Disclosure Rules Research Articles

Leniency–asiakirjojen suoja Suomessa — erityisesti suhteessa kilpailuoikeudelliseen vahingonkorvaukseen

During leniency procedure, the participating companies are obliged to give self-incriminating statements to antitrust authorities. There is a risk that those statements will be utilized as evidence in a court of law by a party who was damaged by the spoken trust arrangement. These actions for damages can impose heavy financial losses to the participating companies. Therefore, to secure the attractiveness of the leniency procedure, the self-incriminating documents should be exempted from the disclosure of evidence or discovery. The purpose of this article is to scrutinize the effects of the new EU directive 2014/104/EU on national regulations which are located in the Finnish Act of Antitrust Damages Actions (laki kilpailuoikeudellisista vahingonkorvauksista, 1077/2016), and review what this means for the incentives to participate in leniency procedure. The Directive made the rules of disclosure of leniency documentation more stringent in comparison with the preceding legislation. Therefore, the legal position of the participating company has weakened. These are the main findings.

Implementation of the DGNB Framework for Carbon Neutral Buildings and Sites

With more than 30% of the total global greenhouse gas emissions generated from the constructions sector, fostering sustainable buildings is one of the key levers in order to address the highly urgent topic of climate change. The German Sustainable Building Council (DGNB) is striving to make a significant contribution to the achievement of the national targets defined in the Paris Agreement in order to limit global warming to well below 2°C. The key to achieving these targets for the building sector lies in fostering climate neutral operation of new construction and, even more challenging, in realizing a carbon neutral building stock by 2050. With the discussion paper for a new format of the German Energy Code “GEG 2050” claiming the introduction of a „Building Emissions Law 2050“, DGNB has started a much-needed debate on shifting the focus of performance metrics from “primary energy demand” to “CO2-emissions”. In order to translate the requirements into building practice and to make their implementation assessable and measurable, the DGNB has developed a “Framework for Carbon Neutral Buildings and Sites”, which includes three main parts: 1. Carbon Accounting Rules defining consistent calculation rules for buildings and sites, 2. Carbon Disclosure Rules with specific rules regarding the type and the content of the communication towards the customer and 3. Carbon Management Rules establishing a roadmap to carbon neutral building operation (“Klimaschutzfahrplan”) that demonstrates a net zero carbon balance by latest 2050, using a linear trajectory to zero from today onwards. The Framework has been published as a preview version in May 2018 and now is currently being revised within a pilot phase.

Airline schedule padding and consumer choice behavior

Disclosure programs are quality assurance instruments when consumers are imperfectly informed about product quality. This study examines the On-Time Disclosure Rule for airline on-time performance which ranks airlines based on how well their flights arrive/depart on time. The program creates incentives for airlines to pad their flight schedules and artificially improve their reported on-time performance. Using a discrete choice demand model for air travel, we investigate how schedule padding affects consumer preferences. We find that schedule padding is associated with negative consumer welfare effects, reinforcing the notion of an unanticipated gaming behavior by firms that ends up harming consumer welfare.

Accounting and Financial Consequences of Increased Disclosure: Evidence from a Natural Experiment

Do corporate governance reforms influence firm decision-making in the intended way in countries where the institutional framework is weak? We explore this issue for Russia, which implemented a corporate governance reform in 2002. Contrary perhaps to expectation, we document a significant increase in compliance to transparency and disclosure (T&D) rules over 2003-2007. The immediate effect of the new rules was to improve earnings quality as discretionary accruals fell. Market valuations however did not start improving until 2007 when all treated firms started disclosing quality information. The mechanism for the higher valuations was improved earnings quality and lower cost of capital, though cross-listed firms did not experience this. We find that treated domestic listed firms enjoyed about 10% increase in firm value, even when 100% compliance was not achieved. These findings establish that there is a benefit from increasing the requirements for disclosures, even in a country with weak institutions.

