Financial Disclosure Research Articles

Liquidity, Leverage, and Company Size on Earnings Quality with Profitability as a Moderating Variable

Research Aims: The aim of this research is to test and analyze the influence of liquidity, leverage and company size on earnings quality using profitability as a moderating variable. Design/methodology/approach: The population in this study are transportation companies listed on the Indonesia Stock Exchange for the 2020-2022 period. The sampling technique using purposive sampling technique resulted in 51 company observations. The analysis techniques used are Descriptive Statistical Analysis and Moderated Regression Analysis (MRA) as moderated regression analysis. The data analysis technique uses IBM SPSS Statistics 25 software.). Research Findings: The results of hypothesis testing show that liquidity and leverage have an effect on earnings quality, while company size has no effect on earnings quality. Profitability moderates the influence of leverage and company size on earnings quality, but is unable to moderate the positive influence of liquidity on earnings quality. Theoretical Contribution/Originality: The findings of this study may also have implications for further research and policy-making related to financial disclosure and corporate regulation. Keywords: Liquidity, leverage , company size, profitability, earnings quality

Do Gender-Diverse Boards Enhance the Linguistic Features of Corporate Financial Reporting?

SYNOPSIS Textual features, such as readability and disclosure tone, of mandatory financial reports have significant economic consequences. Managers and directors’ demographic attributes can also lead to different reporting styles. This study examines how gender-diverse boards influence the readability and tone of corporate financial disclosures under the framework of upper echelons theory. Using a sample of 3,085 U.S. firm-year observations from 2007 to 2016, we find that gender diversity in the board and audit committee enhances the readability of narrative disclosures and is associated with a less optimistic, litigious, and ambiguous tone in annual reports. This study highlights the contribution of female directors to the quality and transparency of financial disclosures and supports recent regulatory initiatives aimed at enhancing female representation on corporate boards.

Global focus on ESG in the supply chain – insights into supply chain management of Environmental, Social and Governance requirements and trends both locally and globally

In our increasingly interconnected world, responsible business operation has become a normal, critical part of doing business for virtually all industries. Consumers, investors, and other company stakeholders are demanding businesses take responsibility for their current and future impacts on people and the environment. When assessing the role corporations play in a more sustainable future, many turn their focus to Environmental, Social and Governance (ESG) factors that help define and measure sustainable business. Given the wide variety of topics encompassed in ESG, companies often identify which are material, or prioritised by company stakeholders. Quantitative and qualitative information for material ESG topics is often reported using a standard or framework such as the Task Force on Climate-related Financial Disclosures; Taskforce on Nature-related Financial Disclosures; Sustainability Accounting Standards Board; the Global Reporting Initiative and the Carbon Disclosure Project (CDP), along with other region-specific standards. One reporting challenge includes extending ESG strategies and data collection to a company’s value chain. By including ESG-related requirements in service contracts or pre-qualification metrics, expectations can be clearly communicated and data aggregation becomes simpler. Engaging with vendors on the importance of material topics and providing educational tools and opportunities is necessary for accurate data collection. Benchmarking companies against their peers allows organisations to make informed decisions to continue or halt business relationships. Every company’s approach to ESG will look different, but protecting the business’s reputation and customer expectations is critical to continuous operations. Outcomes: understanding different components of ESG. Recognition of the types of reporting disclosure frameworks. Best practices with contractors and suppliers.

Corporate Social Responsibility and Financial Information Quality

Corporate social responsibility has gained increasing popularity among managers and investors. Many firms commit significant resources and consider CSR as a part of their long-term strategic plan. Whether corporate social responsibility affects corporate financial information quality has been an important question. Using a big sample of corporations in the U.S., I study the relationship between corporate social responsibility (CSR) and corporate financial information quality. I find a significant and positive relationship between CSR and financial information quality. This relationship is robust to potential endogeneity concerns. These findings have important implications for financial disclosure, CSR, and corporate strategy.

Corruption and Co-Optation in Autocracy: Evidence from Russia

Do corrupt officials govern differently in elected office? This article develops a theoretical framework and analyzes new data from financial disclosures to estimate the governing costs of corruption. First, I uncover substantial hidden wealth held by roughly one quarter of the legislators in the Russian Duma; these “kompromat deputies” are vulnerable to damaging information being used against them by the regime. Analyzing their behavior in office, I find that these deputies are less active and more absent members of parliament. When called to vote, kompromat deputies from the opposition also more eagerly support the regime’s political agenda. Finally, kompromat deputies are less likely to win reelection, suggesting that they have shorter time horizons as well as that parties have incentives to rotate them out. Autocrats permit and then monitor corruption in order to co-opt potential challengers, who in turn trade loyalty to the regime in exchange for opportunities to self-enrich.

