Corporate Disclosure Research Articles

Board Effect and the Moderating Role of CEOs/CFOs on Corporate Governance Disclosure: Evidence from East Africa

Synopsis The research problem This study examines the effects of board size and board independence, as well as the interaction effect between board independence and CEOs/CFOs on corporate governance disclosure practices. Motivation Despite corporate governance (CG) reforms around the world, research evidence indicates that the levels of corporate governance disclosures (CGDs) in developing countries remain poor due to weak institutions and corporate governance systems. In particular, the corporate boards as a key mechanism of CG and the board nomination processes in East Africa remain largely opaque and dominated by majority shareholders, chief executive officers, and chief finance officers (CEOs/CFOs), giving rise to opportunistic behaviors that may be detrimental to firm value. The distinctive feature of the board nomination process/CG system in East Africa has implications for monitoring and corporate governance disclosure practices and compliance and calls for systematic research in this under-explored subject. Hypotheses H1: The association between board size and corporate governance disclosure will be positive. H2: The association between board independence and corporate governance disclosure will be positive. H3a: The presence of the CEO on the nomination/remuneration committee will negatively moderate the relationship between board independence and corporate governance disclosure. H3b: The presence of the CFO on the nomination/remuneration committee will negatively moderate the relationship between board independence and corporate governance disclosure. H3c: The presence of the CEO and CFO on the nomination/remuneration committee will negatively moderate the relationship between board independence and corporate governance disclosure. Target population Stakeholders including firm managers, practitioners, regulatory authorities, policymakers, and investors. Adopted methodology Ordinary least squares (OLS), fixed-effects model, and system generalized method of moments (GMM). Analyses Using a large and hand-collected dataset comprising 1000 firm-year observations from 2007 to 2017 in East Africa, this study develops a corporate governance disclosure index (CGDI) of East Africa consisting of 164 provisions. To test our hypotheses, this study adopts three analytical approaches, namely OLS and fixed-effects (FE) regressions and the two-stage system GMM to address the endogeneity concerns. Findings We find that large boards and independent directors are associated with greater disclosure of CG information. Our analysis suggests that CEO/CFO power negatively moderates the link between board independence and corporate governance disclosure, unlike those environments with stronger institutions and corporate governance systems. Thus, firms whose CEO and CFO are involved in remuneration or nomination committees disclose less CG information. The combined effect of the CEO and CFO on selection and remuneration committees and an independent board in reducing corporate disclosure appears more pronounced for the post-financial crisis period compared with the crisis period.

The equity value implications of court ideology: Evidence from federal judge turnover

We use exogenous variation in federal courts' composition, for instance due to a judge's death, as a quasi-natural experiment to study the equity value implications of court ideology. This design allows us to establish that firms experience an equity value loss when federal court ideology shifts in favor of plaintiffs and against corporations. The value loss stems from: (i) an increase in the expected costs of litigation; (ii) the deterioration of market-based governance mechanisms; (iii) and a perverse managerial incentive to decrease corporate disclosure in a heightened litigation environment.

Materiality, stakeholder engagement disclosure, and corporate governance: Critical elements for the quality of sustainability reporting

The aim of this paper is to investigates whether the level of materiality, stakeholder engagement, and corporate governance disclosure enhance the quality of sustainability reporting. The quality measured the by four indexed information dimensions: relative quantity disclosure, density, accuracy, and management orientation. A quantitative content analysis was undertaken on 172 sustainability reports of non-financial Indonesian companies from 2016 to 2020. The hypothesis were tested using a panel data approach. The regression test showed that the level of materiality, stakeholder engagement, and corporate governance disclosure does not lead to the improvement of sustainability reporting quality. Further analysis on each quality dimension found that materiality disclosure has a significant positive effect on the relative quantity disclosure and has no significant effect on companies’ density, accuracy, and management orientation of companies. On the other hand, stakeholder engagement and corporate governance disclosure have no significant effect on the quality index, which is consistent with the main test. These results indicate that materiality disclosure has become one of the crucial aspect for companies that significantly increasing their disclosure intention. Furthermore, companies should pay more attention to the quality of information disclosed in materiality disclosures. Finally, government must evaluate the regulation that can encourage companies to present information relevant to sustainability, which can improve the sustainability reporting quality.

The unusual suspects: are well-meaning environmental stakeholders and institutions undercutting the contributions that companies can make to fighting climate change?

