Mandatory Disclosure Regime Research Articles

Enhancing Climate Decision Making

This article investigates the early implementation of the Aotearoa New Zealand Climate Standards, the world’s first mandatory climate-related disclosure regime, and its influence on New Zealand business practices. Through interviews with 20 organisations, the study explores challenges and opportunities associated with the new disclosure requirements. Findings range from viewing disclosures as compliance to recognising the strategic value. Key needs include enhanced policy support, data access and capacity building to ensure disclosures contribute meaningfully to New Zealand’s climate goals. The insights provide a foundation for refining the Aotearoa New Zealand Climate Standards and offer broader lessons for the global adoption of climate risk disclosure standards.

Article: Is the Privilege Too Privileged? the Orde van de Vlaamse Balies Case Revisited

The objective of this article is to analyse the concept of the legal professional privilege in the field of taxation. First, the Orde van de Vlaamse Balies case is examined in which the CJEU struck down an element of the mandatory disclosure regime contained in the fifth amendment to the Directive on Administrative Cooperation (DAC 6) as it was considered a disproportionate infringement of the legal professional privilege. The article challenges whether the CJEU was correct in simply further developing its own and the ECtHR’s precedence to reach the conclusion that all activities of lawyers as targeted by the DAC 6 fall within the scope of the strengthened protection of legal professional privilege. Additionally, it is concluded that the CJEU insufficiently took into account the DAC 6’s broader goals. Next, the article investigates ethical considerations concerning legal professional privilege, discussing particularly how it should be delineated in the field of taxation. The article concludes that the scope of legal professional privilege should not be expanded to include the activities of lawyers in tax planning.

The compounding effect of mandatory GHG emissions disclosure and voluntary ESG disclosure on firm value in Korea

PurposeThis study attempts to examine the effect of greenhouse gas (GHG) emissions disclosure and its compounding effect with environmental, social, and governance (ESG) disclosure on firm value in Korea. This study focuses on the unique institutional setting in Korea that implements mandatory GHG emissions disclosure and voluntary ESG disclosure.Design/methodology/approachUsing a dataset comprising 25,968 firm-year observations from publicly listed Korean firms from 2000 to 2021, we applied an ordinary least squares (OLS) regression model to test hypotheses.FindingsThe results show that, in a voluntary disclosure regime, ESG disclosure has a positive impact, whereas in a mandatory disclosure regime, GHG emissions disclosure has a negative impact on firm value. The results also indicate that when a firm discloses both its GHG emissions and ESG performance information, the voluntary disclosure of ESG information synergistically mitigates the adverse effects of mandatory disclosure of GHG emissions information. This synergy contributes significantly to enhancing the firm’s overall value. The findings indicate that a firm can enhance its value by proactively disclosing ESG information, especially when it is compulsorily required to report GHG emissions data.Originality/valueThis study investigated the effect of corporate non-financial disclosure on firm value by shedding light on the differential attributes between voluntary and mandatory disclosures and between quantitative and qualitative information.

Mandatory Disclosure Regime for Cross-Border Tax Planning Arrangements (DAC6): ECJ Confirms Compatibility with EU Law

Following a request to (partially) annul Belgium’s implementation of the DAC6 disclosure regime, the Belgian Constitutional Court submitted five questions to the ECJ in Belgian Association of Tax Lawyers and Others (Case C-623/22). In its decision of 29 July 2024, the ECJ found that there had been no violation of the principles of equal treatment, non-discrimination, legal certainty and legality, as well as the right to a fair trial and to respect for private life. Hence, it has been confirmed that DAC6 is compatible with EU law.

Is mandatory disclosure an effective panacea for buyer beware?