Shareholder Protection in Saudi Companies Law: Assessing Merger and Acquisition Efficacy for Unlisted Joint Stock Companies

This paper explores the legal protections afforded to shareholders of unlisted joint stock companies in Saudi Arabia during merger and acquisition activities. There are significant risks associated with using tools like mergers and acquisitions, including market share loss and decreased profitability for shareholders. Thus, this study aims to analyse the Saudi Companies Law for potential gaps that may affect shareholder legal protections. The researchers primarily use a doctrinal legal methodology to assess the legal framework. This approach provides that the study is based on an examination of the legal framework of Saudi Arabia such as statutes, rules, principles, and cases . It will also apply the analytical approach to evaluate the legal framework's fundamentals, conceptual problems, and practical effects, to make sure that the study finds opportunities for improvement. The Article identifies the differences between unlisted and listed companies concerning document disclosure requirements, lack of the method used for asset valuation, lack of forward-looking information disclosure, the absence of obligatory independent financial reports and unclear definitions of shareholder rights to oppose or exit mergers and acquisitions at fair value. The study found that these areas represent potential gaps that could undermine shareholders of unlisted joint stock, improvements to the law, such as the adoption of independent valuation standards, mandatory financial disclosures, and clearer expression of shareholder rights.

Text Mining and Financial Analysis Modeling for Financial Statement Disclosure

This paper explores the integration of financial analysis, text mining, and blockchain technology to enhance financial statement disclosure and analysis processes. Leveraging text mining algorithms, the study extracts valuable insights from unstructured financial data, unveiling hidden patterns and sentiments within financial statements. Additionally, blockchain technology is employed to ensure secure and immutable storage of financial data, fostering transparency and trust in financial transactions and disclosures. Through the automation and digitization of financial reporting processes, stakeholders can streamline financial statement analysis, identify risks and opportunities, and make data-driven decisions with greater accuracy and efficiency.

Disclosure frequency of parent company financial reporting: Insights from analyst forecasting accuracy

AbstractPrior research predominantly concentrates on the comprehensive financial disclosures of consolidated statements, often overlooking the distinct informational value inherent in the financial statements from parent companies. The debate continues on whether the frequency of disclosures from parent companies should align with that of their consolidated counterparts. The periodic dissemination of a parent company's financials can significantly reduce information asymmetry, thus enabling analysts to promptly and accurately grasp the firm's financial health. Yet, this increased frequency may come at the cost of information reliability, leading to more errors and promoting myopic decision‐making among executives, which might lead to misguided analysis. Drawing on shifts in China's financial disclosure mandates – from obligatory to optional quarterly reporting by parent firms – we observe that analysts tend to generate more precise earnings forecasts for those publicly traded entities that refrain from quarterly disclosures of parent company reports. This enhancement in forecast precision is particularly marked in instances where corporate information quality is substandard or when analyst coverage is extensive. Supplementary findings suggest that this effect intensifies for annual reports audited by firms outside the Big 4 and when there is more coverage by other media. Consequently, our findings imply that easing the stringent quarterly reporting by parent companies and adopting a voluntary disclosure system does not diminish the informational richness available to investors.

Innovation and Financial Disclosure

ABSTRACTWe examine how financial disclosure policy affects a firm manager's strategy to innovate within a two‐period bandit problem featuring two production methods: an old method with a known probability of success, and a new method with an unknown probability. Exploring the new method in the first period provides the manager with decision‐useful information for the second period, thus creating a real option that is unavailable under exploiting the old known production method. Voluntary disclosure of the firm's financial performance provides the manager with another option to potentially conceal initial failure from the market. The interaction of these two options determines the manager's incentive to explore. In equilibrium, a myopic manager who cares about the interim market price may over‐ or under‐explore compared to the optimal exploration strategy that maximizes firm value. Our analysis shows that firms operating in an environment with voluntary disclosure early in the trial stage and mandated requirement later are most motivated to explore, while firms subject to early mandated disclosure and late voluntary disclosure are least likely to do so. We also provide empirical predictions about the link between the disclosure environment and the intensity and efficiency of corporate innovation.

