Information Disclosure Regulation Research Articles

The green finance pilot policy and investment efficiency of industrial enterprises

ABSTRACT How does the Green Finance Pilot Policy (GFPP) in China impact the investment efficiency (IE) of industrial enterprises? Utilizing the establishment of green finance reform and innovation pilot zones in eight regions across five provinces in 2017 as a quasi-natural experiment, this paper applies the difference-in-differences method to assess the impact of the GFPP on the IE in the industrial sector. Our findings reveal that the GFPP significantly boosts IE by addressing issues of overinvestment. Furthermore, the GFPP enhances IE by reducing debt financing and improving information transparency. We recommend that policymakers further promote the GFPP and strengthen information disclosure regulations to guide rational investment in industrial enterprises.

Does operational disclosure curb textual tone manipulation by corporate management?

ABSTRACT Information disclosure regulations play a crucial role in shaping the information disclosure behaviour of company management, influencing the information environment of capital markets, and subsequently impacting the efficiency of resource allocation. Drawing on a quasi-experimental approach involving the phased implementation of the Industry Information Disclosure Guidelines (IIDG) and utilising data from Chinese listed companies spanning 2010–2021, we delve into the governance effects of the IIDG on company management’s textual tone manipulation and its mechanisms. Our findings reveal a significant reduction in the degree of textual tone manipulation in firm management discussions and analyses following the IIDG implementation. This is achieved through various channels, including enhanced disclosure of quantitative information related to firms’ operations, increased comparability of textual information across firms, and heightened investor attention. The governance effect is more pronounced when management has stronger incentives to manipulate the tone of the text and when there is more room for manipulation. Moreover, the IIDG has a spillover effect, extending to the suppression of tone-of-text manipulation in sections of the annual report beyond the management discussion and analysis. Additionally, investors penalise firms that continue to engage in tone manipulation after the IIDG implementation, as evidenced by a negative market reaction. We not only furnish micro-level evidence regarding the effectiveness of the IIDG as regulatory measures for disclosure but also introduces new perspectives on governing textual tone manipulation.

Disclosure-based regulation and municipal security trade prices

Purpose This paper aims to measure the trade price impact of a recent regulatory disclosure intervention in municipal securities secondary markets, which required broker-dealers to disclose securities trading information on a near-real-time and continuing basis. Design/methodology/approach The author analyzes trade price outcomes in the preintervention and postintervention regimes using a suite of time series estimations that give heteroskedasticity-robust standard errors (Prais–Winsten and Cochrain–Orcutt), accommodate higher-order lag structure in the error term (autoregressive integrated moving average) and account for volatility clustering in the time series (generalized autoregressive conditional heteroskedasticity). Findings Results show that regulatory disclosure intervention significantly improved trade price efficiency in municipal securities secondary markets as daily trade price differential and volatility both declined market-wide after the disclosure intervention. Research limitations/implications The sample consists of trades in State of California general obligation bonds; therefore, empirical findings may not be generalizable to other states, local governments and different types of bonds. Practical implications The findings highlight voluntary information disclosure as a practical and effective mechanism in disclosure regulation of municipal securities secondary markets. Originality/value Only a small body of work exists that examines information disclosure regulation in municipal securities secondary markets; therefore, this paper expands knowledge on the topic and should provide renewed impetus for regulatory efforts aimed at improving the efficiency of municipal capital markets.

Endogenous information acquisition and disclosure of private information in a duopoly

This study examines duopolies' incentives to acquire and disclose information about their unknown private costs of production in a Cournot model under three different information disclosure regimes: full disclosure, full concealment, and strategic disclosure regimes. We decompose the value of information into three parts: the value of a firm learning its own type, the value of knowing the rival's type, and the value of disclosing its information to the rival. We show that firms are more incentivized to acquire information in the strategic disclosure regime than in the full disclosure and full concealment regimes. The direct effect of information disclosure decreases consumer surplus for a given information structure, and the indirect effect may increase consumer surplus by providing firms with stronger incentives to acquire information. Furthermore, information acquisition and disclosure always increase the total surplus. Our findings shed light on how regulatory arrangements affect firms' information environment and help evaluate the effectiveness of information disclosure regulation.

