Three Essays on Corporate Disclosure

ABSTRACTThis study analyzes the impact of informed trading on voluntary corporate disclosure in the presence of two factors: the cost of disclosure and the value of a manager's informedness. In the absence of both factors, informed trading has no impact on disclosure even when traders are not certain whether the manager has information. When disclosure is costly, informed trading serves as a free substitute for the disclosure of favorable information, and reduces disclosure. Surprisingly, when the manager's informedness is valuable for the firm, informed trading can also increase disclosure. Traders can discover unfavorable information about the firm, so managers with such information have less incentive to pool with uninformed managers and disclose to show that they are informed. The study also demonstrates that informed trading can have either a positive or a negative effect on firm value by crowding in or crowding out information production in the firm. These results hold for general information structures and are robust if traders can choose how much information can be acquired.

Voluntary Disclosure and Informed Trading

T HIS study empirically examines the effects of increases in the level and enforcement of insider-trading regulations in the 1980s on corporate insiders.1 The main goal of the insider-trading regulations is to prevent insiders from trading on the basis of material, nonpublic corporate information. In addition, regulations require that insiders report their transactions to the Securities and Exchange Commission (SEC) and refrain from generating short-term profits by trading in their own firms' stocks. Regulations also prohibit insiders from short selling the securities of their firms.

PurposeThis paper analyzed the effect of voluntary corporate disclosure on firm value and how audit quality and cross-border stock market listing moderate this relationship.Design/methodology/approachThe paper analyzed S&P BSE index constituents’ 90 Indian enterprises for 2017–2019. The India Disclosure Index Report was used to fetch the voluntary disclosure scores. Further, the study was conducted in two parts using six different panel-data regression models in the framework of legitimacy, agency, signaling and market segmentation theory. First, the study investigated the direct impact of voluntary disclosures on return on assets (ROA) and Tobin’s Q. Second, the moderating effect of the “Big 4” was tested. Third, the paper also examined the moderating role of “cross-border stock market listing” in the direction of voluntary disclosure-firm value relationships.FindingsPrimarily, the results postulate a significant positive impact of voluntary disclosures on ROA and Tobin’s Q. A higher voluntary disclosure leads to a higher ROA and Tobin’s Q for firms. Moreover, the improvement effect of such disclosures on ROA and Tobin’s Q is more pronounced for companies “listed abroad” and audited by “Big 4.”Research limitations/implicationsThe findings will enhance managers’ learning about the financial impact of voluntary disclosures. The choice of a “Big 4” and “Cross border stock market listing” indicates firms’ future positive perspectives, strengthening investor trust in the market.Social implicationsThe results suggest that companies’ potential auditing, agency and litigation issues could be addressed through fairness in the information content of voluntary disclosures.Originality/valueThis examination presents a firm valuation model in which voluntary disclosure tackles an ethical issue, the resolution of which depends on the “audit quality” and “cross-border stock market listing.”

This paper examines the level and determinants (i.e. ownership structure, board composition and audit committee presence) of voluntary corporate disclosure in the annual reports of the largest 100 companies listed on the Egyptian stock exchange (EGX). Our results indicate that overall voluntary disclosure was low at just 13.43% with a large variation range. This score places Egypt at a lower level than other emerging capital markets (e.g. Singapore, Hong Kong and Malaysia). The variances of these results support the need for individual country level studies and comparative analysis. Multivariate results show audit committee presence as the most significant variable influencing voluntary disclosure. Also, companies with a higher ratio of independent non-executive directors have a higher extent of voluntary disclosure. It was also evidenced that voluntary disclosure increases with decreases in block-holder ownership. Results show that two other ownership aspects – managerial and government – are not related to voluntary disclosure. Finally, the analysis shows profitability and internationality significantly impact voluntary disclosure. On the other side, that number of shareholders, type of auditor, size, liquidity, leverage and industry type of the firm do not affect the extent of voluntary disclosure.

