Synopsis The research problem We explored whether forward-looking statements in Chinese firms’ annual reports help reduce financing constraints and examined differences in this effect between state-owned enterprises (SOEs) and non-state-owned enterprises (non-SOEs). Motivation or theoretical reasoning The motivation arises from the high information asymmetry in China’s capital market, where retail investors dominate, and firm-specific information remains limited. Prior literature suggested that forward-looking disclosures can offer incremental insights, potentially helping to bridge information gaps. With recent improvements in management discussion and analysis (MD&A) disclosure requirements in China, these disclosures have the potential to reduce financing constraints by addressing information asymmetry; however, they may also invite skepticism when viewed as managerial “cheap talk,” limiting their credibility and effectiveness. The test hypotheses Building upon incremental information theory and impression management theory, we proposed that forward-looking statements in the annual report are not associated with the level of financing constraint. Adopted methodology Our adopted methodology employed natural language processing (NLP) and word-embedding techniques to identify and quantify forward-looking information within MD&A sections. We utilized ordinary least squares (OLS) regression and propensity score matching (PSM) methods to examine the relationship between forward-looking statements and financing constraints. Findings Our findings suggest that forward-looking statements in firms’ MD&A sections are negatively associated with financing constraints, underscoring the incremental role of such disclosures in reducing information asymmetry. This relationship is particularly significant for non-SOEs, which tend to face greater financial challenges due to their limited access to informal financing channels compared to SOEs. Additionally, our results reveal that higher readability and a positive tone in annual reports enhance the effectiveness of forward-looking statements in reducing financing constraints, highlighting the importance of clarity and tone in shaping stakeholders’ perceptions and financial decisions. These insights underscore the strategic value of transparent and well-articulated forward-looking statements, particularly for non-SOEs aiming to enhance their access to external financing in China’s unique capital market.

Synopsis The research problem This study examines the relationship between voluntary carbon disclosure and idiosyncratic risk in an international setting, considering the effect of various country and sector contexts. Motivation or theoretical reasoning Despite competing views on whether increased climate-related disclosures alleviate or exacerbate market uncertainty, there has been limited research directly investigating the impact of carbon disclosure on firm risk. Previous studies have primarily focused on the impact of general corporate social responsibility in individual country settings. We took a comprehensive global approach to examine the relationship between carbon disclosure and idiosyncratic risk. Drawing on the neglect effect, resource-based view, and stakeholder theory, we argue that voluntary carbon-related information disclosure leads to a reduction in idiosyncratic risk. The test hypotheses We tested five hypotheses regarding carbon disclosure and idiosyncratic risk: Carbon disclosure is negatively associated with firm idiosyncratic risk ([Formula: see text]), and this negative association is more pronounced in developed countries ([Formula: see text]), countries with stronger governance ([Formula: see text]), and countries with a more transparent information environment than other countries ([Formula: see text]). Lastly, we hypothesize that this negative association is more pronounced in emissions-intensive sectors than in other sectors ([Formula: see text]). Target population Our sample population consists of Global 500 companies from 2007 to 2019. Adopted methodology We use ordinary least squares regressions, propensity score matching, and the two-stage least squares (2SLS) approach. Analyses Our dependent variable, idiosyncratic risk, is measured as the standard deviation of residuals from the capital asset pricing model (CAPM). Our independent variable of interest is a dummy that equals 1 if the firm voluntarily discloses its carbon information via the CDP and 0 otherwise. Findings Our empirical results suggest that idiosyncratic risk is significantly lower for disclosing firms than for nondisclosing firms. This result is robust to the adoption of alternative measures of firm risk, different model specifications, and controls for endogeneity. We also explored the contextual variables that could affect the negative relationship between carbon disclosure and idiosyncratic risk. This relationship is stronger for firms in developed countries and in countries with stronger governance, and for firms with higher information asymmetry.