Abstract There is broad consensus that a significant majority of the capital needed to fund a low carbon transition consistent with science-based decarbonization timelines will have to come from the private sector. While still inadequate, the past decade-plus has seen a nonlinear increase in corporate capital spend in pursuit of voluntary climate goals. In the absence of significant regulatory mandates or meaningful carbon pricing, how this ‘corporate climate spend’ is directed is influenced—if not largely directed—by an array of emissions accounting rules, third-party defined leadership metrics and methodologies. This ‘rules and reward ecosystem’ is largely the design of environmental advocates, academics, and other aligned stakeholders and philanthropists. Sitting at the heart of this ecosystem is the Greenhouse Gas Protocol—a purported accounting framework that underpins how companies can undertake climate-based interventions and record progress. Launched by environmental stakeholders in 1998, the Protocol has since become the de facto rulebook used by highly influential third-party corporate leadership and target setting organizations, sustainability rating and evaluation entities serving the investment community, and is being incorporated into emerging mandatory corporate disclosure programs. Ironically, given its architects, today the rules and reward ecosystem results in significant mis-allocations and constraints on corporate climate spend and is reducing the potential climate change-mitigating impact of crucial private capital. This paper explores the flaws in incumbent greenhouse gas accounting and leadership program rules and proposes pathways for change that would better optimize the flow of private capital available and needed to address the climate crisis.

Impact of IFRS adoption on the disclosure of management forecasts by industry concentration

ABSTRACTWe aim to investigate the impact of the adoption of the International Financial Reporting Standards (IFRS) on a firm’s strategic voluntary disclosure decisions under different product market conditions. In the corporate world, firms tactically decide the level of voluntary disclosures considering their benefits, like resolving information asymmetry in the financial market, and costs, like providing proprietary information to their rivals. The adoption of IFRS has affected the demands in the financial market for complementary information, and therefore, it would affect the incentive to withhold corporate information in consideration of proprietary costs in the product market. Using a sample of Korean firms, we find that the likelihood of withholding management forecasts in concentrated industries is weaker in the post-IFRS adoption phase than in the pre-IFRS adoption phase. This is because there are greater demands for corporate disclosures for firms in concentrated industries in the post-IFRS adoption phase than earlier. Moreover, we find that the influence of IFRS on the decision of firms in concentrated industries to disclose management forecasts is significant only for firms with higher market power and higher financial leverage.

Do Corporate Disclosures Constrain Strategic Analyst Behavior?

Abstract We show that analyst behavior changes in response to a randomly assigned shock that exogenously varies the timeliness and cost of accessing mandatory disclosures in the cross-section of investors: analysts reduce coverage and issue less optimistic, more accurate, less bold, and less informative forecasts. Our evidence indicates that analysts reduce a strategic component of their behavior: the changes are stronger among analysts with more strategic incentives like affiliated or retail-focused analysts. We conclude that mandatory disclosure can substitute for analyst information production, which is constrained by investors’ ability to verify forecasts using corporate filings. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Circular economy to the rescue? The U.S. corporate disclosure response to the plastic crisis

ABSTRACT Media attention to the world’s growing plastic crisis exploded in 2018, almost certainly increasing social exposures for companies heavily involved in the material’s manufacture or use. Relying on arguments from media agenda setting theory (Brown & Deegan, 1998), we explore how a sample of large U.S. plastic manufacturers and users responded to the crisis in their standalone CSR reports, with particular emphasis on their use of circular economy terminology to frame that response. Circular economy ideas have been gaining traction with governmental units, non-governmental organisations, and academic researchers, and like the plastic crisis, are seeing substantially increased coverage in media outlets. The concern we address in our investigation is whether the exposed companies use the circular economy terminology in an attempt to identify with symbols of legitimacy. As expected, we find significantly more extensive disclosure of plastics-related issues in our sample companies’ 2018 CSR reports than had been the case for reports covering the prior three-year period, and we show increased reliance on the use of circular economy terms within those disclosures. We further document that the circular economy-related plastics disclosure is significantly weighted toward symbolic as opposed to substantive disclosure and is far more commonly related to disclosures of goals and initiatives than to the provision of actual data. We thus argue that rather than reflecting an underlying shift in the sample companies’ operating processes, the increased use of the circular economy terminology may be an attempt at legitimation.