At a Crossroads: Mandatory Disclosure under DAC-6 and EU Primary Law – Part 1

This article examines the Member States’ new obligations under DAC-6, which requires the enactment of mandatory disclosure rules for potentially aggressive cross-border tax-planning arrangements and analyses their compatibility with EU primary law. After describing the tax policy environment in which the DAC-6 rules were introduced, Part 1 of this article – while providing a brief overview of the mandatory disclosure rules – discusses whether the Treaty on the Functioning of the European Union foresees a viable legal basis for harmonization with respect to this subject matter and examines whether the DAC-6 rules are in line with the fundamental freedoms. Part 2, to be published in issue 7 of European Taxation (2019), continues with an in-depth analysis of DAC-6’s potential interference with the rights enshrined in the Charter of Fundamental Rights of the European Union and closes by highlighting selected tax policy issues associated with the mandatory disclosure regime of DAC-6.

Influencing the Influencers

Social media influencers are category enthusiasts who often post product recommendations. Firms sometimes pay influencers to skew their product reviews in favor of the firm. We ask the following research questions. First, what is the optimal level of affiliation (if any) from the firm's perspective? Affiliation introduces positive bias to the influencer's review but also decreases the persuasiveness of the review. Secondly, since affiliated reviews are often biased in favor of the firm, what is the impact of affiliation on consumer welfare? We find that the affiliation decision depends on the cost of information acquisition, the consumer's prior and awareness, and the disclosure regime. When the consumer's prior belief is low, the firm needs to affiliate less closely or not at all in order to preserve the influencer's persuasiveness, the change in the consumer's belief following the influencer's review. In contrast, when the consumer's prior belief is high, the firm fully affiliates with the influencer to both maximize awareness and prevent a negative review. We also show that the firm's involvement can be Pareto-improving if the information acquisition cost is relatively high, and a partial disclosure rule may increase consumer welfare.

Fossil fuel reserves and resources reporting and unburnable carbon: Investigating conflicting accounts

Abstract This paper investigates fossil fuel reserves and resources disclosures and how they might change in response to global climate change agreements that seek to limit greenhouse gas emissions. On the one hand, it might be expected that fossil fuel firms will be less valuable if their reserves become ‘unburnable’. On the other hand, capital markets currently assign a positive value to fossil fuel reserves and resources. A conundrum, therefore, exists. Given that accounting disclosure rules underpin capital market valuation processes, this setting provides an opportunity to interrogate the functionality of accounting during a time of change. To achieve this goal, a multi-methods investigation has been undertaken; combining a survey of accounting disclosure rules for reserves, identification of accounting disclosures made by fuel firms in several country stock markets, and stock market participants’ views on the extent to which unburnable carbon exists. Using Miller and Power (2013) we identify when and how unburnable carbon could be recognized in corporate reporting.

Fair Disclosure of Inside Information by Listed Companies: A comparative study between the UK and Kuwait

In Kuwait, the Capital Markets Act 2010 (the Act) gives the regulatory authority the power to pass disclosure rules. However, the Act does not mention how to improve such disclosure rules. Therefore, this article will be discussed the aspect of protecting individual investors, which involves ensuring fair disclosure by listed companies, because informed investors are protected investors. This article will discuss the idea of having fair disclosure to protect investors to ensure that all investors have equal opportunity to access and know about inside information in an appropriate time and manner. This article also will be examined the existing disclosure rules that apply to equity shares in Kuwait as compared to the UK’s disclosure regimes as examples of developed countries.
 
 Keywords: Disclosure rules, Inside Information, Kuwait securities market.

When Auditors Say ‘No,’ Does the Market Listen?

