Additional Disclosure Research Articles

Shareholder activism and voluntary disclosure

We examine the relation between shareholder activism and voluntary disclosure. An important consequence of voluntary disclosure is less adverse selection in the capital markets. One class of traders that finds less adverse selection unprofitable is activist investors who target mispriced firms whose valuations they can improve. Consistent with this idea, we find that managers issue earnings and sales forecasts more frequently when their firm is more at risk of attack by activist investors, and that these additional disclosures reduce the likelihood of becoming an activist’s target. These additional disclosures also prompt a positive price reaction, contain more precise guidance, and exceed prevailing market expectations. These findings imply that managers use voluntary disclosure to preempt activism at their firm, and that activists prefer to target relatively opaque firms.

Public companies’ transparency in Ukraine: key regulatory requirements

Public companies as strategically important and economically powerful Ukrainian companies should be classified as public interest entities in the context of European integration. Based on the research methodology of the Index of public companies’ transparency of the Center for CSR Development and research of largest public and private companies’ transparency in Ukraine, conducted by TI, the authors concluded about critically low level of transparency of public companies in the disclosure of audited financial reporting, as well as non-financial reporting. This research may contribute to the existing literature in regard to identifying key areas of improving transparency of public companies in Ukraine on the basis of amendments to the existing order of reporting and additional disclosure of non-financial information and carrying out the statutory audit, taking into account European experience. Among the issues that require further study, the authors should name the relationship between the level of transparency of public companies, their financial efficiency and investment attractiveness. Among the promising areas of research, the extension of the study on transparency of public interest entities after the publication by the European companies of the first statements prepared in accordance with Directive 2014/95/EU is worth noting. Limitations of the research carried out concerned the size of the sample Ukrainian public companies analyzed.

PERNYATAAN STANDAR AKUNTANSI KEUANGAN No. 46 DAN KOEFISIEN RESPON LABA AKUNTANSI

The objective of this study is to examine: (1) the difference of stock price change in the period before and after PSAK No.46 was implemented; (2) the effect of interperiod tax allocation based on PSAK No.46 on the earning response coefficient (ERC); and (3) the ERC difference between companies which reported deferred tax income and companies which reported deferred tax expenses.The result of this study provide empirical evidence that: (1) stock price change in the period after implementing of the PSAK No.46 are higher than the period before the PSAK No.46 was implemented; (2) interperiod tax allocation based on the PSAK No.46 have negative effects on the ERC; and (3) earnings response coefficient (ERC) for companies which reported deferred tax income were not differ from companies which reported deferred tax expenses. The result of this study indicate that interperiod tax allocation based on the PSAK No.46 was succesfully improve the income statement informativeness and earnings quality. However, interperiod tax allocation based on the PSAK No.46 generate perceive noise embedded in the reported earnings. Therefore, additional disclosures are needed, particularly for economic substance of deferred tax income and deferred tax expenses reported in income statement.

Meta-synthesis of fair value accounting effects

The paper is an attempt to bring out meta-synthesis of the fair value accounting (FVA) and its effect based on a critical synthesis of literature of the fair value measurements (FVM) pertaining to the analysis of results from 42 FVA empirical studies between 2005 and 2016. The findings reflect that the faithful representation of class of assets on the financial statements can only be achieved by additional disclosure requirements under the fair value mechanism by using level 3 with caution by firms in developed capital markets and emerging countries. The post-amelioration of the FVA by the two boards, IASB and FASB; more empirical studies must to be carried out to determine the value relevance of financial instruments/other financial assets on the financial statements on using FVA by firms.

Meta-synthesis of fair value accounting effects

The paper is an attempt to bring out meta-synthesis of the fair value accounting (FVA) and its effect based on a critical synthesis of literature of the fair value measurements (FVM) pertaining to the analysis of results from 42 FVA empirical studies between 2005 and 2016. The findings reflect that the faithful representation of class of assets on the financial statements can only be achieved by additional disclosure requirements under the fair value mechanism by using level 3 with caution by firms in developed capital markets and emerging countries. The post-amelioration of the FVA by the two boards, IASB and FASB; more empirical studies must to be carried out to determine the value relevance of financial instruments/other financial assets on the financial statements on using FVA by firms.

The Effects of the Hypothetical Putative Confession and Negatively Valenced Yes/No Questions on Maltreated and Nonmaltreated Children's Disclosure of a Minor Transgression.