The decade long story of gender equality and female empowerment: a case study of corporate disclosures in Saudi Arabia

PurposeThis study deviates from the predominantly feminist/critical school of thought associated with existing gender studies to apply an interpretivist approach to investigate gender-reporting practices in Saudi Arabia, an Islamic country in the Gulf region and one of the fast-moving emerging economies both in the Middle East and globally. The purpose of this study is to investigate the extent of reporting on gender and the drivers behind this practice using the content analysis method.Design/methodology/approachThis study contributes to the literature by adopting a rarely used three-lens conceptual framework to expand our understanding of reporting on gender in Saudi Arabia. Eleven companies were chosen based on their voluntary corporate social responsibility (CSR) disclosures in Saudi Arabia. The CSR and annual reports of selected companies were analysed using NVIVO Pro 11.FindingsThe results indicate that gender disclosures in the Saudi context are driven by legislation, location and international reporting frameworks. Although the number of disclosures increased over time, they were not adopted consistently and systematically because of their voluntary nature.Research limitations/implicationsThe first limitation is the disadvantage associated with interpretivism related to the subjective nature of the investigation and room for bias, and hence, the results cannot be generalised. The second limitation is the sample size; future investigations may increase the sample size by including other service and manufacturing sector firms to have more comprehensive insights.Practical implicationsThis study contributes to the literature by providing evidence suggesting that in Saudi Arabia, state legislation is the driving force behind reporting on gender issues. Although workplace disclosures dominate, companies are opening dialogues with other stakeholders (especially the community) by disclosing performance data, and thus emphasising their commitment to this social change.Social implicationsThis empirical contribution to the CSR literature will provide rich historical and interpretive data on the emergence of gender transformation in society, and how that is reflected in corporate reports, thus, contributing to the understanding of the purpose of voluntary disclosures.Originality/valueEmployee-related disclosures in corporate reports are very common. However, issues such as diversity and equal opportunities tend to be overlooked. This study explores gender equality and female empowerment disclosures and practices in the emerging market of Saudi Arabia while focusing on whether the social, political and legal changes in Saudi Arabian society have affected these disclosures in corporate reports. There is a lack of qualitative analysis of gender disclosers globally and in emerging economies particularly.

International Financial Reporting Standards [IFRS] and Corporate Governance: A Survey of Nigerian Deposit Money Banks [DMBs

The study examined the effect of the International Financial Reporting Standards [IFRS] implementation on the corporate governance of Nigerian banks. The specific objectives of the study were to examine the effect of IFRS implementation in promoting corporate accountability by banks; the effect of IFRS implementation in strengthening the financial regulatory framework of banks and the effect of IFRS implementation in enhancing corporate disclosure of banks. The study adopts the descriptive survey research design. The sample comprised 144 respondents in banks in the chosen geographical area. The results showed that IFRS implementation promoted corporate accountability in Nigerian banks. There is a significant effect of IFRS implementation in strengthening the financial regulatory framework of banks. Lastly, IFRS implementation has enhanced the corporate disclosure of banks. The study recommends that CBN should further enact rules that promote accountability in the banking sector. Stiff penalty for late default on issuing annual reports, not allowing any single individual to acquire more than 20% shareholding, among others. The sustainability disclosure guideline by the NSE to promote corporate social responsibility among quoted companies should also be enforced for banking institutions. The harmonisation of the diversified corporate governance codes should be further revisited. A clear distinction between the duties and responsibilities of the CBN and FRC may further avoid overlap of functions which may lead to friction.

CSRC oral communication and corporate disclosure

Oral communication has increasingly been used as a policy tool by the China Securities Regulatory Commission (CSRC) to regulate the Chinese financial market. However, less is known about whether and how this newly developed policy tool affects corporate decisions. Using machine-learning techniques, this paper develops a measure to evaluate the CSRC's oral emphasis on financial disclosure based on transcripts of its press conferences and official speeches. We find that when the CSRC places more emphasis on disclosure, both the quantity and quality of corporate disclosure are improved. Further evidence suggests that listed firms with external financing plans respond more to CSRC oral communication. Moreover, under political pressure, state-owned enterprises (SOEs) comply more with CSRC oral communication in terms of disclosure quantity but not disclosure quality.

Modern slavery and the accounting profession

This first paper in the Special Issue on “Modern slavery and the accounting profession” considers how various branches and functions of the accounting profession in business operations and supply chains are implicated by the move to end modern slavery. Accounting has always been involved with slavery practices. When slavery was legal, accounting focused on reporting slaves as assets and expenses in the accounts. In these more humane times, now that ownership of slaves is illegal, the accounting profession has different functional responsibilities towards modern slavery. These include external reporting in line with and above and beyond requirements of legislation; internal management accounting to build awareness and support planning, control and decision making to reduce modern slavery risk and look for opportunities from mitigation; and audit and assurance to ensure credibility of claims made by business. The papers presented in this Special Issue touch upon some of the key aspects of the connection between modern slavery and management control systems, corporate disclosures and the historical role of professional auditors/the accounting profession, but much remains to be achieved in the research agenda ahead.