PurposeThe aim of this paper is to investigate stakeholder power changes and their impact on firms' disclosure decisions in the Chinese stock market. Using legitimacy theory and stakeholder theory, the paper identifies newly emerged stakeholder groups for listed Chinese firms during three distinguished periods of the development of the Chinese stock market.Design/methodology/approachPanel data analysis was undertaken over a period from 1995‐2006 with an aim to examine the influence of stakeholder power changes on voluntary disclosures made by 297 listed firms in their 12 years of annual reports. A voluntary disclosure checklist has been used for hand‐collecting data from annual reports.FindingsThe finding shows that different stakeholder groups exert different degrees of influence on firms' decision‐making in respect of information disclosure during different stages of the development of the Chinese stock market.Research limitations/implicationsThe impact of a stakeholder power changes on corporate disclosure has not been well addressed and how listed Chinese firms respond to these changes is still a significant gap in the Chinese corporate disclosure literature. In this study, the paper uses proxies to represent each stakeholder group, discuss power changes of each group and predict the impact of power changes on firms' voluntary disclosure.Originality/valueThe paper identifies the new content of the “social contract” between listed firms and Chinese society and identifies various stakeholder groups of listed Chinese firms in the context of a new “social contract”. The paper predicts that voluntary corporate disclosure is the result of stakeholder pressures and firms use voluntary disclosure as one of their strategies to manage the firm‐stakeholder relationship.

Voluntary Disclosure and Investor Sentiment

Disclosure of corporate information forms an integral part of the corporate governance framework and lies at the center of most of the corporate governance codes, principles and reports around the world given its indispensable contribution to market and firm performance. Unfortunately, corporate disclosure is not a central aspect of corporate governance in Tanzania. It is noted that the lack of adequate voluntary corporate disclosure is one of the biggest challenges facing the implementation of effective corporate governance in Tanzania. In turn, lack of sound corporate governance has fueled corruption and cronyism while suppressing sound and sustainable economic decisions. To address this major problem, this paper investigates the determinants of voluntary disclosure in 107 private Tanzanian mining and manufacturing firms. This study uses a longitudinal approach as variation across firms and over time. To this end, 2011–2015 is selected for the longitudinal analysis. Annual reports of 107 private firms was used to collect data in relation to ownership structures, financial performance and firm size. This data was analyzed using a random effects Generalized Least Squares (GLS) model with Mundlak (1978) corrections. Our results show that ownership structures are associated with voluntary disclosure. Specifically, ownership concentration is negatively associated with voluntary disclosure in mining companies while it is positively associated in manufacturing firms. Foreign ownership is positively associated with voluntary disclosure for both mining and manufacturing firms. Further, the results reveal that financial performance is associated with voluntary disclosure where leverage is positively related to voluntary disclosure in mining and manufacturing firms while liquidity is significantly associated with voluntary disclosure in mining companies only. Our results also show that mining companies disclose 3.2% more information than manufacturing firms. Relevant policies to promote voluntary disclosure should be directed at facilitating foreign direct investment and leverage. These policies include developing impartial court systems, development of infrastructure, provision of quality education, tax holidays and tax credit. It is recommended that loan guarantee provided by public financial institutions can be used to reduce risk. In addition, foreign exchange liquidity facilities can reduce risk associated with borrowing money in different currencies.

Voluntary Corporate Disclosure: Motivation and Consequences: The Case of Tunisian Listed Firms (La Divulgation Volontaire: Motivations et Conséquences: Cas des Entreprises Tunisiennes Cotées) (French)

This article investigates the effect of voluntary corporate disclosures on the firm value from the market value perspective. Financial reporting includes disclosures as prescribed by regulators, but few companies go beyond mandatory requirements and provide additional information voluntarily. This study empirically tests the extent of such voluntary disclosures using Corporate Voluntary Disclosure Index containing 81 items of both financial and non-financial information and panel data regression to test the hypotheses. The sample for this study is the non-financial companies in the BSE 100 Index and the period is five financial years from 2010–2011 to 2014–2015. This study finds a positive association between voluntary disclosures and firm value as measured by Tobin’s Q. Especially the market gives a higher valuation for companies disclosing optional information on social and environmental, corporate governance and financial information. This finding has a significant implication for emerging economies like India and it supports various disclosure theories such as agency, stakeholders and positive accounting theories.