Leveraging natural capital accounting to support businesses with nature-related risk assessments and disclosures.

Nature loss threatens businesses, the global economy and financial stability. Understanding and addressing these risks for business will require credible measurement approaches and data. This paper explores how natural capital accounting (NCA) can support business data and information needs related to nature, including disclosures aligned with the Taskforce on Nature-related Financial Disclosures recommendations. As businesses seek to measure, manage and disclose their nature-related risks and opportunities, they will need well-organized, consistent and high-quality information regarding their dependencies and impacts on nature, which few businesses currently collect or track in-house. NCA may be useful for these purposes but has not been widely used or applied by businesses. National NCA guided by the U.N. System of Environmental-Economic Accounting may provide: (i) a useful framework for businesses in conceptualizing, organizing and managing nature-related data and statistics; and (ii) data and information that can directly support business disclosures, corporate NCA and other business applications. This paper explores these opportunities as well as synergies between national and corporate natural capital accounts. In addition, the paper discusses key barriers to advancing the wider use and benefits of NCA for business, including: awareness of NCA, data access, business capabilities related to NCA, spatial and temporal scales of data, audit and assurance considerations, potential risks, and costs and incentives. This article is part of the theme issue 'Bringing nature into decision-making'.

Asset impairment: the quality of disclosures in financial reporting amidst the pandemic

Relevance. The deterioration of economic conditions both in individual countries and worldwide, due to the spread of coronavirus infection and the imposition of strict quarantine restrictions resulted in notable changes in the financial and business sectors. This makes it relevant to investigate this issue. Purpose. The main purposes of the study are to examine the issue of changes in the quality of information to be disclosed in connection with financial reporting, specifically the impact of the global pandemic on this procedure. Additionally, the study aims to determine the extent to which such dynamics have a positive or negative effect on the implementation of financial reporting. Methodology. Various methodological approaches, which have both theoretical and more practical aspects, such as the theoretical and methodological approach, analysis, synthesis, comparative analysis, and the analysis of scientific literature were used in the study, which helped to investigate the above-mentioned issue and achieve the research objectives. Results. In the process of examining the aspect, the following results were identified, the theoretical background to the issue was reviewed, in particular the concepts, the main components of the asset impairment phenomenon, and the financial reporting and disclosure procedures were highlighted, the main features and changes in the industry caused by pandemic were identified. Conclusions. Alternative approaches to financial disclosure have been formulated which may help to prevent the occurrence of negative consequences for legal persons due to neglecting such information, or even withholding such information. Keywords: asset carrying amount; asset recoverable amount; asset sensitivity analysis; operational continuity; coronavirus infection; reduction in asset value

Research on ESG System Construction and Environmental Accounting Information Disclosure：A Case Study of CITIC Securities

Since the signing of the Paris Agreement, societal concern regarding climate change and sustainable development has grown exponentially. The construction of ESG (Environmental, Social, and Governance) frameworks and the disclosure of environmental accounting information have garnered significant attention. Constructing a financial ESG framework and refining its environmental accounting system holds paramount significance. This study employs a case study approach, using leading Chinese securities firm, CITIC Securities, as a focal point. It elucidates the complementary relationship between ESG frameworks and environmental accounting within financial institutions. Leveraging databases and publicly available information such as CITIC Securities' annual reports and corporate social responsibility report, the study systematically analyzes the development of CITIC Securities' ESG framework and the current status of environmental accounting information disclosure. Based on these findings, the study identifies issues in CITIC Securities' and other financial institutions' information disclosure practices, such as a tendency towards one-sided disclosure or the presence of "greenwashing" phenomena. Finally, the study proposes measures and recommendations in four key areas: standardization, enhanced disclosure, independent verification, and digitization empowerment.

The effects of manager sentiment in financial disclosure: Perspectives of operational efficiency and market reaction

This study constructs a measure of managerial optimism using textual and nonparametric estimation methods, exploring its impact on company operational efficiency and market reactions. Findings indicate that managerial optimism positively influences stock price returns over the subsequent year by enhancing internal operational efficiency and reducing analyst forecast dispersion, with a more pronounced effect in state-owned enterprises. Utilizing information from the MD&A (Manager Discussion and Analysis) section of annual reports, this research demonstrates the role of managerial optimism in company operations and market reactions, offering empirical evidence for corporate behavioral finance research and practical implications for management practice.