Previous research on whether the market responds to auditors’ opinions has provided mixed results. We revisit this issue in China, where individual investors who are more likely to neglect value-relevant information dominate the stock market. In addition to going concern opinions (GCOs), China permits modified audit opinions (MAOs) on violations of accounting standards or disclosure rules (GAAP/DISC MAOs), providing an opportunity not available in the literature to enrich the study of audit-opinion pricing. We find that, ceteris paribus, MAO recipients underperform in the future and have a higher incidence of adverse outcomes such as misreporting and stock delisting, and the market reacts negatively to MAOs during the short window around MAO disclosure. Importantly, MAO disclosure is not followed by negative long-term stock returns, suggesting stock price adjustments to MAOs are speedy and unbiased. These findings hold for both GCOs and GAAP/DISC MAOs. Together, our findings support the informativeness of audit opinions and cast doubt on the argument that investors inefficiently price audit opinions due to information-processing bias.

Aggressive Tax Planning and Corporate Tax Avoidance: The Case Study

There have been increasing literature on aggressive tax planning and corporate tax avoidance, which focus on economic consequences (Ksovreli, 2015; Hanlon & Heitzman, 2010). Campaigners have targeted tax-avoiding corporations through the media, citing the enormous amount of tax losses (Hasseldine, Holland & Van der Rijt, 2012). It is pertinent that policy-makers and tax authorities to take action against tax avoiders and tax intermediaries. This paper focuses on the tax avoidance structures identified during tax audits and investigations and further contributes to an understanding of tax avoidance structures and models. The key models identified are related to the abuse of tax incentives and the use of corporate restructuring to minimize or reduced tax exposures. Based on the Case Management System of the Inland Revenue Board of Malaysia, we identify the key structures, their roles and incentives, and outline the tax avoidance schemes. The study summarizes a range of policy responses to tax avoidance, including anti-avoidance rules, disclosure rules and the regulation of tax intermediaries such as tax practitioners.

Forming financial intermediaries into a fifth column: the OECD MDRs for CRS avoidance

The professional plight of fiduciaries, lawyers, accountants, and other advisors who aid their clients in minimizing their tax burden rarely turns a dry eye wet. Even where the activities are legitimate under the law or sanctioned by the tax authority, many neutral minds (giddied in part by politicians and journalists) cannot shake the intuitive sense that the rich ought to pay more tax, even if they do not have to. The prevailing view is that where sufficient wealth couples with the will to avoid taxes, the financial intermediary finds a way. Accordingly, few hearts will tremble at the predicament confronting fiduciaries and tax advisors from the incoming intermediary common reporting standard avoidance disclosure rules. By detaching the interests of the intermediary from those of the client, however, this new regime will compel financial intermediaries to reassess their professional values.

Prime Predator: Amazon and the Rationale of Below Average Variable Cost Pricing Strategies Among Negative-Cash Flow Firms

American jurisprudence considers price predation a largely irrational, and therefore self-limiting, business strategy which is unlikely to lead to monopolization of an industry. This paper argues that the recent rise of the negative cash flow firm upends traditional assumptions. These types of firms can achieve greater market share through predatory pricing strategies that involve long-term below average variable cost prices. It also maintains that recoupment, an essential element of any predatory pricing scheme, can be achieved without a raise of prices post predation. By charging prices in the present reflecting future lower costs based on prospective technological and scale efficiencies, these firms are able to rationalize their predatory pricing practices to investors and shareholders. These observations lead to the conclusion that price predation is a rational strategy which can foreseeably lead to monopolization. This paper then moves on to examine the conduct of Amazon, the biggest negative cash flow firm in the world. It suggests that not only is it entirely rational for Amazon to engage in price predation and a long-term strategy of monopolization but that under current corporate disclosure rules such conduct would be virtually undetectable. The negative impact of this behavior is the elimination present and future competition.

Strategic information transmission despite conflict

We analyze a standard Crawford and Sobel’s cheap talk game in a two dimensional framework, with uniform prior, quadratic preferences and a binary disclosure rule. Information might be credibly revealed by the Sender to the Receiver when players are able to strategically set aside their conflict. We exploit the few symmetries of the game parameters to derive multiple continua of equilibria, when varying the Sender’s bias over the entire euclidean space. In particular, credible information might be revealed whatever the bias. Then we show that the equilibria exhibited characterize the game’s full set of pure strategy equilibria.

