The relevance of environmental disclosures: Are such disclosures incrementally informative?

Establishing the information content of transparent voluntary environmental disclosures and the source of this information content is of fundamental importance for corporate social responsibility (CSR) practitioners. Our results indicate that: (1) incremental to information provided by current Toxics Releases Inventory (TRI) data, voluntary environmental disclosures provide valuation relevant information; (2) the various disclosure categories are similar in value relevance, implying that each category is informative of management’s current environmental strategies; (3) current TRI is positively associated with cost of capital but there is no association between voluntary environmental disclosures and cost of capital; and (4) taken together, the above results point to a signaling role for such disclosures and financial performance prediction as the means by which voluntary environmental disclosures enhance firm value. This advances the literature by pinning down the source of firm value enhancement of such disclosures. Our results suggest that a proactive environmental strategy and the signaling of such a strategy to investors can enhance a firm’s stock price, a finding which will assist CSR practitioners in convincing top management that proactive environmental strategies combined with transparent voluntary environmental disclosures are worthwhile.     

CONSERVATIVE ACCOUNTING PRINCIPLES, EQUITY VALUATION AND THE IMPORTANCE OF VOLUNTARY DISCLOSURES

Previous theoretical research on voluntary disclosures has commonly viewed accounting information as a simple signalling device, for example indicating «good news» or «bad news». In this paper, voluntary disclosures are considered to provide complementary information in fundamental valuation analysis, as broadly outlined in Ohlson (1989), Brief & Lawson (1992) and Bernard (1993). The research questions are concerned with the importance of voluntary disclosures in a valuation framework of this kind and the expected content and context of such disclosures. The results imply that voluntary disclosures for typical operating companies are expected to be concerned with the prediction of net income for the next period, the long-run future development of the book return on owners» equity, and the accounting cost matching bias of owners» equity. The cost matching bias is caused by conservative valuation principles, and a specific linkage between the book return and the cost matching bias of owners» equity is recognized in the analysis.     

Key performance indicators as supplements to earnings: Incremental informativeness,demand factors,measurement issues,and properties of their forecasts

The documented decline in the information content of earnings numbers has paralleled the emergence of disclosures, mostly voluntary, of industry-specific key performance indicators (KPIs). We find that the incremental information content conveyed by KPI news is significant for many KPIs yet diminished when details about the computation of the KPI are absent or when the computation changes over time. Consistent with analysts responding to investor information demand, we find that analysts are more likely to produce forecasts for a KPI when that KPI has more information content and when earnings are less informative. We also analyze the properties of analysts’ KPI forecasts and find that KPI forecasts are more accurate than mechanical forecasts and their accuracy exceeds that of earnings forecasts. Our study contributes to the literature on the information content of KPIs as well as research on the properties of analysts’ forecasts. We provide evidence on whether and how to regulate voluntary disclosures.

     

The Value-Relevance of Derivative Disclosures by Commercial Banks: A Comprehensive Study of Information Content Under SFAS Nos. 119 and 133

This study examines the value-relevance of banks' derivative disclosures under Statements of Financial Accounting Standards (SFAS) Nos. 119 and 133. Using the complete time-series of SFAS No. 119 disaggregated notional value disclosures and the most recently available SFAS No. 133 fair value data, this study investigates whether such expanded disclosures provide incremental information content beyond earnings and book value. Our results indicate that banks' notional principal amount disclosures are value-relevant, and that this evidence of incremental information content is robust to the inclusion of recently available fair value data and alternative model specifications. JEL Classification: M41, G21     