Do investors care about biodiversity?

Abstract This article introduces a new measure of a firm’s negative impact on biodiversity, the corporate biodiversity footprint (CBF), and studies whether it is priced in an international sample of stocks. On average, the CBF does not explain the cross-section of returns between 2019 and 2022. However, a biodiversity footprint premium (higher returns for firms with larger footprints) began emerging in October 2021 after the Kunming Declaration, which capped the first part of the UN Biodiversity Conference (COP15). Consistent with this finding, stocks with large footprints lost value in the days after the Kunming Declaration. The launch of the Taskforce on Nature-related Financial Disclosures (TNFD) in June 2021 had a similar effect. These results indicate that investors have started to require a risk premium upon the prospect of, and uncertainty about, future regulation or litigation to preserve biodiversity.

Corporate governance structure and climate‐related financial disclosure: Conventional banks versus Islamic banks

AbstractThis paper examines whether the different corporate governance structures of conventional banks (CBs) and Islamic banks (IBs) have varying effects on their respective climate‐related disclosure (CRD). Employing a unique dataset of CBs and IBs' CRD and corporate governance structures for the period of 2016–2019, we found that their respective corporate governance structures did indeed affect their CRD in different ways. Our findings suggest that CBs disclose more climate‐related information than IBs because IBs focus on Sharia compliance which does not emphasise the protection of the environment, while CBs may be more responsive to shareholders' and stakeholders' demands on climate and environment. These effects were stronger with the quality of governance, that is, CBs disclose more climate‐related information with the governance quality, while IBs disclose even less when their governance quality increases. The findings of this study have important implications for climate change, especially the Paris Accord and The 26th Meeting of the Conference of Parties (COP26). There are also policy implications for sustainable financial markets and the financial services sector.

The Impact of The Computerized Accounting Information System in Reducing Financial Risks in Jordanian Commercial Banks

Purpose: The purpose of this study was to assess the impact of computerized accounting information systems (CAIS) on reducing financial risks within Jordanian commercial banks listed on the Amman Stock Exchange. This involved examining the components, characteristics, and benefits of CAIS in this context. Methods: The study employed a questionnaire-based approach to gather information, distributing 75 questionnaires among financial managers and internal auditors within Jordanian commercial banks. A total of 64 questionnaires were retrieved and analyzed to draw conclusions. Results and Discussion: The analysis revealed a significant impact of various variables related to computerized information systems in mitigating financial risks within the sampled banks. This finding underscores the importance of CAIS in enhancing risk management practices within the banking sector. Notably, the study highlights the necessity of corporate governance implementation and the preparation of specialized reports to enhance financial risk disclosure processes. Implications of the Research: The findings of this research have several implications for both academia and practice. Firstly, they emphasize the crucial role of CAIS in reducing financial risks within commercial banks. Secondly, they underscore the importance of implementing robust corporate governance mechanisms to strengthen risk management frameworks. Additionally, the study suggests the need for further research to explore the impact of accounting information systems on different types of risks and their consequent effects on financial performance. Originality/Value: This study contributes to the existing literature by providing insights into the specific context of Jordanian commercial banks and their utilization of CAIS for managing financial risks. By identifying the components, characteristics, and benefits of CAIS in this setting, the research adds valuable knowledge to the field of accounting and finance. Moreover, its recommendations for enhanced corporate governance practices and specialized reporting can inform practical strategies for risk management in banking institutions.

Glaring gaps in tools to estimate businesses’ biodiversity impacts hinder alignment with the Kunming-Montreal global biodiversity framework

The Kunming-Montreal Global Biodiversity Framework, in a first-time move, calls for companies and financial institutions to measure and report their impacts on biodiversity. While many tools that measure businesses' biodiversity footprints have recently emerged (“biodiversity indices”), it is unclear whether they really allow companies to measure what the Global Biodiversity Framework requires. Identifying gaps in biodiversity indices concerning the GBF would aid businesses and strengthen its implementation. To fill this gap, here we assessed the degree of the alignment between the indices and the Global Biodiversity Framework. The businesses’ biodiversity indices identified by the European Union Business @ Biodiversity Platform and the Taskforce for Nature Financial Disclosures were selected. A semi-quantitative gap analysis was applied to compare their capabilities against the metrics extracted from the Global Biodiversity Framework. The glaring gaps were found in existing biodiversity indices in the coverage of the metrics needed to support the implementation of the Global Biodiversity Framework by businesses. Metrics related to ecosystem integrity, connectivity and restoration, nature-based solutions, sea use change, aquatic biodiversity, genetic diversity and resources, the territory and knowledge by Indigenous Peoples, and urban green and blue spaces were insufficiently addressed by most available biodiversity indices. There is an urgent need to develop integrated biodiversity indices if businesses are to effectively measure and disclose their impacts on biodiversity in a way more consistent with the Global Biodiversity Framework.