Disclosing the Danger: State Attorney Ethics Rules Meet Climate Change

This article suggests a novel concept in climate change law and attorney ethics law by proposing that many states’ attorney ethics laws could be interpreted to require, or at least permit, attorneys to disclose client activity relating to greenhouse gas emissions. Every state has some form of ABA Model Rule 1.6(b), either requiring or allowing attorneys to disclose client activities that result in death or substantial bodily harm. This article asserts that prior precedent surrounding this disclosure rule indicates that it could be applicable to greenhouse gas emissions. Attorney disclosures in turn, could impact a wide swath of greenhouse gas emission activity, making it more transparent, and in certain cases requiring attorneys to counsel cessation of such activities or withdraw from representation. Because there is growing climate activism seeking to use all legal tools to slow or stop greenhouse gas emissions, this attorney ethics issue could be a strategic tool to try and control greenhouse gas emissions activities. Thus attorneys from the private sector to government should be aware of the potential ethical issues they face in handling greenhouse gas related legal work.

Association of Mandatory Disclosure Policies and Laws With Physician-Industry Financial Relationships

Beside the goal of increasing transparency to the public, disclosure policies and laws have been established with a goal to also reduce ethically questionable financial relationships between physicians and the medical industry. Data on these relationships should be reviewed to understand the association between these policies and laws and the attainment of reduced relationships. To assess whether disclosure policies and laws have been associated with a decrease in financial disclosure reporting by physicians. This cross-sectional study uses yearly data from 2008 through 2015 from the participants in the American Academy of Ophthalmology's Annual Meeting. Trends in financial disclosures over time were investigated for the association of disclosure policies and laws with potentially beneficial, as well as ethically questionable physician-industry ties. Linear regression models were used to estimate the annual change in financial disclosures and are reported with 95% CIs. Disclosure policies and laws. The annual aggregate financial disclosures by type (ie, consultant, lecturer, employee, grant support, equity owner, patent holder). Financial disclosures increased from 3966 in 2008 to 5266 in 2015 (P < .001). The number of disclosures reported in the categories consultant, equity owner, patents, and grant support all increased from 2008 to 2015 (consultant disclosures, 121 [95% CI, 88-155] per year; P < .001; equity owner disclosures, 32 [95% CI, 22-42] per year; P < .001; patent disclosures, 19 [95% CI, 13-26] per year; P < .001; grant support disclosures, 78 [95% CI, 48-107] per year; P < .001), while the employee and lecturer categories did not change significantly. The percentage of financial disclosures in the lecturer category decreased relative to the total (estimate, -1.1% [95% CI, -1.3% to -0.8%] per year; P < .001), owing to the number of financial disclosures for this category remaining stable while most other types increased. Disclosure was not associated with a chilling effect (decrease in financial disclosures associated with potentially beneficial physician-industry ties). Disclosure was associated with a possible disinfecting effect, whereby the percentage of ethically questionable disclosures (ie, lecturers) decreased, although the frequency remained stable. A permissive effect (physicians becoming more inclined to having industry relationships) was also observed. Thus, disclosure rules should be enhanced or alternative approaches to disclosure reconsidered to promote a decrease in ethically questionable relationships.

A review of derivatives research in accounting and suggestions for future work

This paper provides a review of research on financial derivatives, with an emphasis on and comprehensive coverage of research published in 15 top accounting journals from 1996 to 2017. We begin with some brief institutional details about derivatives and then summarize studies explaining when and why firms use derivatives. We then discuss the evolution of the accounting rules related to derivatives (and associated disclosure requirements) and studies that examine changes in these requirements over the years. Next, we review the literature that examines the consequences of firms’ derivative use to various capital market participants (i.e., managers, analysts, investors, boards of directors, etc.), with an emphasis on the role that the accounting and disclosure rules play in such consequences. Finally, we discuss the importance of industry affiliation on firms’ derivative use and the role that industry affiliation plays in derivatives research. Overall, our review suggests that, perhaps due to their inherent complexity and data limitations, derivatives are relatively understudied in accounting, and we highlight several areas where future research is needed.