Synopsis The research problem Considering cybersecurity as a strategic ethical decision rather than a technical concern, this study explored how CEO power and audit committees (ACs) impact cybersecurity risk management (CRM) and what role other CEO attributes play in shaping this nexus. Previous research has provided limited insight into the possible factors influencing CRM. This study addresses this research gap. Motivation or theoretical reasoning We were motivated by the lack of empirical evidence on the role of CEO power and ACs in CRM. The study uses stewardship and resource dependence theories to explain how CEO power and ACs influence CRM. The test hypotheses Our paper tested two hypotheses: (1) CEO power is positively associated with CRM and (2) AC characteristics are positively associated with CRM. Target population The study was based on a sample of nonfinancial companies listed on the London Stock Exchange (FTSE-All-Share) from 2014 to 2020, totaling 1,036 firm-year observations. Adopted methodology The study used the probit model. Analyses We used different measures of CEO power and ACs. Additional analyses were done to control for CEO attributes such as tenure, age, and nationality, as well as firm-specific characteristics, including firm size, firm risk, and financial health. Findings Our findings show that powerful CEOs are more likely to be associated with CRM. Furthermore, effective ACs are more likely to exercise greater oversight over cybersecurity risk. These effects are stronger in firms with younger CEOs, CEOs with shorter tenure, or CEOs of diverse nationalities. Powerful CEOs and ACs are more likely to be associated with CRM in large, risky, and financially healthy firms. This study calls for CEOs and ACs to take on a broader remit and provides original evidence of their role in CRM.

Synopsis Research problem This study explored how U.S. cross-listed firms (foreign private issuers or FPIs) strategically decide between IFRS and U.S. GAAP for their financial reporting. It examined two previously unexplored factors: favorable accounting presentation, which denotes a preference for accounting standards allowing extensive reporting options for significant financial statement elements (i.e., assets, liabilities, revenues, and expenses), and compliance costs (i.e., expenses associated with compliance with the regulations and accounting standards). Motivation Under U.S. laws, FPIs can select their accounting standards, choosing between U.S. GAAP, IFRS, or their domestic standards. Research examining various sample periods and countries has failed to find evidence of significant differences in outcomes between IFRS and U.S. GAAP, leaving open the question of how FPIs choose among possible accounting standards. Thus, exploring and understanding the motivations and costs behind the selection of accounting standards, particularly within the U.S. institutional environment, remains an open area of inquiry. This would provide insights into related academic research, as well as input for standard setters and regulators, by identifying competitive differences and guiding the creation of more responsive reporting frameworks. Test hypotheses This study predicted that managers favor accounting standards offering extensive reporting options for significant financial statement elements and that the selection of an accounting regime is influenced by the associated compliance costs. Target population This study utilized cross-sectional data from FPIs registered with the SEC from 1995 to 2015, with each observation distinctly representing a firm’s initial choice of accounting standards, as collected from FPIs’ auditor opinions. Adopted methodology I exploited multinomial regressions, controlling for documented motivations, mandatory IFRS adoption, SEC enforcement cooperation, and fixed effects. Analyses Analyses and robustness tests across different data segments demonstrate scenarios of voluntary adoption under reduced frictions, for example, firm adoption of IFRS when they are not mandatory in the FPI’s home country, firms conducting initial public offerings, and choices made after the SEC’s 2007 elimination of the reconciliation requirement to U.S. GAAP for FPIs using IFRS. Findings The empirical findings support the predicted effects. In particular, the paper provides consistent evidence that FPIs elect accounting standards that allow for greater reporting flexibility in reporting key financial statement elements. Additionally, the study documents that U.S. GAAP are associated with lower compliance costs than IFRS, particularly before the SEC’s 2007 regulatory amendment.

Synopsis The research problem This study aims to determine the financial repercussions for firms that engage in irresponsible environmental, social, and governance (IESG) practices. Specifically, it examines whether these practices influence the cost of debt through increased borrowing costs imposed by lending institutions. Motivation Amid growing scrutiny over corporate behavior and its broader impacts, understanding how irresponsible practices affect corporate finance is crucial for stakeholders, including investors, policymakers, and regulators. This research is driven by the need to explore beyond the often-studied beneficial impacts of positive ESG practices, focusing on the consequences of their negative counterparts. Hypotheses The current study makes three hypotheses as follows: Ceteris paribus, first, there is a positive association between firms’ IESG practices and their cost of debt; second, the anticipated positive impact of IESG practices on the cost of debt is more pronounced in countries with low levels of corruption; and finally, the anticipated positive impact of IESG practices on the cost of debt is more pronounced among firms in sinful industries. Sample The analysis covers a broad international sample of 50,281 firm-year observations from nonfinancial listed firms across 44 countries, covering the years 2002–2022. This comprehensive dataset allows for generalized insights across various geographic and industrial contexts. Adopted methodology Multivariate analysis is employed, based on pooled regression with standard errors clustered at the firm level to account for intrafirm correlations and potential heteroskedasticity. A two-stage instrumental variable approach is also employed to address potential endogeneity issues, providing a robust framework for examining the causal impact of IESG practices on the cost of debt. Analyses The analyses focus on evaluating the direct impact of IESG practices on borrowing costs, alongside assessing the moderating effects of the corruption perception index (CPI) and differentiating between industry types (sinful versus nonsinful). Sensitivity tests are conducted to ensure the robustness of the findings against various model specifications and potential biases. Findings and Implications The findings indicate a universally significant positive relationship between IESG practices and the cost of debt, confirming that firms engaged in irresponsible practices face higher borrowing costs. This effect is particularly pronounced in countries with lower levels of corruption, emphasizing the critical role of national governance in influencing corporate behavior. Moreover, the analysis reveals no significant differences between sinful and nonsinful industries, suggesting uniform financial penalties for irresponsible practices across sectors. These results are robust across a range of sensitivity analyses, affirming the reliability of the conclusions. The study offers valuable insights for lending institutions, firms, and credit rating agencies about the financial implications of irresponsible corporate practices. It highlights the importance for policymakers and regulators to enforce comprehensive ESG guidelines that encourage substantive disclosures and responsible behaviors as well as eliminating greenwashing and ESG decoupling.