PurposeThis study aims to examine the relationship between corporate governance (CG) voluntary disclosure (VD) and firm valuation (FV). Moreover, the study also investigates whether VD mediates the impact of CG on FV or not.Design/methodology/approachThe study is based on a panel data set of top 100 listed firms on Bombay Stock Exchange (BSE) over the period of 2014–2018 and develops CG index and VD index (VDI) in order to capture both the constructs respectively. The author adopts suitable panel data model to examine the relationship between CG, VD and FV as well as indirect impact of CG on FV through mediation of VD. Further, the author uses instrumental variables regression model for robustness check.FindingsThe author's findings reveal significant positive impact of CG on FV. Likewise, VD also exhibits significant positive impact on FV. Notably, the interaction of CG and VD complements each other in making positive contribution towards FV. In addition, the author observes that VD partially mediates the impact of CG on FV. Specifically, the outcome suggests that CG apart from having direct impact on FV also influences the same through the mediation of VD. Moreover, as the direction of indirect impact coincide with direct impact, such indirect impact has complementary relationship with the direct impact, implying that when CG makes direct contribution towards improving FV, CG's contribution toward FV through mediation of VD also increases.Originality/valueTo the best of the author's knowledge, this is the first endeavor in the extant literature that examines the interaction performance impact of CG and VD. Further, the author also provides primary evidence on the mediating impact of VD in the relationship between CG and FV.

The aim of this study is to examine the relationship between board composition and ownership structure variables on the level of voluntary information disclosures of companies listed on the Egyptian Stock Exchange. Board composition is examined in terms of board independence; board size; and CEO duality; also, ownership structure is examined in terms of ownership concentration; institutional ownership; and managerial ownership. The results show that there is a significant negative relationship between CEO duality and voluntary disclosures. However, board independence; board size; ownership concentration; institutional ownership; and managerial ownership are not associated with voluntary disclosures. Also, the results of the regression analyses show that size and leverage of firms are significantly and positively associated with the level of voluntary information disclosures. Profitability of a firm is not significantly associated with voluntary disclosures. Finally, this paper indicates the relationship among board composition, ownership structure and corporate voluntary disclosure, and provides evidence for Egyptian regulators to improve corporate governance and optimize ownership structure.

PurposeThe purpose of this paper is to map corporate disclosure theories as a step towards filling a gap in the theoretical background for corporate disclosure research. The purpose of the map is to encompass a range of particular theories relating to corporate disclosure and to demonstrate the complex relationships between different notions of the financial disclosure phenomenon. This will help new researchers to understand how particular corporate disclosure theories are related, as well as help with teaching accounting theories at undergraduate and postgraduate level.Design/methodology/approachA deductive and inductive approach to theory building was applied. The deductive approach suggests identifying the gap in the literature, the inductive approach then prescribes theory building in three stages: phenomenon observation, categorisation and relationship building. This approach serves to develop a theoretical map integrating the corporate disclosure theories.FindingsThe paper discusses theories that recognise actual features of financial markets – market failure, information asymmetry and adverse selection – to provide an explanation for the existence of corporate reporting regulations and managerial incentives, which control and determine the maximum level of corporate information under these conditions. It then integrates these theories in a map seeking to explain corporate disclosure levels, mandatory and voluntary, financial and narrative. A combination of theoretical supplements – codification theory, Dye's theory of mandatory and voluntary disclosure, and disclosure transformation theory – are proposed in this framework as theories to explain processes of change in mandatory and voluntary corporate disclosure in practice.Originality/valueAnother benefit mapping these theories is to provide useful insights into existing disclosure theories, which may help to explain why some empirical results have been inconsistent with the predictions of these theories. No similar attempts have been published in the accounting literature.

