Disclosure Regulation, Governance Mechanisms and their Implementation in Practice : Empirical Evidence on Critical Accounting Policies and Board Diversity

Abstract

This dissertation presents four chapters on disclosure regulation and corporate governance mechanisms. While Chapter 1 and 2 focus on disclosures about highly uncertain accounting policies (‘critical accounting policies’, CAPs), Chapter 3 and 4 examine gender diversity on corporate boards. The first chapter analyzes the regulatory framework, existing research, as well as implementation in practice of CAP disclosures. Using a sample of Standard & Poor’s (S&P) 500 firms between 2001 and 2016 with hand-collected data about 35,686 CAPs, I provide initial evidence on the occurrence of CAPs over time and how related disclosures comply with SEC guidelines. In addition, I explore the reporting characteristics of CAPs by analyzing the length, textual similarity, specificity, and readability of respective disclosures. My results enhance current knowledge about the number, regulatory framework, and content of CAPs. In particular, it further allows indications about factors that determine a firm’s decision to flag an accounting policy as critical, potential effects of CAPs on capital markets, and their usefulness for financial statement users. The second chapter analyzes whether CAPs are useful to identify single financial statement positions that are highly uncertain. In accordance with prior literature, we assume that financial statement positions flagged as CAPs contain a higher degree of measurement uncertainties, and are thus less persistent with respect to future cash flows. Our results support this assumption. We further find that accrual components flagged as CAPs are in fact not less useful in predicting future cash flows per se. It additionally depends on the importance and to a certain extent on the specificity for a given firm. To best of our knowledge, there is no evidence on how to identify subjective and uncertain accruals that are less persistent with respect to future cash flows. We show that CAPs provide such information. Thus, we empirically demonstrate that CAPs represents a suitable channel to communicate measurement uncertainties. The third chapter explores institutional supply- and demand-side factors associated with global differences in female board representation. The results show that functioning outside investor protection and a societal climate of gender equality contributes to more women on boards, mainly by fostering the supply of suitable candidates. Our results reveal that longer-term supply side factors seem to be necessary to complement short-term demand-side regulation to increase female board representation. The fourth chapter examines long-term effects of board gender diversity on capital markets. We analyze how stakeholders perceive female board members in the long-term. Further, we explore whether firms get punished by investors if they do not ‘comply’ with investors’ and other stakeholders’ expectations about gender diverse boards. Based on 8,872 firm-year observation from 13 countries, we conclude that investors seem to perceive female and male board members as being…