Synopsis The research problem We investigate the effect of ethnic diversity on the reporting quality of U.S. banks. Motivation Although the representation of ethnic minorities in the U.S. boards has increased recently, only a few studies investigated its effect on the board’s monitoring effectiveness. The test hypotheses An ethnically diverse board has a higher monitoring performance in the form of timelier loan loss provision (LLP) recognition. Target population The U.S. commercial banking sector covers the period 1996–2017. Adopted methodology Our main analysis used a fixed effect estimator. We address endogeneity concerns by using bank-fixed effects, CEO-fixed effects, and employing propensity-score-matched and entropy-balanced samples in additional tests. We use LLP, the main accrual in banks, as our measure for financial reporting quality. Our main independent variables are the ethnic diversity of the board and the ethnic diversity of the audit committee. Our ethnic diversity of the board variable is the percentage of independent non-Caucasian directors on the board. Analyses First, we regress LLP on our ethnic diversity variable, controlling for various board characteristics, CEO attributes, and the quality of banks’ information environment. We also extend our analyses to examine the effect of ethnic diversity of the audit committee on LLP timeliness. Finally, using accounting- and market-based measures of risk, we investigate whether bank risk moderates the association between ethnic diversity and LLP timeliness. Findings Our findings indicate that ethnically diverse boards provide more effective monitoring, reflected by higher earnings quality in the form of timelier LLP reporting. We also find that diverse boards are only associated with timelier LLP reporting in high-risk banks, indicating that ethnically diverse boards become more risk averse during periods of financial distress. In light of the recent increased levels of ethnic diversity in U.S. banks and the opaque financial reporting environment, our study provides evidence that ethnically diverse boards are better monitors than more homogenous ones.

Synopsis Research problem This study drew upon legitimacy theory to explore how breached firms in the United States legitimize their existence by communicating future performance prospects to the public. Motivation Cybersecurity incidents present significant challenges to organizational legitimacy. Despite this, there is a limited understanding of how firms navigate such legitimacy gaps through accounting disclosures, particularly in relation to communicating future performance prospects. Theoretical reasoning Legitimacy theory posits that firms operate within society based on an implicit social contract, requiring socially desirable actions. Data breaches violate this contract, creating a legitimacy gap. To maintain legitimacy, firms are motivated to align with societal expectations by enhancing public disclosures of future performance prospects. Test hypothesis We hypothesized that U.S. firms use forward-looking performance disclosure (FLPD) as a legitimizing strategy following data breaches. This study evaluated two key forms of FLPD: management earnings forecasts and forward-looking narratives in the MD&A. Adopted methodology A difference-in-differences research design was employed, comparing breached firms with propensity-score-matched control firms in the United States. Analyses The analysis examined changes in FLPD before and after data breaches, validating results through parallel trend assessments, placebo tests, robustness checks, and breach-specific variations. Channels through which data breaches influence FLPD were also identified. Additional analyses addressed disclosure content, quality, and the role of proprietary costs. Findings Breached firms address legitimacy gaps by increasing forward-looking narratives in the MD&A without altering management earnings forecasts. Events causing greater legitimacy gaps — such as client information leaks, recurring breaches, or post–data breach notification laws — are associated with more forward-looking narratives. The influence of breaches on FLPD stems from external legitimacy pressures and internal perceptions of societal expectations. Moreover, forecast precision and narrative readability decrease slightly postbreach, with some forecast-like elements integrated into narratives. Proprietary disclosure costs constrain FLPD for some firms. Overall, FLPD serves as a strategic tool to address legitimacy concerns following data breaches.