Purpose The purpose of this paper is to examine whether mandatory disclosure of information accompanying the sale of real estate achieves its aim of informed purchasers. Design/methodology/approach Using a case study approach focused on mandatory disclosure in South Australia data was collected from interviews and focus groups with key personnel in the property industry involved in the production of information required to fulfil vendors’ disclosure obligations. Findings The authors found that purchasers are ill-served by a long and complex form of mandatory disclosure with a short time frame that prevents the use of the information provided. Without good form design and increased digital affordances provided by the cadastral and conveyancing systems, mandatory disclosure is insufficient to ensure minimisation of information asymmetry between vendor and purchaser. Originality/value To the best of the authors’ knowledge, this is the first Australian qualitative study that examines the utility of mandatory vendor disclosure in real estate sales and the first to consider the impact of the digitalisation of cadastral and conveyancing systems upon the efficacy of mandatory disclosure regimes.

The Interaction of the Duty to Make a Suspicious Activity Report under the Proceeds of Crime Act and the Obligation to Report under Hallmark D of DAC6 and the OECD Mandatory Disclosure Regime

This article exists because of a disagreement. The authors regularly work together in practice and in print. They both work in the field of international tax information exchange regimes and have opinions that sometimes diverge. They diverge particularly in relation to the subject matter of this article.

The impact of environmental, social and governance (ESG) disclosure on firm financial performance: evidence from Hong Kong

PurposeThis study investigates the impact of environmental, social and governance (ESG) disclosure on firm financial performance under a mandatory disclosure regime in Hong Kong.Design/methodology/approachThe authors examine the largest 109 firms listed on the Hong Kong Exchange (HKEX) as of the financial year of 2019. The authors use a manually constructed index based on the most current 2019 ESG Reporting Guide launched by HKEX, followed by quantitative statistical methods using a model that follows the valuation framework by Ohlson.FindingsThe authors find a significant positive association between total ESG disclosure level and firm financial performance in the main tests. However, when the total ESG scores are partitioned into environmental and social subscores, the results show that only social disclosures are value relevant. Moreover, the results demonstrate that environmental and social subscores are both significant when return on assets (ROA) is used as a dependent variable. Furthermore, the robustness tests show that only qualitative ESG information is value relevant to share prices, while both quantitative and qualitative ESG information are relevant to ROA. In addition, the disclosure quality of annual reports alone is good in explaining the firm financial performance in this study.Originality/valueThis study contributes to existing non-financial reporting literature using hand-collected data as well as examining the firm financial performance of ESG reporting under the mandatory disclosure regime in the Hong Kong context.

Determinants of ESG disclosure among listed firms under voluntary and mandatory ESG disclosure regimes in Hong Kong

PurposeThe authors examine the determinants of ESG disclosure and differentiate between voluntary and mandatory disclosure regimes in Hong Kong.Design/methodology/approachThe authors analyse both Bloomberg ESG scores and a disclosure index score, manually constructed according to the 2019 Hong Kong Exchange ESG Guide using regression tests.FindingsThe results indicate that the level of concentrated ownership is negatively associated with the quantity of ESG disclosure only in the voluntary disclosure period, suggesting that agency problems are alleviated when ESG reporting is mandatory. The findings also show that larger firms significantly disclose higher levels of ESG information in both voluntary and mandatory disclosure periods. Furthermore, the extent of ESG disclosure significantly increases when firms' sustainability reports are audited by Big 4 accounting firms only in the voluntary disclosure period. Finally, the control variables are significantly related to the level of ESG disclosure showing that ESG disclosure increased over time and is significantly different among industries.OriginalityThe authors make contributions to the literature on non-financial disclosure in relation to ESG reporting by examining the relationship between firm characteristics and ESG disclosure in the Hong Kong context under both voluntary and mandatory disclosure regimes. This study also provides important implications for other stock markets and relevant stakeholders including preparers, users and the sustainability profession.