This study examined the effects of the hypothetical putative confession (telling children "What if I said that [the suspect] told me everything that happened and he said he wants you to tell the truth?") and negatively valenced yes/no questions varying in their explicitness ("Did the [toy] break?" vs. "Did something bad happen to the [toy]?") on two hundred and six 4- to 9-year-old maltreated and nonmaltreated children's reports, half of whom had experienced toy breakage and had been admonished to keep the breakage a secret. The hypothetical putative confession increased the likelihood that children disclosed breakage without increasing false reports. The yes/no questions elicited additional disclosures of breakage but also some false reports. The less explicit questions (referencing "something bad") were as effective in eliciting true reports as the questions explicitly referencing breakage. Pairing affirmative answers to the yes/no questions with recall questions asking for elaboration allowed for better discrimination between true and false reports. The results suggest promising avenues for interviewers seeking to increase true disclosures without increasing false reports.

Initial Public Offering: The EU Prospectus Regime

Offering shares for the first time to third-party investors is probably one of the most important decisions that can be made during the life of a company. There are a variety of reasons for listing a company in an initial public offer on regulated markets, but these generally come down to two reasons: wish of the company to raise additional equity capital, and selling stakes in the business. Becoming a public company can bring many advantages, but also is costly exercise because involves services of accountants, underwriters, additional disclosure requirements and regulatory compliance. The most important task facing the initial public offer is development of prospectus, a document that basically serves as a brochure for the company. The prospectus obligations within Europe are the subject matter of a specific piece of legislation – Prospectus Directive.

The impact of information disclosure on market liquidity: Evidence from firms’ use of Twitter

Abstract Despite the popular use of social media by firms, empirical research investigating their economic values still lags. Based on the Security Exchange Commission’s (SEC) new regulation on Fair Disclosure valid important corporate information discloses via social media (RIDSM), in this study, we examine the effectiveness of this new regulation to market liquidity. We collect trade data including daily volume and bid–ask spread to assemble a unique data set at individual firm level from S&P 500 firms and analyze the firms’ bid–ask spread and volume before and after issuing the regulation. This natural experiment allows us to separate the effect of regulation from the effect of other confounding factors. The results from our panel data analyses indicate that bid–ask spread has decreased by about 5% in response to the new regulation. Our results are statistically significant and highly robust. We also examine the impact of the new regulation on a volume-based measure of liquidity, and find that the regulation is associated with greater volume, consistent with a reduction in information asymmetry. Moreover, this result holds mainly for firms that are high-tech, consistent with them being in greater need of this additional information disclosure channel.

Corporate risk management, product market competition, and disclosure

Abstract This paper studies the effects of hedge disclosure requirements on corporate risk management and product market competition. The analysis is based on a model of market entry and shows that to prevent entry incumbent firms engage in risk management when these activities remain unobserved by outsiders. In the resulting equilibrium, financial markets are well informed and entry is efficient. However, potential attempts for more transparency by additional disclosure requirements introduce a commitment device that provides incumbents with incentives to distort risk management activities thereby influencing entrant beliefs. In equilibrium, firms engage in significant risk-taking. This behavior limits entry and adversely affects the nature of competition in industries.

Growth Matters: Disclosure Level and Risk Premium

A number of theoretical studies predict an unconditional negative association between firm risk premium and firm disclosure level, where additional disclosure reduces estimation risk or information asymmetry. Empirical studies based on these models frequently report mixed results. Dutta and Nezlobin (2016) propose a model where the effect of disclosure on risk premium differs based on the firm’s long-term growth rate relative to a threshold rate, which reflects the relative importance of short-term cash flows and long-term cash flows. When the long-term growth rate exceeds the threshold, greater disclosure increases the firm’s risk premium, rather than decreasing it. Motivated by the findings in their model, we estimate four long-term growth rate thresholds and reexamine the relation between risk premium and disclosure level conditional on those thresholds. We provide evidence that the association between risk premium and disclosure is positive (negative) for firms with long-term growth rates above (below) a threshold long-term growth rate, as predicted by Dutta and Nezlobin (2016).

Risk Disclosure Preceding Negative Outcomes: The Effects of Reporting Critical Audit Matters on Judgments of Auditor Liability

SUMMARYThe PCAOB and the IAASB recently proposed several significant changes to the audit reporting model, including requiring auditors to disclose critical audit matters (CAMs) in their audit reports. While investors appear to support such additional disclosures, some audit practitioners, academics, and attorneys contend that requiring auditors to disclose CAMs will make it easier for plaintiffs' attorneys to successfully sue auditors when audits fail to detect material misstatements. A recent study, “Risk Disclosure Preceding Negative Outcomes: The Effects of Reporting Critical Audit Matters on Judgments of Auditor Liability” (Brasel, Doxey, Grenier, and Reffett 2016), reports results of an experiment that inform this issue. Contrary to the above concerns, results of the study indicate that disclosing CAMs, either related or unrelated to an undetected material misstatement, likely will not increase, and could decrease (depending on the type of misstatement), the probability of jurors holding auditors liable when audits fail to detect material misstatements. Further, results indicate that explicitly stating in the audit report that there were no CAMs, an option allowed within the PCAOB's proposal, would increase negligence verdicts against audit firms. The following article summarizes the study's motivation, method, results, and implications for both audit reporting and risk disclosure in general.