Investor response to Morningstar's ratings, category information, and alpha in the Japanese mutual fund market

Mutual fund investors evaluate fund managers' skills before making investment decisions. Previous studies worldwide examined the rationale behind retail investors' investment decisions and found that investors reward performance by net fund flow. A Japanese study found that investors respond to alpha but do not risk factor-related returns. Surprisingly, the result would mean that Japanese investors are more sophisticated than US investors because the literature reported that US investors respond to factor-related returns without distinguishing them from alpha. We explore the background of this result in the Japanese market. This study focuses on the effects of Morningstar's fund ratings, its categories, and salient gross returns, which are readily available to investors unlike alpha. We find the following results: (1) Morningstar's rating does not substitute alpha, indicating that our result differs from the US results. (2) Investors respond only to high category excess returns, but it is a unique effect different from alpha. (3) Salient gross returns do not have a concrete relation with alpha. Moreover, we find solid convex relationships between alpha and fund flows. Investors' responses are limited to a few extreme flows; other than these, they do not respond to alpha. This extreme flow can explain the reactions to alpha on average reported in previous studies. In addition, we find that the category excess return has similar features. The solid convexity reveals that the Japanese mutual fund market is far from sophisticated, consistent with the literature. These results reveal the importance of fund distributors' behavior and information disclosure regulations.

Regional Digital Economy Development, Information Asymmetry, and Enterprise Supply Chain Transparency: An Empirical Study Based on Chinese Listed Companies

The digital economy is an important supporting force for the high-quality development of contemporary economy. Based on the panel data samples of A-share listed companies in Shanghai and Shenzhen Stock Exchanges from 2008 to 2020, this paper empirically tests the impact of regional digital economy development on the transparency of enterprise supply chain. Research discoveries: The development of regional digital economy has reduced information asymmetry among enterprises, and enterprises no longer have to bear risks to disclose important information, thereby reducing the transparency of their supply chain; Heterogeneity testing found that: (1) the development of the digital economy has a significant inhibitory effect on the supply chain information disclosure of upstream or downstream enterprises in the industry value chain; (2) This effect is greater upstream in the industry value chain; (3) The digital economy development level of enterprises in the eastern, central, and northeastern regions of China has reduced their supply chain information disclosure. The research conclusion of this article is helpful in analyzing the policy effectiveness of current corporate information disclosure regulations, and also provides a basis for the subsequent formulation of relevant disclosure policies.

Corporate Governance Research in the Digital Economy: New Paradigms and Frontiers of Practice

Digital technologies are increasingly changing the nature of competition and generating externalities that impact society. While the growth of a digital and sustainable economy may increase firm performance, these new trends also raise potential challenges for companies pertaining to corporate governance structures. In this paper, the impact of digitalization on corporate governance practices is discussed from the perspective of developing technologies and institutionalization, revealing potential effects, transformations, and steps to take. Our findings indicate that the development of the digital economy can facilitate enterprise digital transformation, enhance agency efficiency, and increase online media attention, thereby significantly promoting CSR performance for local firms. Digital transformation has an effect on the information quality and corporate governance, reducing agency costs, improving internal control, and attracting more analysts’ tracking, so as to build an effective trust mechanism between firms and the external market. The research conclusion of this article is helpful in analyzing the policy effectiveness of current corporate information disclosure regulations, and also provides a basis for the subsequent formulation of relevant disclosure policies. In addition to its theoretical significance, this paper also has important policy implications.