Article: Interpretation of Multi-lateral Treaties: The Purposive Approach and Multiple Parties Through the Lens of the UK Courts

In this article the authors consider how to interpret the multilateral provisions in relation to tax administration such as the Common Reporting Standard (CRS), Base Erosion and Profit Shifting (BEPS) and the Mandatory Disclosure Regime, the pace of adoption of which continues to accelerate. They discuss whether the pre-existing framework provided by the Vienna Convention on The Law of Treaties is either adequate or appropriate in its application to the interpretation of such multi-later instruments. In light of this analysis the authors consider what principles of interpretation are found in case law and whether the principles ennunciated in Fowler v. Revenue and Customs Commissioners [2021] 1 All ER 97, could be used to remedy any deficiency in the Vienna Rules. This includes an examination of the dangers of the use of commentary in the interpretation of multi-later instrument and the importance of principles that allow the interpretative tradition of the relevant jurisdiction to override commentary. Having examined these difficulties and the inadequacies in the modern interpretive code, they propose methods of approach to ease the interpretative issues created by multi-lateral instruments, including the possibility of an internal code of interpretation for such multi-lateral instruments. Treaty interpretation, multilateral, BEPS, CRS, MDR, OECD, purposive interpretation, Vienna Convention, tax treaties, double taxation.

Corporate social responsibility and COVID‐19: Prior reporting experience and assurance

The novel COVID‐19 has created an exogenous shock to capital markets and, hence, an ideal opportunity for researchers to assess whether CSR‐related activities provide an insurance‐like mechanism to protect firms against the shock. Using a large sample of 4361 firms domiciled in 40 countries, we investigate the roles of CSR reporting and assurance in the negative consequences of COVID‐19 on firm value. The results confirm that prior CSR reporting experience buffers firms against the adverse effects of the health crisis. The results also support that not only does the assurance on CSR reports create a buffering effect against the health crisis, but it also intensifies the buffering effects of prior CSR reporting experience against the pandemic. Moreover, using difference‐in‐difference method for testing the link between CSR reporting and firm value, we show that the positive association of reporting and assurance with firm value is more pronounced during the pandemic as compared with the years preceding it. The results of this study are robust to various analyses. Replicating the analyses to the context of the global financial crisis, we find that prior CSR reporting experience and assurance provide similar buffering effects when a market is exposed to various exogenous shocks. The results also hold for the mandatory disclosure regimes. By distinguishing first and subsequent reports and assurance, we show that, unlike subsequent CSR reports and assurance, the initial ones cannot mitigate the negative effects of the crisis on firm value, indicating that stakeholders take into account longer‐term CSR reporting experiences. Aside from reporting and assurance aspects of CSR, we analyze the role of CSR report's quality and accuracy and show that the adoption of Global Reporting Initiatives (GRI) frameworks can enhance socially responsible firms' resilience against systematic shocks.

Mandatory Disclosure for Ethical Supply Chains: A Conflict Mineral Case Study

Mandatory disclosure requirements for corporate supply chains have the potential to leverage consumer and investor sensibilities to incentivize corporations to source more ethically. Despite their growing prevalence, there are few empirical studies of their effects: whether they actually put pressure on companies remains untested. This Article supplies such evidence by examining the consumer and investor responses to corporate supply chain disclosures made pursuant to Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The act requires publicly traded companies to disclose to the Securities and Exchange Commission whether their supply chain contains “conflict minerals” (minerals important in global supply chains whose sourcing supports the conflict in the Democratic Republic of Congo and surrounding areas). The law aims to give customers and investors information about corporate supply chains, with the hope that they will support companies that source responsibly and punish those that do not. But whether this is actually accomplished is an open question. This Article provides an empirical study of the market responses to three years of Section 1502 disclosures, whose contents were coded to create a novel dataset. Disclosures implying that a company has a higher risk of contributing to the conflict are associated with higher revenues and stock performances than those implying a lower risk. This implies there is no market discipline of bad actors in response to the disclosures; instead, bad actors are rewarded. This is consistent with the finding that the number of companies reporting a higher risk of contributing to the conflict through their supply chains did not decrease over the three years. One potential explanation is that consumers and investors may read disclosures more for signals of a corporation’s honesty or profit-maximization skills than for information about conflict-minerals exposure, and firms disclosing a higher risk of this exposure are more likely to be honest and profit seeking. Because disclosures about supply chains will generally send these signals as well, expecting investors or consumers to discipline the supply chains in response to securities disclosures is unrealistic. But scores for the due diligence procedures and forward-looking commitments in the disclosures generated by an NGO for a subset of the companies are positively correlated with revenues, suggesting how mandatory disclosure regimes might be improved. The NGO’s success in disseminating and analyzing the information suggests that the SEC may not be the best actor for implementing supply chain disclosure requirements and the criteria for the scoring suggest that disclosure requirements should focus more on the reporting of processes so that they are less likely to send a signal about honesty.

