Introducing More IFRS Principles of Disclosure – Will the Poor Disclosers Improve?

Abstract

The current paper was prepared for the International Accounting Standards Board (IASB) Research Forum 2017 and evaluates the effects of introducing more principles of disclosure as part of the IASB Disclosure Initiative. We perform a literature review of academic research on how entities have complied with disclosure requirements in the past. The review shows high levels of non-compliance and high volatility across entities, including poor disclosers being far below the average. We find no clear pattern of higher compliance for International Financial Reporting Standards (IFRS) with more reliance on disclosure principles as compared to specific requirements (i.e. IFRS 7, IFRS 8), but note the methodological problem of measuring compliance with disclosure principles. Academic research suggests that the degree of compliance depends on entities’ incentives for providing or withholding information in combination with local conditions for primary users, auditors and regulators. Based on our review, we argue that increased reliance on entities to act in ‘good faith’ when complying with disclosure requirements, in capital-market contexts where entities may be in high-incentive situations and have low costs of non-compliance, is potentially risky in terms of how well the Standards protect primary users from poor disclosers. More emphasis is needed on ensuring that the disclosure requirements are enforceable and auditable in order to secure a certain minimum level of disclosure.     

Eco-social analysis of an East African agro-pastoral system: Management of tsetse and bovine trypanosomiasis

A key constraint for development of many East African agro-pastoral communities is African animal trypanosomiasis or nagana caused by Trypanosoma spp. and vectored by species of tsetse flies (Glossina spp.). Suppression of trypanosomiasis through trapping of tsetse fly populations was conducted from 1995 to 2005 at and near Luke, Southwest Ethiopia. Odor baited mass trapping technology was used to suppress adult fly populations to very low levels while tryponocidal drugs were used to treat trypanosome infections in cattle. Data on ecological, economic and social variables were collected and analyzed in the context of eco-social dynamics in the community.The bio-economic model of Regev et al. [Regev, U., Gutierrez, A.P., Schreiber, S.J., Zilberman, D., 1998. Biological and Economic Foundations of Renewable Resource Exploitation. Ecological Economics 26, 227-242] and Gutierrez and Regev [Gutierrez, A.P., Regev, U., 2005. The bioeconomics of tritrophic systems: applications to invasive species. Ecological Economics 52, 382-396] was used as a methodological framework for qualitative evaluation of the effects of tsetse/trypanosomiasis suppression on ecological, economic and social aspects. An objective function for single farmers was formulated to determine the optimal harvesting level of cattle, exposed to high and low levels of risk from tsetse/trypanosomiasis, as measured by the discount rate (δ) for a given base level pastoral resource (R = pasture or forage for cattle). The socially optimal objective function for resource exploitation by all farmers is that which maximizes the present value of utility of individuals expending revenues (consumption) from the revenue stream in ways that enhance the quality of life and yet assures the persistence of the resource base over an infinite time horizon (i.e., renewable resource sustainability).The bio-economic model predicts that reducing risk (δ) from tsetse and disease increased the cattle populations and their marginal value. The model also predicts that the interaction of decreased δ and increased productivity (θ) can lead to increased human and cattle populations and hence to over-exploitation of base resources (pastures) that lower environmental carrying capacity and reduced sustainability.Trap catches indicated that tsetse populations were reduced to very low levels, while the disease prevalence decreased from 29% to 10%. This led to a substantial increase in cattle including oxen populations, increased calving rates, increased milk production and increased the per-capita income. The availability of oxen allowed an increase in cultivated land from 12 ha in 1995 to 506 ha in 2005. Revenues (consumption) were invested in the purchase of more cattle and the establishment of a school for educating village children. Increases in land allocated to crops and other sources of income were also found.The bioeconomic model predicts the solution of the trypanosomiasis problems so transforms the East African agro-pastoral communities that new social structures will be required to cope with the ecological, economic and social consequences of this technological changes on sustainable development (sensu [Goodland, R., 1995. The concept of environmental sustainability. Annual Review of Ecology and Systematics 26, 1-24]). This insight should not be lost in international rural development programs.     