Repetitive disclosures in the MD&A

This study is the first to empirically analyze repetitive disclosures in the Management Discussion and Analysis (MD&A) section of the 10‐K filing. Repetitive disclosures refer to the extent that content in the MD&A is repeated from the audited financial statement notes. I empirically analyze repetitive disclosures in the MD&A section of the 10‐K filing, and find that firms tend to use more repetitive disclosures when firms have a new CEO, a high level of new disclosures in the notes, issued equity, and have missed the prior year's earnings benchmark. These findings suggest that not all managers use repetitive disclosures to simply obfuscate disclosures. Rather, some managers use repetitive disclosures to emphasize firm‐specific events, consistent with the succession hypothesis. The Securities and Exchange Commission (SEC) states that repetitive disclosures are uninformative and that such disclosures decrease the informativeness of other disclosures in the MD&A. Casting doubt on the SEC's comments, in my primary analyses, I find that repetitive disclosures are informative to investors; this result is stronger for individual investors. Overall, my results suggest that repetitive disclosures are informative, and such disclosures may be effective tools for providing information to investors.     

Risk reporting: A study of risk disclosures in the annual reports of UK companies

The concepts of risk and risk management have received considerable attention lately, but this has yet to be reflected in empirical research examining firms’ risk reporting practices. This study seeks to address this gap in the literature and explores risk disclosures within a sample of 79 UK company annual reports using content analysis. A significant association is found between the number of risk disclosures and company size. Similarly a significant association is found between the number of risk disclosures and level of environmental risk as measured by Innovest EcoValue`21™ Ratings. However, no association is found between the number of risk disclosures and five other measures of risk: gearing ratio, asset cover, quiscore, book to market value of equity and beta factor. The paper also discusses the nature of the risk disclosures made by the sample companies specifically examining their time orientation, whether they are monetarily quantified and if good or bad risk news is disclosed. It was uncommon to find monetary assessments of risk information, but companies did exhibit a willingness to disclose forward-looking risk information. Overall the dominance of statements of general risk management policy and a lack of coherence in the risk narratives implies that a risk information gap exists and consequently stakeholders are unable to adequately assess the risk profile of a company.     

Financial Reporting and Supplemental Voluntary Disclosures

A standard result in the voluntary disclosure literature is that when the manager's private information is a signal correlated with the firm's liquidation value, mandatory disclosures substitute for voluntary disclosures. In this paper, we assume that the manager's private information complements the mandatory disclosure and show that the content and likelihood of a voluntary disclosure depend on whether the mandatory reports contain good or bad news. This different information asymmetry produces new, testable implications regarding the probability of and market reaction to voluntary disclosures. We also show that changes in mandatory disclosure regulations can have unintended consequences due to their effects on the manager's willingness to voluntarily provide supplemental disclosures.     

How do corporate websites contribute to the information environment? Evidence from the U.S. and Taiwan

We study corporate website disclosures in the U.S. and Taiwan, two countries with different regulatory and market environments, to provide insights into the uniformity of website content and its contribution to the information environment. We observe significant variation in content both within and between the two countries. U.S. firms with higher analyst following tend to create more transparent financial information environments and provide disclosures that are complementary to analysts’ analyses through their corporate websites. They also tend to provide easier access to investor relations (IR) services if analyst coverage is light or nonexistent. However, neither effect is true in Taiwan where the securities analysis industry is less mature. Individual investors have greater ownership share in U.S. firms with more information about IR services on their websites; however, their ownership share drops as financial disclosure on the firm’s website increases, consistent with institutions diluting individual ownership in firms with more transparency in financial reporting. In Taiwan, however, institutions dilute individual ownership share in firms with less financial information and more trading information on their websites. These results are consistent with Barber et al.’s (2009) findings that institutions find Taiwan firms that attract the aggressive, speculative trading of individuals to be extremely profitable investments. Website disclosures in both countries have some effect on the stock-price response to mandatory earnings releases, but their impact is greater in the U.S. Our findings indicate that website disclosures contribute to the information environment and are related to the degree of interest in the firm by sophisticated market participants. Thus, they provide insights to regulators of both countries as they seek to improve disclosure and “level the information playing field.”     

Are required SEC proxy disclosures about the board’s role in risk oversight substantive?