Key investor information disclosure regulation and retail mutual fund flows in the Finnish market

PurposeIn the European Union, the Undertakings for Collective Investment in Transferable Securities Directive (UCITS IV) requires fund management companies to provide a Key Investor Information Document (UCITS KIID) for investors. This papers uses archival data from the Finnish mutual fund market to test how the regulation's information disclosure requirements concerning past performance, risk and fund fees are associated with mutual fund flows.Design/methodology/approachThe study uses archival data on the mutual funds market in Finland to test how the regulation relating to retail investors' information requirements is associated with mutual fund flows.FindingsOur findings suggest that the UCITS KIID predicts retail investors' fund flows. While past performance is associated with fund flows throughout the observation period, retail investors appear to have become more sensitive to fund fees and invest in less risky funds following the adoption of the UCITS IV period.Practical implicationsInformation relating to fund fees and risk appears to be relevant to retail investors, which should be acknowledged in future iterations of short-form disclosure and in mutual fund marketing.Originality/valueThis paper is the first to assess the significance of KIID in actual market environment.

The Impact of Ownership Structure on Listed Firms’ Performance in Vietnam

The aim of this study is to estimate the impact of ownership structure on the performance of listed firms in transition economy. Buiding upon agency theory, hypotheses on such relationship are proposed. A detailed panel data of 502 non-financial companies listed on Ho Chi Minh Stock Exchange and Hanoi Stock Exchange over the period from 2013 to 2018, and the system generalized method of moment estimation are employed to test the proposed hypotheses. To ensure the reliability of data, this study excludes companies that violate information disclosure regulations or that are subject to special supervision by the State Securities Commission of Vietnam. Some firms with inadequate information, firms that lack the financial data required for creating variable or firms that have inconsistent construction are also re-screened. We only collect the data of enterprises that have ownership structure of two or more components. Estimation results reveal that state ownership has an U-shaped relationship with the performance of Vietnamese listed firms, while foreign ownership and the degree of ownership concentration have an inverted U-shaped relationship with listed firms' performance. The article provides governance implications that Vietnamese listed firms should decrease state ownership and foreign ownership to improve firm performance in order to boost investors' confidence.

Sanctions as a factor in the development of legal regulation of information disclosure by Russian issuers

The article examines the impact of sanctions - unilateral restrictive measures - on the development of legal regulation of information disclosure by Russian issuers. It is noted that the Russian legislation on the securities market does not take into account sanctions as a factor. However, their expansion after 2014 required significant changes in this area. The authors believe that such a trend in the development of legal regulation is objective and associated with the protection of the country's national interests. The article indicates that a special legal regime for disclosing information under the conditions of sanctions is still at the stage of formation; there are many ambiguities. In this regard, based on an analysis of special legislative norms aimed at considering the factor of sanctions in disclosing information by Russian issuers, legal decisions have been formulated to modernize the current legal regulation.

A carbon emission costing method based on carbon value flow analysis

Abstract Faced with increasingly strict carbon surveillance from carbon-related laws and regulations, it has become urgent for high-emission enterprises to find effective methods by which to reduce carbon emissions and control carbon emission costs. However, although carbon emission costs are closely related to the production process, current costing methods only pay more attention to the total cost amount rather than to the cost generation process. Therefore, this study aims to develop a carbon emission costing method based on carbon value flows analysis (CVFA) by tracing carbon element flow and accounting for carbon emission monetary value simultaneously. To verify the rationality and effectiveness of this method, this article also implements it in a case company. The results indicate that carbon emissions were reduced by 405,021.97 tons, and RMB 107,300,000 ($15,670,000) was saved through conducting optimized analysis. It is proved that the CVFA method is particularly suitable for process manufacturing enterprises. However, certain conditions are required to apply CVFA, such as the availability of compulsory carbon information disclosure regulations. Also, improving managers’ carbon resources investment decision-making capacity can reduce more carbon emissions and save more carbon emission costs.

