, sensitivity of the model outputs, and benchmarking of the models to standard portfolios of exposures.     

业绩快报的信息含量:经验证据与政策含义

业绩快报是上市公司2004年报披露中的一项制度创新。本文旨在研究业绩快报是否具有信息含量,以及业绩快报的披露是否会减少盈利公告的有用性。我们选取了2005年1月至4月间披露的70份2004年度业绩快报作为样本进行了实证研究。研究结果表明:业绩快报的披露提高了会计信息质量;业绩快报具有显著信息含量;业绩快报的披露并没有减少盈利公告的信息含量,是盈利公告的一种有益补充形式,值得提倡和推广。     

U.S. Audit partner identification and auditor reporting

After a lengthy and protracted debate, the Public Company Accounting Oversight Board (PCAOB) adopted new rules requiring disclosure of the engagement partner’s name and information about other accounting firms on the new PCAOB Form AP, Auditor Reporting of Certain Audit Participants. We investigate the impact of this regulation on auditor behavior in the context of the auditor’s going concern report modification propensity. We document an increase in the propensity to issue a going concern report modification in the disclosure regime, accompanied by a corresponding increase in the Type I (‘false positives’) error rate. Thus, an unintended consequence of Rule 3211 is the potential reduction in the audit report's informativeness. Conceivably, a more significant repercussion is that going concern modifications can hasten bankruptcy for firms since financial institutions may be reluctant to lend money to firms with modified audit reports. An unjustified increase in the going concern modification rate as evinced in our paper may make U.S. capital markets potentially less attractive to young, upstart, albeit financially-distressed, companies.     

Disclosure of GAAP line items in earnings announcements

We provide new evidence on the disclosure in earnings announcements of financial statement line items prepared under Generally Accepted Accounting Principles (GAAP). First, we investigate the circumstances that might provide disincentives generally for GAAP line item disclosures. We find that managers who regularly intervene in the earnings reporting process limit disclosures at the aggregate level and in each of the financial statements so as to more effectively guide investor attention to summary financial information. Specifically, this disclosure behavior obtains when managers habitually cater to market expectations, engage in income smoothing, or use discretionary accruals to improve earnings informativeness. Second, we predict and find that the specific GAAP line items that firms choose to disclose are determined by the differential informational demands of their economic environment, consistent with incentives to facilitate investor valuation. However, these valuation-related disclosure incentives are muted when managers habitually intervene in the earnings reporting process.     

Do Declines in Bank Health Affect Borrowers’ Voluntary Disclosures? Evidence from International Propagation of Banking Shocks

I examine whether declines in banks’ financial health affect their borrowers’ disclosures. Prior studies indicate that, in relationship lending, banks and borrowers rely on private communication, rather than public disclosures, to resolve information asymmetries. When banking relationships are threatened, borrowers must turn to new funding sources, inducing them to reconsider their disclosure policies. This paper predicts that borrowers, whose banking relationships are threatened by declining bank health, change their public disclosures of forward‐looking information. Using the emerging‐market financial crises in the late 1990s as shocks to the health of certain U.S. banks, I find that affected banks’ U.S. borrowers increase both the quantity and informativeness of their management forecasts following these shocks compared to borrowers of unaffected banks. The results are similar using conference calls or the length of the Management's Discussion and Analysis section as alternative proxies for voluntary disclosure. Overall, these results provide new insights into the impact of availability of relationship lending on firms’ disclosure choices.     

Narrative disclosure quality and the timeliness of goodwill impairments

This paper studies the relation between the quality of corporate narrative disclosure and the timeliness of goodwill impairments. We combine five measures of the linguistic content of annual report narratives to generate a proxy for narrative disclosure quality. To measure the timeliness of impairments, we deploy a model that relates observed goodwill impairments to the main determinants of impairments identified by prior literature, focusing especially on current period negative stock returns. We hypothesise and find that the impairments of firms with low-quality narrative disclosures are less timely than the impairments of firms with high-quality disclosures. In addition, using a signalling argument, we hypothesise, and find that the market response to goodwill impairments is more negative for firms with low disclosure quality.     

Do disclosures of selective access improve market information acquisition fairness? Evidence from company visits in China

Following an exogenous regulation change in China, we examine the impact of company visit disclosures on the fairness of market information acquisition. Before July 2012, company visits to Chinese listed firms were vaguely disclosed in annual reports long after they were conducted. After that, they were disclosed in detail within two trading days of their completion. Market reactions around visits are much stronger and more predictive of firms' future earnings if visits occurred after July 2012 and, thus, were disclosed in a timelier and more detailed manner. The timely disclosure of visit details also improves the forecast accuracy of non-visiting analysts, reduces forecast dispersion among analysts, and weakens the relative information advantages of visiting analysts. Because of this, visits are more concentrated on firms with poorer information environments, larger sizes, and manufacturing firms after July 2012, i.e., firms offering visitors larger potential benefits. In summary, the timely disclosure of visit details improves the fairness of information acquisition and decreases information asymmetry while causing information chilling effects for firms that provide fewer potential benefits to visitors.     