<p><strong>This thesis explores voluntary climate risk disclosures and consists of five chapters. Chapter 1 introduces the thesis, Chapters 2 to 4 present three independent but related studies, and Chapter 5 provides a discussion.</strong></p><p>Chapter 1 introduces the thesis by highlighting the importance of corporate voluntary climate risk disclosures and outlining the three key research questions explored in the main chapters. It also provides brief overviews of the motivation, research setting, and main findings for each research topic.</p><p>Chapter 2 examines how investors assess the credibility of voluntary climate disclosures. The empirical results show that investors understand the signal conveyed by green patents, which certify firms’ climate disclosure credibility. Exploiting the variation in the leniency of patent examiners’ grant decisions for identification, I show that firms with more green patents: (i) are more likely to issue voluntary climate disclosures, (ii) experience higher stock returns around these disclosures, and (iii) see a greater subsequent increase in institutional ownership, especially among climate-conscious investors. Additionally, (iv) the influence of green patents is less pronounced when climate disclosures are externally assured, report bad news, or when reporting firms possess high reputational capital.</p><p>Chapter 3 investigates whether greenwashing activities generate a negative externality. To address this question, I focus on the impact of the 2015 Volkswagen emissions fraud on the voluntary climate disclosures of Volkswagen’s industry peers. Analyzing automakers across OECD countries, I find that these firms demonstrate diminished incentives to engage in voluntary disclosures following the fraud. This reduction in disclosure propensity is primarily attributed to a loss of disclosure credibility due to the negative spillover effects of Volkswagen’s deceptive behavior. Notably, the reduction is most pronounced among automakers without green patents, those in countries with low social capital, and climate disclosures without external ESG assurance. The adverse externality of greenwashing activities revealed in this study may provide a rationale for the regulatory mandate of climate disclosures.</p><p>Chapter 4 explores how firms’ environmental performance influences their decisions to provide voluntary climate disclosures. Using verified carbon emissions reported under the UK mandatory emissions disclosure regulation, I find that firms with higher Scope 1 emissions or worse environmental performance are more likely to provide voluntary climate disclosures before the regulation. Consistent with the explanation that firms under-report emissions in voluntary climate disclosures, I find a significant increase in Scope 1 emissions in the first year of the disclosure regulation for firms that previously disclosed these emissions voluntarily. This increase in emissions is more pronounced among firms without external ESG assurance. Furthermore, I find less under-reporting for Scope 2 emissions, which rely on external data and are harder to manipulate.</p><p>Finally, Chapter 5 summarizes the main findings of the three research topics and discusses their potential implications.</p>

<p><strong>This thesis explores voluntary climate risk disclosures and consists of five chapters. Chapter 1 introduces the thesis, Chapters 2 to 4 present three independent but related studies, and Chapter 5 provides a discussion.</strong></p><p>Chapter 1 introduces the thesis by highlighting the importance of corporate voluntary climate risk disclosures and outlining the three key research questions explored in the main chapters. It also provides brief overviews of the motivation, research setting, and main findings for each research topic.</p><p>Chapter 2 examines how investors assess the credibility of voluntary climate disclosures. The empirical results show that investors understand the signal conveyed by green patents, which certify firms’ climate disclosure credibility. Exploiting the variation in the leniency of patent examiners’ grant decisions for identification, I show that firms with more green patents: (i) are more likely to issue voluntary climate disclosures, (ii) experience higher stock returns around these disclosures, and (iii) see a greater subsequent increase in institutional ownership, especially among climate-conscious investors. Additionally, (iv) the influence of green patents is less pronounced when climate disclosures are externally assured, report bad news, or when reporting firms possess high reputational capital.</p><p>Chapter 3 investigates whether greenwashing activities generate a negative externality. To address this question, I focus on the impact of the 2015 Volkswagen emissions fraud on the voluntary climate disclosures of Volkswagen’s industry peers. Analyzing automakers across OECD countries, I find that these firms demonstrate diminished incentives to engage in voluntary disclosures following the fraud. This reduction in disclosure propensity is primarily attributed to a loss of disclosure credibility due to the negative spillover effects of Volkswagen’s deceptive behavior. Notably, the reduction is most pronounced among automakers without green patents, those in countries with low social capital, and climate disclosures without external ESG assurance. The adverse externality of greenwashing activities revealed in this study may provide a rationale for the regulatory mandate of climate disclosures.</p><p>Chapter 4 explores how firms’ environmental performance influences their decisions to provide voluntary climate disclosures. Using verified carbon emissions reported under the UK mandatory emissions disclosure regulation, I find that firms with higher Scope 1 emissions or worse environmental performance are more likely to provide voluntary climate disclosures before the regulation. Consistent with the explanation that firms under-report emissions in voluntary climate disclosures, I find a significant increase in Scope 1 emissions in the first year of the disclosure regulation for firms that previously disclosed these emissions voluntarily. This increase in emissions is more pronounced among firms without external ESG assurance. Furthermore, I find less under-reporting for Scope 2 emissions, which rely on external data and are harder to manipulate.</p><p>Finally, Chapter 5 summarizes the main findings of the three research topics and discusses their potential implications.</p>