The effects of information disclosure regulation on stock markets: Evidence from Vietnam

This paper investigates the effects of regulation pertaining to information disclosure on the Vietnam stock market. Using the event study methodology, we examine sectoral reactions, in terms of risk and return, following the announcements on information disclosure regulation in Vietnam. To validate the results, we also conduct several robustness tests such as the removal of firm-specific information and the use of a wide variety of ARCH models such as GARCH (1,1). We find evidence indicating that when the market anticipates a piece of regulation on information disclosure, most sectors experience negative reactions two and five days before the first announcement. Positive reactions are observed on the event date, as well as two and five days afterwards. Furthermore, we document a difference between the Ho Chi Minh Stock Exchange (HOSE) and the Hanoi Stock Exchange (HNX) in terms of market reaction. The results also show that the sectors experience changes in short-term systematic risk. Our contributions to the literature are threefold. First, we focus on a complete and more updated set of the Vietnam stock market’s information disclosure regulation. Second, our study examines the effects of a series of events on a single regulation at sectoral and firm levels in an emerging market. Third, in addition to sectoral analysis, we analyse the Vietnam stock market reaction at the firm level.

Learning by Viewing? Social Learning, Regulatory Disclosure and Firm Productivity in Shale Gas

It is well established that economic agents learn about new technologies in part from other adopters, though even sophisticated firms may not take full advantage of social learning. We examine whether shale gas operators took advantage of environmentally-focused disclosure laws to learn from competitors and improve productivity – that is, the extent to which disclosure laws facilitated social learning across companies. We exploit an unusual regulatory episode in Pennsylvania, in which the regulatory body collected chemical input data for a 14-month period prior to public disclosure. Using data from this period, collected in part from Right-To- Know Law requests, along with data from subsequent public disclosure, we study how the change in disclosure regime affected operators’ chemical use and well productivity. For example, some companies argued that chemical disclosure rules would expose valuable trade secrets. We evaluate this argument by observing whether competitors’ behavior relative to one another changes following disclosure, and whether this has an effect on productivity. To our knowledge, this is the first study to examine whether information disclosure regulations create a pathway for social learning in an emerging technology. This could also be interpreted as a form of technology diffusion facilitated by regulation. In ongoing work, we assess whether mandatory disclosure laws undermine appropriability regimes in this emerging technology in a way that erodes incentives for firms to invest in innovation.

Market Value of Innovation: An Empirical Analysis on China's Stock Market

Abstract Studies on market value of innovation investment have been based on US and European database. However, few re-searchers investigate Chinese stock market about the market value of firm's expected R&D performance. In this paper, we use constructed panel dataset from three representative stock markets in China: Main Board Market, Small and Media-sized Enterprise Board Market and Growth Enterprise Market and then use intangible assets increment as innovation indicator to examine the innovation investment-firm performance association in both manufacturing and service industries by a dataset over an 11-year period covering 1455 firms to evaluate the differences in their relative contribution to market performance. By comparing the results of these three stock markets, we find out the effect of R&D investment and increasing R&D input to market value is insignificant in all three stock markets, resulting from the weak protection for minority investors and loose regulation of information disclosure. Different constructions of intangible assets of listed firms on MBM and GEM account for market's relatively low efficiency to reflect real value of R&D investment. On industry-level, we conclude that R&D investment in both service and manufacturing sector contributes positively to market performance of firms and R&D investment in service industry shows stronger and more significant linkage to market value than manufacturing industry.

A study on risk retention regulation in asset securitization process

We study the impacts of the recently proposed risk retention regulation for asset securitization, i.e. the issuer has to retain a certain proportion of securitized assets. We also consider the frequently discussed measure to require the issuer disclose certain information of the securitized assets. In a dynamic model with asymmetric information between a risk-averse originating bank and a continuum of risk-averse investors, we find that it is impossible for a flat-rate retention requirement to be optimal for all asset types. Although both risk retention and information disclosure regulations are effective in reducing investors’ informational loss, neither can unconditionally enhance social welfare upon the unregulated case. For both measures, there are associated regulatory cost: risk retention regulation aggravates adverse selection problem because it undermines the channel of informational revelation by the choice of securitization intensity, and information disclosure requirement incurs a signalling cost by distorting banks’ securitization intensity in sending signals. Under an appropriate set of conditions we find that information disclosure requirement complements risk retention regulation when investors are sufficiently risk averse.