The U.S. Securities and Exchange Commission (SEC) requires companies it regulates to include disclosures about the board’s role in risk oversight in the annual proxy statement to shareholders. The SEC does not mandate specific content or actions that boards should perform as part of their risk oversight responsibilities, leaving the nature of activities and extent of those disclosures to the discretion of the reporting entity. This study examines whether these disclosures contain substantive information reflective of the effectiveness of the organization’s risk oversight. We find that organizations disclosing more specific information (but not simply more information) about board risk oversight practices are associated with firms independently assessed as having the strongest management and governance processes. These findings suggest that these firms use the discretion provided by the SEC’s disclosure rule to provide substantive and potentially value-relevant information for stakeholders about the entity’s risk management processes and board risk oversight activities.     

Mandatory and Voluntary Disclosures: Dynamic Interactions

Firms sometimes obtain soft private information about growth prospects along with hard information about current or past performance. In this environment, we find that optimizing disclosures over multiple periods yields nonlinear stock price reactions following both voluntary and mandatory disclosures. Further, we derive several predictions about distinct short‐run and long‐run effects of disclosures and nondisclosures on security prices. Under specified conditions, when the volatility of the firm's earnings increases, the average contemporaneous and prospective post‐mandatory‐disclosure market premia (for voluntary disclosures over nondisclosures) rise, while farther‐in‐future market discounts (for such voluntary disclosures) also become larger. Our analysis moreover predicts that both the disclosure probability and the information content of nondisclosures can increase in the persistence of earnings.     

The information content of mandatory risk factor disclosures in corporate filings

Beginning in 2005, the Securities and Exchange Commission (SEC) mandated firms to include a “risk factor” section in their Form 10-K to discuss “the most significant factors that make the company speculative or risky.” In this study, we examine the information content of this newly created section and offer two main results. First, we find that firms facing greater risk disclose more risk factors, and that the type of risk the firm faces determines whether it devotes a greater portion of its disclosures towards describing that risk type. That is, managers provide risk factor disclosures that meaningfully reflect the risks they face. Second, we find that the information conveyed by risk factor disclosures is reflected in systematic risk, idiosyncratic risk, information asymmetry, and firm value. Overall, our evidence supports the SEC’s decision to mandate risk factor disclosures, as the disclosures appear to be firm-specific and useful to investors.     

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。     

Managerial risk-taking incentives and non-GAAP earnings disclosures

We investigate the association between risk-taking incentives provided by stock-based compensation arrangements and non-GAAP financial disclosures. Controlling for compensation to stock price sensitivity, we find that managers with higher compensation to stock volatility sensitivity (vega) are more likely to be associated with voluntary non-GAAP earnings information disclosures. In addition, higher-vega managers are found to be associated with more frequent and less opportunistic non-GAAP earnings information disclosures. Robust to alternative specifications and estimations, our findings suggest that compensation arrangements can encourage managers to make more, higher-quality voluntary non-GAAP disclosures.     

年报风险信息披露与银行贷款利率

既有文献较少从银行视角关注年报风险信息披露的经济后果。银行更有能力解读年度风险信息,银行利益也更直接受到年报风险信息的影响,银行贷款利率更能体现年报风险信息披露的经济后果。本文基于2008-2017年单笔银行贷款利率数据的研究发现:总体上我国年报风险信息披露降低了银行贷款利率,说明我国年报风险信息披露更符合趋同观假说。中介效应检验发现:我国年报风险信息披露通过提高信息透明度,降低银行风险感知水平进而降低了银行贷款利率,即信息质量和风险是我国年报风险信息披露影响银行贷款利率的不完全中介。进一步分析发现:我国年报风险信息披露与银行贷款利率的负相关关系主要体现在货币政策紧缩组、非国有企业组以及公司治理水平较高组。本文首次研究银行贷款利率与年报风险信息披露的关系,有助于丰富风险信息披露文献和银行贷款文献。     