An analysis of proxy statement leadership structure justification disclosures

The Dodd-Frank Act’s qualitative disclosure requirements have prompted a call in the accounting literature for greater qualitative disclosure scrutiny. In this paper, we investigate the informativeness of qualitative leadership justification disclosures required by Section 972 of the Dodd-Frank Act. The disclosures are divided between justifying combining the CEO and Chairman of the Board (CEO Duality) and splitting these two positions (split structure). We use content analysis in our investigation. We discover that the two types of justifications are very different. The split structure disclosures tend to be ‘boiler plate’ and lack informativeness. In contrast, our tests suggest that CEO Duality justifications are informative. Our tests suggest that disclosures’ intensities in CEO Duality firms are positively associated with an increasing volume of information that supports CEO Duality as the more appropriate leadership structure choice. Additionally, our test results show that leadership disclosures change users risk perception, but only for CEO Duality firms. This suggests that investors believe in and are using the disclosures when making their investment decisions.     

Fund ownership and stock price informativeness of Chinese listed firms

We examine the impact of mutual fund ownership on stock price informativeness in China. Existing evidence shows that stock price informativeness is low in China, and attributes this to firms’ lack of disclosure incentives under the weak investor protection institutional environment. Mutual funds are more sophisticated and influential than individual investors to monitor firms, and thus serve as an external governance mechanism to improve corporate transparency. However, the impact of mutual funds in China can also be moderated by state ownership of listed firms, which reduces firms’ dependence on outside investors for capital. Indeed, we find that mutual fund ownership is positively related to share price informativeness, but this effect is less pronounced among state-controlled firms. The main policy implication from our findings is that mutual funds contribute to the corporate information environment of emerging economies but further privatization of listed firms would be needed to realize greater benefit.     

Market valuation of greenhouse gas emissions under a mandatory reporting regime: Evidence from the UK

This study provides evidence on the potential benefits of mandatory environmental reporting for listed firms’ market valuation. It takes advantage of recent regulation that requires all listed firms in the UK to report their annual greenhouse gas (GHG) emissions in their annual reports and shows that the magnitude of the negative association between GHG emissions and the market value of listed firms decreased after the introduction of the reporting regulation. This decline is attributed to regulation forestalling shareholders’ negative reflexive reaction toward firms’ carbon disclosures, as proposed by the theoretical work of Unerman and O’Dwyer (2007).     

Cybersecurity Disclosure by the Companies on the S&P/TSX 60 Index

Cybersecurity has become a topic of great interest since 2010. Accounting issues surrounding cybersecurity governance, management, and disclosure have gained attention from accounting standard setters, large accounting firms, and professional associations, but only a limited number of studies have looked at cybersecurity disclosure. In this study, we examine whether the content of cybersecurity disclosures of Canadian firms comprising the S&P/TSX 60 index is aligned with best practices—that is, financial regulators' guidelines in that matter. A content analysis was performed of documents issued between January 2017 and mid‐2018, consisting of recent annual information forms (AIFs), annual and quarterly management's discussion and analysis (MD&As), proxy circulars, material change reports, and news releases. To assess the nature and extent of cybersecurity disclosure, we developed a scoring grid featuring 40 items based on financial regulators' guidelines. Results show that cybersecurity disclosure levels are low. Companies vary widely in the amount of detail they provide, and the information is often not company‐specific. The variations among industrial sectors involve the categories related to cybersecurity risk, cybersecurity risk mitigation, and other items. Most of the companies provided cybersecurity disclosures in the annual MD&A, and several reiterated some disclosure items in the AIF and proxy circular. The results of this study highlight some areas where cybersecurity disclosures have evolved and others where they could be improved. They suggest that some firms strive to avoid boilerplate language and be more company‐specific. The findings also suggest that financial regulators could issue more stringent requirements.     