Prime Predator: Amazon and the Rationale of Below Average Variable Cost Pricing Strategies Among Negative-Cash Flow Firms

Abstract American jurisprudence considers price predation a largely irrational, and therefore self-limiting, business strategy which is unlikely to lead to monopolization of an industry. This paper argues that the recent rise of the negative cash flow firm upends traditional assumptions. These types of firms can achieve greater market share through predatory pricing strategies that involve long-term below average variable cost prices. It also maintains that recoupment, an essential element of any predatory pricing scheme, can be achieved without a raise of prices post predation. By charging prices in the present reflecting future lower costs based on prospective technological and scale efficiencies, these firms are able to rationalize their predatory pricing practices to investors and shareholders. These observations lead to the conclusion that price predation is a rational strategy which can foreseeably lead to monopolization. This paper then moves on to examine the conduct of Amazon, the biggest negative cash flow firm in the world. It suggests that not only is it entirely rational for Amazon to engage in price predation and a long-term strategy of monopolization but that under current corporate disclosure rules such conduct would be virtually undetectable. The negative impact of this behavior is the elimination present and future competition.

Disclosure rules of the Antitrust Damages Directive: finding the balance between public and private enforcement

The paper investigates to what extent the principles of private and public enforcement are adhered to in antitrust damages actions. The Antitrust Damages Directive eliminated the uncertainty created in the wake of the Pfleiderer judgment and reasonably limited national judges’ scope of discretion. Competition authorities tend to rely very heavily on leniency procedures so paradoxically it is in the claimants’ interest to prevent access to and disclosure of leniency documents in follow-on actions. The paper argues that the rules applied for contemporary documents can be regarded as the major weakness of the Directive.

Corporate governance and risk taking of Jordanian listed corporations: the impact of board of directors

The aim of this study is to evaluate the compliance level of corporate governance rules and examine the impact of this compliance on risk taking of corporations in Jordan. This study used panel data of the listed corporations in Amman Stock Exchange from 2013 to 2017. Corporate governance index was constructed to gauge the compliance level of corporate governance rules. The results show a good level of overall compliance of corporate governance rules. As for the compliance of the categories of corporate governance rules, rules of transparency and disclosure are ranked first, while rules of general meeting assembly are ranked fourth. The regression results report a negative influence of corporate governance and corporate risk taking. In addition, four governance variables concerning the features of the board of directors are used in the study. The results reveal a negative impact of the size of the board of directors, independence of the board, and committees of the board on corporate risk taking. It is expected that the outcomes of the study can be used by management of the corporations in addition to the Jordanian Securities Commission that seek to enhance confidence in the Jordanian capital market.

Presentation Slides for 'The Psychological Attraction Approach to Accounting and Disclosure Policy'

These slides summarize a paper which offers the psychological attraction approach to accounting and disclosure rules, regulation, and policy as a program for positive accounting research. We suggest that psychological forces have shaped and continue to shape rules and policies in two different ways. (1) Good Rules for Bad Users: rules and policies that provide information in a form that is useful for users who are subject to bias and cognitive processing constraints. (2) Bad Rules: superfluous or even pernicious rules and policies that result from psychological bias on the part of the 'designers' (managers, users, auditors, regulators, politicians, or voters). We offer some initial ideas about psychological sources of the use of historical costs, conservatism, aggregation, and a focus on downside outcomes in risk disclosures. We also suggest that psychological forces cause informal shifts in reporting and disclosure regulation and policy, which can exacerbate boom/bust patterns in financial markets. The working paper version of the paper is available at https://ssrn.com/abstract=1359967.