Dynamic Effects of Information Disclosure on Investment Efficiency

This paper studies how information disclosure affects investment efficiency and investor welfare in a dynamic setting in which a firm makes sequential investments to adjust its capital stock over time. We show that the effects of accounting disclosures on investment efficiency and investor welfare crucially depend on whether such disclosures convey information about the firm's future capital stock (i.e., balance sheet) or about its future operating cash flows (i.e., earnings). Specifically, investment efficiency and investor welfare unambiguously increase in the precision of disclosures that convey information about the future capital stock, since such disclosures mitigate the current owners' incentives to underinvest. In contrast, when accounting reports provide information about future cash flows, the firm can have incentives to either under‐ or overinvest depending on the precision of accounting reports and the expected growth in demand. For such disclosures, investment efficiency and investor welfare are maximized by an intermediate level of precision. The two types of accounting disclosures act as substitutes in that the precision of capital stock disclosures that maximizes investment efficiency (and investor welfare) decreases as cash flow disclosures become more informative and vice versa.     

The relation between non-GAAP earnings and accounting restatements: Evidence after regulation G

Scholarly findings on whether disclosure of Non-GAAP earnings is informative or opportunistic are inconsistent. Since the 2003 implementation of Regulation G, investors can view management's process of adjusting from GAAP earnings to Non-GAAP earnings. This study investigates the information content of Non-GAAP earnings in the context of restatements. The hypotheses of this study are based on the following two propositions. First, the informativeness of Non-GAAP earnings is determined by the nature of items excluded from GAAP earnings to derive Non-GAAP earnings (either nonrecurring special items or recurring exclusions). Second, restatements can be used to distinguish between informative and opportunistic Non-GAAP earnings disclosures. My results show that firms with restatements, especially fraud or core earnings restatements, exhibit greater relative use of Non-GAAP earnings disclosures that adjust GAAP earnings for positive other exclusions (recurring expenses). By contrast, disclosures of Non-GAAP earnings derived by excluding nonrecurring expenses (special items) from GAAP earnings are not associated with restatements.     

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.     

Critical accounting policy and estimate disclosures: Company response to the evolving SEC guidance

In late 2001, soon after numerous financial reporting failures including the much publicized demise of Enron, the SEC began a series of initiatives to improve critical accounting policy (CAP) and critical accounting estimate disclosures included within the MD&A section of Form 10-K. The first announcement, in the form of cautionary guidance, was issued in December 2001. This was followed by a Proposed Rule in 2002, and additional disclosure guidance near the end of 2003. Combined, the guidance required companies to provide information that would help investors understand the impact of estimates, accounting policies and external factors on financial results. Through 2007, the SEC continued to provide guidance as to the content of CAP disclosures in the MD&A.In this study, we assess the extent to which companies responded to the initial CAP guidance, and determine the extent to which company disclosures changed with additional SEC guidance by analyzing CAP disclosures included in the 2001 and 2003 10-K filings for 112 of the Mid-Cap 400 companies. Our findings indicate that most, but not all, sampled companies included 2001 CAP disclosures consistent with the cautionary advice. We find that the disclosure content increased from 2001 to 2003, and that the disclosure quality also increased. However, some items remained underdisclosed in 2003, indicating that even after a 2-year period in which the SEC continued to provide additional guidance and reviewed company CAP disclosures, companies were not fully disclosing content identified as important by the SEC, particularly when the guidance was included in the Proposed Rule.     

The innovation consequences of mandatory patent disclosures

We investigate the effect of patent disclosures on corporate innovation. Using the American Inventor's Protection Act (AIPA) as a shock that increased patent disclosures, we find an increase in innovation for firms whose rivals reveal more information after the AIPA and a decrease in innovation for firms whose own disclosures are divulged to competitors as a result of the law. These findings suggest patent disclosures generate both spillover benefits and proprietary costs. Our findings provide justification for patent disclosure requirements by demonstrating positive externalities: rivals' disclosures facilitate a firm's innovation. However, we also highlight that mandatory patent disclosures can impose proprietary costs on firms. These results broadly contribute to our understanding of the real effects of disclosure, such that forcing firms to share proprietary information can be privately costly but beneficial to other firms.