Automating financial reporting with natural language processing: A review and case analysis

In the evolving landscape of financial reporting, the integration of Natural Language Processing (NLP) emerges as a beacon of innovation, promising to redefine the paradigms of accuracy, efficiency, and compliance. This paper embarks on a scholarly expedition to explore the transformative potential of NLP within the realm of financial disclosures, navigating through the intricate interplay of technological advancements and regulatory frameworks. The study meticulously analyzes the application of NLP techniques in automating financial reporting, unraveling the complexities of implementation and the multifaceted challenges therein through a qualitative research design. Through a comprehensive review of the literature and empirical data, the paper illuminates the efficacy of NLP in enhancing the precision and reliability of financial reports while also delving into stakeholders' perceptions regarding its adoption. The findings reveal a significant improvement in reporting efficiency and accuracy, underscored by the strategic importance of addressing implementation hurdles and regulatory considerations. The study culminates in a set of cogent recommendations, advocating for the development of a robust framework for NLP applications in financial reporting, alongside a clarion call for ongoing research into sophisticated NLP models and scalable solutions. In essence, this paper not only charts a course for the future integration of NLP in financial reporting but also stands as a testament to the indelible impact of technological innovation on the financial industry. It beckons the academic and professional communities to forge a collaborative path towards realizing the full potential of NLP, thereby ushering in a new era of transparency and insight in financial disclosures.

Analysis of the Implementation of Good Corporate Governance in Food Companies: PT. Indofood Success Makmur

PT Indofood Sukses Makmur, a renowned Indonesian food manufacturer, is assessed for Good Corporate Governance (GCG) compliance. The company has grown and transformed over the past two decades, becoming a major food industry participant. Indofood understands the relevance of GCG principles for openness, accountability, and stakeholder value despite its success. This study finds Indofood's GCG principles—transparency, responsibility, accountability, independence, and fairness—strong through literature and company actions. However, financial disclosures and sustainability efforts might be more transparent, accountability systems strengthened, and workplace culture more inclusive and varied. The research recommends that Indofood improve its governance procedures through constant monitoring and improvement to sustain stakeholder confidence and navigate the changing consumer food market.

Assessing Libya’s First Ṣukūk: Sharīʿah Compliance and Financial Viability

ABSTRACT Purpose — This study aims to assess the first ṣukūk issuance in Libya from two main perspectives: the compliance of the ṣukūk with the Sharīʿah and its compliance with the Libyan legal system. Further, the study evaluates the adequacy of the provided financial disclosures to assess the feasibility of the ṣukūk issuance. Design/Methodology/Approach — A qualitative case study methodology was used to assess the ṣukūk issuance in question. For the assessment of disclosure adequacy, a tailored model was devised featuring main and subsidiary points of interest. Findings — The Sharīʿah assessment findings suggest potential non-compliance issues within the ṣukūk issuance. Additionally, there are significant gaps in the disclosure of key financial aspects related to both the ṣukūk originator and the project, potentially hindering stakeholders from gaining a comprehensive understanding of the issuance’s feasibility. Originality/Value — One unique advantage of this paper is that it is the first to gain access to the actual documentation of ṣukūk issuances in Libya. Research Limitations/Implications — The study’s scope was constrained by a scarcity of data and documents from Libyan parties. Practical Implications — After analysing the ṣukūk issuance, a framework of Sharīʿah and financial disclosures was developed. The application of the proposed framework can be extended to effectively assess other comparable ṣukūk offerings within the Libyan legal system. Social Implications — Libyan policymakers are recommended to strengthen the regulations governing forthcoming ṣukūk issuances. The proposed improvements should include mandating comprehensive disclosures regarding the financial viability of the ṣukūk issuance and ensuring ample disclosures to guarantee full adherence to Sharīʿah principles.