Earnings changes associated with relaxing the reconciliation requirement in non-U.S. firms’ SEC filings

We investigate the changes in earnings information content and earnings attributes for non-U.S. firms listed in U.S. equity markets following the 2007 relaxation of the SEC requirement to reconcile IFRS earnings and stockholders’ equity to U.S. GAAP in annual regulatory filings. We analyze a sample of non-U.S. firms listed on U.S. exchanges from 2005 to 2008 that use IFRS, and compare them to non-U.S. firms that continue to use domestic GAAP or U.S. GAAP. Prior literature finds no changes in informativeness following the regulatory change for IFRS-using firms. However, when we partition the IFRS-using firms into two groups based on their history of providing reconciliation information, we find that firms which previously provided more information about the differences between their reporting GAAP and U.S. GAAP had significant increases in the information content of their earnings. In contrast, there is no change in earnings informativeness for firms that provided less informative reconciliations. We regard the reconciliation informativeness as a proxy for firms’ efforts to provide more informative disclosures, which is driven by their disclosure incentives. We also document that the change in the information content of earnings for more informative reconcilers was contemporaneous with a change in earnings attributes for these firms. Consistent with no change in earnings informativeness for less informative reconcilers, there is little change in their earnings attributes. Our results underscore the importance of incorporating disclosure incentives when examining the consequences of a regulatory change.     

披露内部控制自我评价与鉴证报告会降低资本成本吗?——来自中国A股上市公司的经验证据

管理层对内部控制的自我评价能够释放企业内部控制有效性的信息,有助于企业外部利益相关者的决策;而由审计师出具的内控鉴证报告则是对管理层所披露的内控信息公允性的鉴证。本文以2007至2010年期间沪深主板上市的A股公司年度报告或独立公告中披露的内部控制自我评价和鉴证报告为对象,研究其披露是否会降低企业资本成本。研究表明,在控制其他因素的情况下,披露内控自我评价报告的公司资本成本相对较低,且进一步披露内控鉴证报告的公司资本成本更低。这一结论对于国有和非国有控股公司同样成立。本文的结论对政策制定者进一步推进内控披露制度具有一定参考价值,同时为公司管理层的内控披露决策提供支持依据。     

Corporate Disclosures of the Major Sources of Estimation Uncertainties

We investigate compliance with regulatory requirements by the largest 20 Australian listed firms to disclose key assumptions and major sources of estimation uncertainties. These relate to accounting estimates that require management's judgement in measuring the carrying amount of the entity's assets and liabilities. While we find that firms provide some disclosure, the information is not sufficiently informative to give users meaningful insights. Overall, the level of disclosure falls short of the intentions of the relevant requirements. Our findings suggest that additional guidance may be necessary to improve compliance and thus increase the information value that these disclosures contribute to financial reports.     

Corporate Governance,Companies’ Disclosure Practices and Market Transparency: A Cross Country Study

We examine the link between corporate governance, companies’ disclosure practices and their equity market transparency in a study of more than 5,000 listed companies in 23 countries covering the period 1 January 2003 to 31 December 2008. Our results confirm the belief that better‐governed firms make more frequent disclosures to the market. We also find greater disclosure in common law relative to code law countries. However firms with better governance in both code and common law countries make more frequent disclosures. We measure market transparency by the timeliness of prices. In contrast to single country studies, results show, for the 23 countries collectively, better corporate governance is associated with less timely share prices. This would suggest that a firm substitutes better corporate governance for transparency. We are thus led to the conclusion that even if information is disclosed more frequently by better‐governed firms, it does not necessarily follow that information is reflected in share prices on a timelier basis.     

Security Analysts’ Site Visits and Stock Price Synchronicity

This paper investigates how security analysts’ corporate site visits impact listed firms’ stock-price informativeness. Examining a sample of security analysts’ visits to Chinese listed firms from 2010 to 2019, we find that security analysts incorporate firm-specific information into share prices through site visits, significantly reducing the visited firms’ stock price synchronicity. This finding is robust to an alternative measure of stock price informativeness and a two-stage least-squares approach using the introduction of high-speed rail as the instrumental variable. We also find that the impact of analysts’ site visits on firms’ stock price synchronicity is more pronounced for firms with lower information disclosure quality and poor corporate governance than for other firms. Further analysis on firm characteristics documents that this effect is stronger for large-size firms, firms in the manufacturing industry, and state-owned enterprises.     

IRS Attention

We study how public and private disclosure requirements interact to influence both tax regulator enforcement and firm disclosure. To capture IRS enforcement activities, we introduce a novel data set of IRS acquisition of firms’ public financial disclosures, which we label IRS attention. We examine the implementation of two new disclosure requirements that potentially alter IRS attention: FIN 48, which increased public tax disclosure requirements, and Schedule UTP, which increased private tax disclosure. We find that IRS attention increased following FIN 48 but subsequently decreased following Schedule UTP, consistent with public and private disclosure interacting to influence tax enforcement. We next examine how private tax disclosure requirements under Schedule UTP affected firms’ public disclosure responses. We find that, following Schedule UTP, firms significantly increased the quantity and altered the content of their tax‐related disclosures, consistent with lower tax‐related proprietary costs of disclosure. Our results suggest that changes in SEC disclosure requirements altered the IRS's behavior with regard to public information acquisition, and, relatedly, changes in IRS private disclosure requirements appear to change firms’ public disclosure behavior.