Determinants and Consequences of Sustainability Narrative and Graphical Disclosures

We examine the determinants and consequences of both narrative and graphical presentations of environmental, social, and governance (ESG) sustainability disclosures. Drawing on a sample of hand-collated data of top 200 firms from the US and Europe from 2016-2018, we find that: (1) EU firms under the mandatory ESG disclosure regime disclose better quality and quantity of ESG graphical and narrative presentations than US firms under the voluntary disclosure regime; and (2) firms with low ESG sustainability narratives and graphs quality and quantity exhibit lower financial performance (ROA), lower long-term market performance, and lower financial reporting quality than those with high quality and quantity of ESG narrative and graphical disclosures. Our results are robust after performing additional analyses in addressing potential endogeneity concerns. Overall, our findings provide policy, practice, and research implications as they highlight the importance of more uniform and rigorous ESG graphical and narrative sustainability disclosures.

The effect of the internal control regulation on reporting quality in China

This paper aims to investigate whether Chinese internal control regulation improves reporting quality. After the enactment of US Sarbanes–Oxley Act (SOX), China introduced a quasi-SOX practice (C-SOX). C-SOX stipulates that firms should disclose both management and audit reports on internal control and aims to help firms ensure reporting reliability. Previous studies provide solid evidence of the effectiveness of SOX, but the conclusion cannot simply be generalized to emerging markets. We employ a modified difference-in-difference approach regarding the special batched implementation schedule of C-SOX and observe earnings management during the reform, finding that accrual-based earnings quality is enhanced significantly after compliance with C-SOX without causing more real activity manipulation. Our results thus show that C-SOX has a positive effect on reporting quality and triggers no side-effects harming firms’ long-term value. Our findings suggest that the mandatory disclosure regime of C-SOX contributes to better corporate disclosure even with weak enforcement.

Saying More than Necessary: When and Why Corporates Disclose More than Required

Firms located in mandatory disclosure regimes face a choice of disclosing only what is mandated or voluntarily disclose additional information. In this paper, we investigate why companies choose to disclose information voluntarily, over and above what is mandated by regulatory authorities and whether this dual approach to disclosure actually translates to better disclosure quality. Our findings from analysing data from Bombay Stock Exchange’s Top 100 firms suggest that firms pursue a portfolio approach with respect to voluntary disclosure. That is, firms who voluntarily commit to multination agreements on sustainable business practices like the UNGC are also more likely to pursue local voluntary sustainable standards above legal requirements. Moreover, we also find that additional voluntary sustainability reporting according to GRI guidelines within a mandatory disclosure environment enhances the overall quality of disclosure. Further examination of firm-level contingencies of this relationship indicates that a firm’s level of product diversification positively moderates the relationship between additional voluntary sustainability reporting and the firm’s overall quality of disclosure.

Extracting transparency: the process of regulating disclosures for the resources industry

PurposeMultinational resource companies (MRCs) are under pressure to become responsible corporate citizens. In particular, stakeholders are demanding more information about the deals these companies negotiate with the host governments of resource-rich nations, and there is general agreement about the need for industry commitment to transparency and the benefits that a mandatory disclosure regime would bring. This paper examines the production of one attempt to regulate disclosures related to payments between MRCs and the governments of nations with resource wealth: Section 1504 of the Dodd–Frank Act.Design/methodology/approachDrawing on Boltanski and Thévenot's (2006) Sociology of Worth, the authors examine the comment letters of participants in this process with a view to revealing how stakeholder groups produce justifications to promote their positions vis-à-vis transparency to regulators.FindingsThe authors show how justifications were mobilised by various constituents in an effort to shape the definition of transparency and the regulatory architecture that governs disclosure practices. In this case, the collective recognition of desirability of transparency enabled the SEC to suture together the views of constituents to create a shared understanding of the role of the common good as it relates to transparency.Originality/valueThis paper explores an alternative approach to the consideration of comment letters advanced during the process of disclosure-related rule-making. The authors show how a sophisticated regulator may be able to draw together elements stemming from different constituents in a way that appeals to a shared sense of the “common good” in order to produce Final Rules.