Institutional isomorphism under the test of Non-financial Reporting Directive. Evidence from Italy and Spain

PurposeThis paper aims to analyse the impact of the European Union (EU) Directive on the quality of sustainability reporting under the institutional theory lens. Specifically, the authors evaluate what kind of institutional pressure has the highest impact on the quality of corporate disclosure on sustainability issues.Design/methodology/approachThe authors build a quality index based on the content analysis of sustainability information disclosed, before and after the transposition of the Directive, by Italian and Spanish companies belonging to different industries. The authors use an OLS regression model to analyse the effect of coercive, normative and mimetic forces on the quality of the sustainability reports.FindingsThe results highlight that normative and mimetic mechanisms positively affect the quality of sustainability reporting, whereas there is no evidence regarding coercive mechanisms, indicating that the new requirements do not provide a significant contribution to the development of better reporting practices, at least in the two analysed countries.Originality/valueTo the best of the authors’ knowledge, this is one of the few studies assessing the quality of sustainability reporting through an analysis involving the period before and after the implementation of the EU Directive. It enriches the literature on institutional theory by analysing how the different dimensions of isomorphism affect the quality of information disclosed by companies according to the EU requirements. It contributes to a better understanding of the impact of the non-financial information Directive, and the results of this paper can be relevant for regulators, practitioners and academia, especially in view of the adoption of the new Corporate Sustainability Reporting Directive proposal.

In Search of Double Materiality in Non-Financial Reports: First Empirical Evidence

Materiality is the key principle that drives the selection of issues that companies must report on. The European Union regulation on companies’ non-financial disclosure coined a special meaning of materiality that holistically combines the two perspectives of financial and impact materiality into an overall “double materiality” (DM). The contrast detected between the early debate and the low level of empirical knowledge on DM provided by the literature on materiality disclosure gave rise to our research aim, which was to map the pioneering experiences of DM. In order to achieve this aim, we carried out an exploratory analysis on the non-financial reports of 58 companies, both European and non-European, operating in various industries (period 2019–2021). The results reveal “traces” of DM in the reports of few companies, mainly European ones. The aspects we examined, both with atomistic and summative perspectives of inquiry, highlight variety in both double materiality assessments and adoption disclosures, as well as related criticalities. This foreshadows a fragmented landscape of materiality analysis disclosure over the next few years that presently requires great attention and increased operational guidance by the international standard setters involved. The article closes by proposing implications, limitations and research perspectives.

Flu Fallout: Information Production Constraints and Corporate Disclosure

Flu Fallout: Information Production Constraints and Corporate Disclosure

Impacto da realização de lives sobre o retorno das ações no mercado brasileiro

ABSTRACT The objective of this study was to investigate whether voluntary financial disclosure through live streaming can determine changes in shareholder returns in the Brazilian market. Corporate disclosure through social media is a new phenomenon, driven by the impacts of the coronavirus disease 2019 (COVID-19) pandemic, and its effects are investigated from the perspective that high levels of investor attention are associated with company engagement with audiences. The findings contribute to the literature on investor and firm behavior with respect to disclosure in non-traditional settings. The work is also relevant because it uses web scraping to process unstructured texts. The study provides elements for the development of voluntary disclosure theory, free of intermediaries and closer to retail investors. The traditional event study technique was used, based on live streaming data obtained through web scraping and text mining. The multivariate regression model was used for additional tests. It was found that live streaming have a positive impact on stock prices, although these effects are volatile and tend to return to previous averages within 5 days. Additional analyses also revealed that the greater the number of subscribers to the channel, if the Chief Executive Officer (CEO) participates, if the topic involves the discussion of results, and if the company is not listed in the Bovespa index (Ibovespa), the greater the chances of the content of the live streaming having an abnormal impact.

Corporate Governance and Evolving Corporate Disclosures: Global Challenges and Opportunities for Research and Policy

No abstract is available for this article.

Analyst Coverage Decisions: The Role of Corporate Disclosure Choices and the Influence Effects of Peer Analysts’ Disclosure Preferences

Analyst Coverage Decisions: The Role of Corporate Disclosure Choices and the Influence Effects of Peer Analysts’ Disclosure Preferences

The new challenge of integrated reporting: has it really improved corporate disclosure on intellectual capital

The new challenge of integrated reporting: has it really improved corporate disclosure on intellectual capital

Decorated Corporate Disclosures: The Effect of Visual Embellishments and Numeracy on Investor Judgments and Decisions

Decorated Corporate Disclosures: The Effect of Visual Embellishments and Numeracy on Investor Judgments and Decisions

Does Past Co-Working Experience between CEOs and Divisional Managers Matter for Corporate Disclosure Quality?

Does Past Co-Working Experience between CEOs and Divisional Managers Matter for Corporate Disclosure Quality?