Public private partnerships: Incentives, risk transfer and real options

Private financing of large-scale infrastructure projects through public private partnerships (PPPs) has grown in recent decades. Together with changes in conventional construction procedures, there have been changes in the project financing model. The use of PPPs raises questions as to the role of the private sector in infrastructure provision and the conditions governing the long-term contractual relationships between the private and public sectors. In some early examples of PPPs, the government guaranteed a minimum profitability over the cash flows using a set of contractual terms which transferred some of the risk of the project from the private provider back to the government. Using a large toll road project, the Melbourne CityLink Project, as a case study we show how the imposed conditions can be treated as real options, how these options affect the incentive to invest and how the public sector may be transferring considerable value to the private sector through government guarantees.     

An Analysis of the Performance of Commercially Oriented Farms in Hungary

As a result of the economic restructuring and political reforms undertaken during the 1990s, Hungary has a varied set of farm types that encompass a wide array of different sizes, degrees of capital intensity and forms of ownership. This article explores the performance of Hungarian farms and concludes that, in contrast to other Central and Eastern European (CEE) countries, the majority of commercially oriented farms are profitable. However, estimates are sensitive to the valuation of own land and labour inputs. From the application of factor and cluster analysis, eight clusters of farms are profiled and the most competitive group identified. While the most profitable cluster also has the highest mean farm size, farm consolidation should not be treated as a panacea for dealing with low agricultural returns in the region.     

Farmland prices, structural breaks and panel data

Previous time series evidence has indicated that farmland pricesand cash rents are not cointegrated, a finding at odds withthe present value model of farmland prices. We argue that thisfailure to find cointegration may be due to low power of testsand to the presence of structural change representing a shiftingrisk premium on farmland investments. To accommodate this possibility,we use panel unit root and cointegration methods that are morepowerful than conventional time series methods and allow forbreaks in the cointegration relationship. Our results, basedon a large panel covering 31 US states between 1960 and 2000,suggest that the present value model of farmland prices cannotbe rejected.     

Market States and Momentum

We test overreaction theories of short-run momentum and long-run reversal in the cross section of stock returns. Momentum profits depend on the state of the market, as predicted. From 1929 to 1995, the mean monthly momentum profit following positive market returns is 0.93%, whereas the mean profit following negative market returns is −0.37%. The up-market momentum reverses in the long-run. Our results are robust to the conditioning information in macroeconomic factors. Moreover, we find that macroeconomic factors are unable to explain momentum profits after simple methodological adjustments to take account of microstructure concerns.     

Do Non-socially Responsible Companies Achieve Legitimacy Through Socially Responsible Actions? The Mediating Effect of Innovation

This study investigates the effects on organization’s financial performances of, first, the extent to which the organizations are involved in controversial business activities, and second, their level of social performance. These companies can be considered non-socially responsible given the harmful nature of the activities they are involved in. Managers of these companies may still have incentives to pursue socially responsible actions if they believe that engaging on those actions will help them to achieve legitimacy and improve investors’ perception about them. We develop a comprehensive methodology to investigate these corporate social performance (CSP)-related effects in a complex but specific setting. To this end, we analyze a sample of 202 US firms for the period 2005–2008 using a novel method in this area: partial least squares. Our results indicate that, contrary to the general findings in prior literature, companies involved in controversial business activities which engage in CSP do not directly reduce the negative perception that stakeholders have about them. Instead, we found evidence of a positive mediation effect of CSP on financial market-based performance through innovation.     

Effect of Stakeholders’ Pressure on Transparency of Sustainability Reports within the GRI Framework

Transparency is a quality of corporate social responsibility communication that enhances the relationship between the investors and the company. The objective of this paper is to analyze if the transparency of the sustainability reports is affected by the relationship of companies in different industries with their stakeholders. If this were the case, it would indicate that the pressure of significant stakeholders determines the required level of transparency of the reports. We find that the pressure of some groups of stakeholders (customers, clients, employees, and environment) improves the quality of transparency of the reports. We extend previous research by studying the effect of stakeholder group pressure on transparency when reporting sustainability. Our results show that transparency is affected by ownership, along with size and global region.