Our study aimed to examine the relationship between irresponsible social, environmental, and governance (IESG) activities and the cost of debt (CoD), focusing on three main aspects. First, we explored the direct relationship between IESG practices and the CoD to understand the financial repercussions for firms engaged in these activities. Second, we assessed how country-level characteristics, measured by the corruption perception index (CPI), moderate the relationship between IESG practices and the CoD, shedding light on the influence of national governance contexts. Finally, we investigated whether operating in traditionally “sinful” industries impacts the association between IESG practices and the CoD, exploring whether industry-specific norms and public perceptions of these industries exacerbate these impacts. Our sample consists of 50,281 firm-year observations for non-financial listed firms across 44 countries, spanning the period from 2002 to 2022. Pooled regression, with clustered standard errors at the firm level and a two-stage instrumental variable method, was employed. We find that firms engaging in IESG practices incur a higher CoD. Notably, this effect is more pronounced in countries with lower levels of corruption. Further analysis focused on the impact within sinful industries — such as tobacco, alcohol, and gambling — revealed no significant differences in the CoD associated with IESG practices compared to non-sinful industries. The study offers valuable insights for lending institutions, firms, and credit rating agencies about the financial implications of irresponsible corporate practices.

This discussion evaluates the study by Ahmed, Eliwa, Tahat, Burton, and Paramati (2025) (henceforth, Ahmed et al. ( 2025 )), which examined whether irresponsible environmental, social, and governance (IESG) practices increase firms’ cost of debt (CoD). Ahmed et al. ( 2025 ) demonstrated that IESG practices significantly raise the borrowing costs, particularly in countries with lower levels of corruption. Notably, the study found that firms in “sin industries” faced penalties comparable to those imposed on firms in other industries. Ahmed et al. ( 2025 ) further examined the directional dynamics of ESG and IESG practices, showing that simultaneous increases in both scores elevate the CoD, whereas reductions in IESG, coupled with ESG improvements, lead to significant decreases in the CoD. Moreover, the study documented a key asymmetry: Lenders penalize IESG practices more severely than they reward positive ESG behavior. While the study offered valuable insights, this discussion highlights areas requiring further attention, including the clarity of key findings and ESG metrics, alternative economic explanations, ESG data quality, and potential endogeneity issues. The discussion concludes by proposing recommendations to address these limitations and enhance future research.

Synopsis The research problem This paper investigates the choice between International Financial Reporting Standards (IFRS) and UK Generally Accepted Accounting Principles (UK GAAP) in parent company financial statements of U.K. firms in the mandatory IFRS adoption era. Motivation or theoretical reasoning The study is motivated by the European Union’s (EU) decision to allow member states the option to adopt IFRS for parent company accounts, leading to a mix of full IFRS adopters (using IFRS in both parent-level and consolidated reports) and partial adopters (using UK GAAP for parent-level reports while using IFRS for consolidated reports) within the United Kingdom. The underlying theory explores whether this choice is driven by managerial opportunism or by the desire to meet investors’ information needs. The test hypotheses The paper hypothesizes that partial adoption of IFRS is not primarily motivated by opportunism but is instead aimed at satisfying investors’ information demands, thus suggesting that full IFRS adoption may not be appropriate for all firms. Target population The study is relevant to researchers, regulators, and practitioners evaluating the appropriateness of allowing the choice among multiple sets of reporting standards for listed firms. Particularly, it addresses those concerned with how IFRS adoption variations impact U.K. firms’ information environment. Adopted methodology Utilizing a Machine Learning (ML) approach, specifically LASSO regressions, the study identifies predictors of reporting choices from more than 40 proxies related to financial reporting incentives. A difference-in-differences framework enriches the analysis to assess changes in U.K. firms’ information environment. Analyses The study first identifies characteristics differentiating partial adopters from full adopters using LASSO regression. It then examines the informativeness of financial statements through metrics like price synchronicity, bid-ask spreads, the frequency of zero-return trading days, and earnings announcement trading volumes before and after the mandatory IFRS adoption. Findings The findings reveal that partial adopters differ from full adopters mainly in aspects such as report length, multinationalism, industry, and audit features rather than financial or governance characteristics, suggesting that the choice of reporting standard is not driven by opportunism. The informativeness analysis indicates improvements in information quality for all firms, with partial and full adopters experiencing comparable changes, supporting the notion that firms tailor their level of IFRS commitment to meet investors’ information needs rather than to engage in managerial opportunism. This research contributes to understanding how regulatory choices impact financial reporting quality and offers insights into the motivations behind firms’ reporting standards choices in a regulated environment.