Silence is golden? Evidence from disclosing related-party transactions in China

The significance and the manipulative nature of related-party transactions (RPTs) render transparent disclosure necessary and relevant for investors who infer firm value from accounting disclosures. However, the full disclosure of RPTs may not be cost effective because not all of the information that firms possess is value relevant to financial statement users. This study provides new evidence on the value relevance of additional disclosure on RPTs by using a unique, mandatory disclosure requirement of transfer pricing policies in China. We hypothesize and find that, compared to the mere disclosure of amounts for related-party sales, the disclosure of transfer pricing methods provides incremental value-relevant information beyond total sales. We also show that the disclosure of transfer pricing details complements weak corporate governance mechanisms and improves the prediction of abnormal returns. Our findings are robust to various model specifications, and demonstrate the significance of transparent and relevant RPT disclosure in inferring firm value.

Just Luck: An Experimental Study of Risk-Taking and Fairness: Erratum

476 * Cappelen: Department of Economics, NHH Norwegian School of Economics, 5045 Bergen, Norway (e-mail: alexander.cappelen@nhh.no); Konow: Chair of Economics and Ethics, Kiel University, Germany, and Department of Economics, Loyola Marymount University, One LMU Drive, Los Angeles, CA 90045-2659 (e-mail: jkonow@ lmu.edu); Sorensen: Department of Economics, NHH Norwegian School of Economics, 5045 Bergen, Norway (e-mail: erik.sorensen@nhh.no); Tungodden: Department of Economics, NHH Norwegian School of Economics, 5045 Bergen, Norway (e-mail: bertil.tungodden@nhh.no). † Go to http://dx.doi.org/10.1257/aer.20100273 to visit the article page for additional materials and author disclosure statement(s). Just Luck: An Experimental Study of Risk-Taking and Fairness: Erratum By Alexander W. Cappelen, James Konow, Erik O. Sorensen, and Bertil Tungodden*

Social and Environmental Disclosure in Corporate Annual Reports: Evidence from Kuwait

With the lack of empirical research in voluntary disclosure in the Middle East area, the present study aims at investigating and evaluating corporate social and environmental disclosure (CSED) practices in Kuwait. To achieve this objective, a checklist of 25 social and environmental disclosure items was developed. These items were then classified into four categories: human resources, environmental activities, community involvement and product/service related information. Using content analysis, the 25 disclosure items were applied to the annual reports of a sample of 43 companies listed in Kuwait Stock Exchange (KSE). It was found that the overall disclosure level for the sample companies is 21%. The disclosure level varies by disclosure category. Product/service related information achieved the highest disclosure level (43%), while human resources disclosure comes second (25%). Little attention was given to disclosing information related to community and environment, with a disclosure level of 16% and 8% respectively. These results suggested that there is a significant scope for additional social and environmental disclosure in the annual reports of Kuwaiti companies. Issuing regulations and guidelines on CSED is needed to motivate Kuwaiti companies to improve their social and environmental disclosures.Int. J. Soc. Sci. Manage. Vol-3, issue-1: 8-16

Disclosure History Among Persons Initiating Antiretroviral Treatment at Six HIV Clinics in Oromia, Ethiopia, 2012-2013.

HIV status disclosure can help patients obtain support which may influence treatment adherence and subsequent healthcare needs. We examined the extent of disclosure and correlates of non-disclosure among 1180 adults newly initiating antiretroviral treatment (ART). While 91% of those in a relationship shared their status with their partners, 14% of the overall sample had not disclosed to anyone. Non-disclosure was positively associated with older age; control over household resources; and concerns about unintended disclosure, life disruptions, and family reactions. Knowing other HIV-positive people and longer time since diagnosis were associated with lower odds of non-disclosure. Most respondents reporting disclosure experienced supportive responses, frequently including decision to get an HIV test by confidants who had not known their own status. Although HIV status disclosure prior to ART initiation was high, some individuals cited concerns about unintended disclosure, gossip, and partner violence, and may benefit from additional disclosure support.