How firms respond to mandatory information disclosure

Mandatory information disclosure regulations seek to create institutional pressure to spur performance improvement. By examining how organizational characteristics moderate establishments' responses to a prominent environmental information disclosure program, we provide among the first empirical evidence characterizing heterogeneous responses by those mandated to disclose information. We find particularly rapid improvement among establishments located close to their headquarters and among establishments with proximate siblings, especially when the proximate siblings are in the same industry. Large establishments improve more slowly than small establishments in sparse regions, but both groups perform similarly in dense regions, suggesting that density mitigates the power of large establishments to resist institutional pressures. Finally, establishments owned by private firms outperform those owned by public firms. We highlight implications for institutional theory, managers, and policymakers. Copyright © 2013 John Wiley & Sons, Ltd.

Reducing information asymmetry in the power industry: Mandatory and voluntary information disclosure regulations of sulfur dioxide emission

This paper focuses on the institutional framework for sulfur dioxide emission information disclosure (SDEID) in power industries. The authors argue that mandatory and voluntary SDEID are two complementary regulatory instruments for emission reduction in the power industry. An analytical framework of SDEID with six facets is suggested in this paper to demonstrate relevant legal provisions and regulatory policies of mandatory and voluntary SDEID of power industries in the US. Empirical research shows that mandatory and voluntary SDEID of the power industry have been regulated simultaneously in the US. The foundation of power companies' willingness to disclose emission information voluntarily is the combination of mandatory scientific monitoring with market regulation in the current SDEID system in the US. In comparison, the SDEID of power industries has yet to be widely implemented in developing countries. Finally, the paper provides some implications to developing countries that plan to learn institutional arrangements from developed countries.

How Firms Respond to Mandatory Information Disclosure

Mandatory information disclosure regulations seek to create institutional pressure to spur performance improvement. By examining how organizational characteristics moderate establishments’ responses to a prominent environmental information disclosure program, we provide among the first empirical evidence characterizing heterogeneous responses by those mandated to disclose information. We find particularly rapid improvement among establishments located close to their headquarters and among establishments with proximate siblings, especially when the proximate siblings are in the same industry. Large establishments improve more slowly than small establishments in sparse regions, but both groups improve similarly in dense regions, suggesting that density mitigates the power of large establishments to resist institutional pressures. Finally, privately held firms’ establishments outperform those owned by public firms. We highlight implications for institutional theory, managers, and policymakers.

21 years of international M&As and joint ventures by Italian medium-sized listed firms: Value creation or value destruction?

This study provides evidence of the value creation of different equity entry modes in a sample of international investments performed by all Italian medium-sized listed firms in the period 1986–2006. Our research shows a positive and significant market reaction to announcements of internationalization strategies. The results are largely affected by high-equity entry modes carried out in advanced economies. Low-equity entry modes and international operations performed in emerging countries show no significant market reaction. We also find that the relative size of the deal, the firm age, the country risk, and the evolution of information disclosure regulation, matter in explaining the outcomes.

The impacts of the “right to know”: Information disclosure and the violation of drinking water standards

Information disclosure regulations are increasingly common, but their effects on the behavior of regulated firms are unclear. The 1996 Amendments to the Safe Drinking Water Act mandated that community drinking water suppliers issue to customers annual consumer confidence reports (CCRs), containing information on violations of drinking water regulations and on observed contaminant levels. We examine the impact of mandatory information provision on drinking water violations by 517 community water systems in the Commonwealth of Massachusetts from 1990 to 2003. Results suggest that larger utilities required to mail CCRs directly to customers reduced total violations by between 30% and 44% as a result of this policy, and reduced the more severe health violations by 40–57%.