Beyond Bitcoin: Leveraging Blockchain to Benefit Business and Society

Although many people equate blockchain with bitcoin, cryptocurrency, and smart contracts, the technology also has the potential to transform the way companies look at governance and enterprise risk management, and to assist governments and businesses in mitigating human rights impacts. This Article will discuss how state and non-state actors use the technology outside of the realm of cryptocurrency. Part I will provide an overview of blockchain technology. Part II will briefly describe how public and private actors use blockchain today to track food, address land grabs, protect refugee identity rights, combat bribery and corruption, eliminate voter fraud, and facilitate financial transactions for those without access to banks. Part III will discuss key corporate governance, compliance, and social responsibility initiatives that currently utilize blockchain or are exploring the possibilities for shareholder communications, internal audit, and cyber security. Part IV will delve into the business and human rights landscape and examine how blockchain can facilitate compliance. Specifically, we will focus on one of the more promising uses of distributed ledger technology – eliminating barriers to transparency in the human rights arena thereby satisfying various mandatory disclosure regimes and shareholder requests. Part V will pose questions that board members should ask when considering adopting the technology and will recommend that governments, rating agencies, sustainable stock exchanges, and institutional investors provide incentives for companies to invest in the technology, when appropriate. Given the increasing widespread use of the technology by both state and non-state actors and the potential disruptive capabilities, we conclude that firms that do not explore blockchain’s impact risk obsolescence or increased regulation.

Corporate social responsibility disclosure and financial transparency: Evidence from India

Disclosures are expected to foster financial transparency and improve the quality of information available to investors. Previous research has examined the role of non-financial disclosures in achieving this goal. Corporate social responsibility (CSR) disclosure has been widely employed as representative of non-financial disclosure. Recent legislation in some countries mandating non-financial disclosure makes this debate even more pertinent. We investigate the role of CSR disclosure in financial transparency in India, where mandatory CSR disclosure is required for firms to meet the thresholds set by the Companies Act 2013. Our investigation straddles mandatory disclosure regime and considers different classes of investors. Our findings suggest that CSR disclosure improves financial transparency during mandatory disclosure regime. We also find that ownership by the retail investors strengthens the association between CSR disclosure and financial transparency. However, we fail to document any significant effects of ownership by the institutional investors on the association between CSR disclosure and financial transparency.

At a Crossroads: Mandatory Disclosure under DAC-6 and EU Primary Law – Part 2

This article examines the Member States’ new obligations under the 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, published in issue 6 of European Taxation (2019), discussed whether the Treaty on the Functioning of the European Union foresees a viable legal basis for harmonization with respect to this subject matter and whether the DAC-6 rules are in line with the fundamental freedoms. Part 2 continues with an in-depth analysis of the 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 the DAC-6.

The effects of business model regulation on the value relevance of traditional performance measures. Some evidence from UK companies

The first case in the world of a mandatory requirement to disclose business model (BM) in the annual report is represented by Companies Act 2013 issued in the UK. The BM offers a simplified representation of a company's key resources and of how these are combined to create value. For this reason, a systematic communication of BM should affect the way a company's book value and its capability to generate earnings are perceived. The purpose of this work is to investigate the impact of mandatory BM disclosure on the value relevance of traditional financial measures. Focusing on a sample of UK listed companies over a six-year period, Ohlson model is utilized to assess the value relevance of book value and net income and their interactions with a dummy variable that accounts for the introduction of mandatory disclosure of BM. In line with previous studies on non-financial disclosure regulations, results show that the introduction of the mandatory requirement to disclose BM has a negative moderating effect on book value of equity and a positive moderating effect on net income. As this is the first study to investigate the effects of a mandatory BM disclosure regime, it could be of interest for both academics and standard-setters.

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.