Shares in the EMCA:

The most interesting proposal in the draft European Model Companies Act ( EMCA) concerning shares and the focus of this Article is the recommendation to introduce true no par value shares, as they have been in use in the US for many years and were introduced in Australia, New Zealand but also Finland more recently. Contrary to what has often been assumed, the 2nd EU Company Law Directive does not preclude no par value shares. There is nothing in the wording of the Directive to suggest otherwise, and the reference in the Directive to shares without a nominal value is a reference to Belgian law, which has allowed true no par value shares in all but name since at least 1913. EU member states could therefore introduce such shares even for public companies. True no par value shares offer a far more flexible framework in case of capital increases or mergers, but since under a no par value system there is no link between par value and shareholder rights, additional disclosure about these rights might be warranted under a no par value system. Traditional par value shares offer no protection to creditors, shareholders or other stakeholders, so that their abolition should not be mourned. The threat of new share issues at an unacceptably high discount is more efficiently countered by disclosure and shareholder decision rights.

Does Recent Academic Research Support Changes to Audit Reporting Standards?

SYNOPSIS The Public Company Accounting Oversight Board (PCAOB), the International Auditing and Assurance Standards Board (IAASB), and the U.K. Financial Reporting Council (FRC) have proposed or approved standards that significantly change the independent auditor's report. These initiatives require the auditor to make additional disclosures intended to close the information gap; that is, the gap between the information users desire and the information available through the audited financial statements, other corporate disclosures, and the auditor's report. They are also intended to improve the relevancy of the auditor's report. We augment prior academic research by providing standard setters with an updated synthesis of relevant research. More importantly, we provide an assessment of whether the changes are likely to close the information gap, which is important to financial market participants and other stakeholders in the audit reporting process. Also, we identify areas where there seems to be a lack of sufficient research. These results are of interest to all stakeholders in the audit reporting process, as the changes to the auditor's report are fundamental. Additionally, our summaries of research on the auditor's report highlight where there is limited research or inconsistent results, which will help academics identify important opportunities for future research.

The success story of international additives producer AG: A case study on categorization of investments under IFRS

Abstract International Additives Producer AG (IAP) recently announced ambitious forecasts regarding revenue and operating income to the capital market. These key performance indicators depend on the way IAP's investments are currently accounted for in its consolidated financial statements, a situation that is seriously questioned by the newly appointed auditor. In this context, the case requires the application of the relevant International Financial Reporting Standards (IFRS) regarding the categorization of investments for group reporting purposes. Specifically, Part I of the case requires the application of the control concept of IFRS 10 as well as the classification rules of IFRS 11 for joint arrangements, while Part II of the case introduces the assessment of significant influence according to IAS 28. Throughout the case the consequences of investment categorization on external reporting and related management incentives that arise from the interplay between financial reporting and capital markets, compensation contracts and additional disclosure requirements are discussed.

Understanding Audit Quality: Insights from Audit Professionals and Investors

AbstractProjects seeking to define, measure, and evaluate audit quality are on the agendas of auditing standards setters as well as audit firms. The Public Company Accounting Oversight Board (PCAOB) currently provides information regarding audit quality through the release of inspection reports, and the Board intends to establish and report audit quality indicators. To provide additional perspective on audit quality, we obtain auditors' and investors' views, definitions, and indicators of audit quality. We find that investors' definitions of audit quality focus more on inputs to the audit process than do auditors', and that investors view the number of PCAOB deficiencies as an indicator of overall firm quality. We find a consensus that auditor characteristics may be the most important determinants of audit quality, and that restatements may be the most readily available signal of low audit quality. We relate responses to a general audit quality framework, provide support for archival audit research, and identify additional disclosures that participants suggest could signal audit quality. Taken together, we provide evidence regarding the construct of audit quality in the post‐SOX environment, evaluate many of the audit quality indicators proposed by the PCAOB, and suggest avenues for future research.

Shareholder Activism and Voluntary Disclosure

This study tests whether exposure to shareholder activism affects voluntary disclosure decisions and whether disclosure affects the likelihood of becoming an activist target. We exploit activism peer-firm settings to generate an increase in activism exposure. Based on 1,130 activism events from 2005 to 2011, we find that when activism exposure increases, managers increase disclosure, and these additional disclosures reduce the likelihood of becoming an activist target in the future. Our findings are consistent with the idea that firms use disclosure to deter activism, and that activists prefer to target low-disclosure firms. Our results do not appear to be driven by concurrent changes in corporate policy. We use a semi-parametric difference-in-differences research design to address endogeneity concerns.