Mandatory Disclosure Requirements Research Articles

Flattering the government: negative reports by state-controlled media and CSR

PurposeThe purpose of this study is to investigate whether negative reports by state-controlled media affect firms’ CSR performance. Negative reports by state-controlled media indicate the signals of deteriorating relationships between firms and the government and then generate greater political pressure on firms, which may force firms to engage in more CSR activities. This study first examines the influence of negative reports by state-controlled media on CSR performance. Then, we further figure out whether the degree of dependence on the government exhibits an impact on the relationship between negative reports by state-controlled media and firms’ CSR performance.Design/methodology/approachThe sample for this study is based on all Chinese A-listed firms from 2010 to 2020. The study employs CSR scores data released by HEXUN to measure firms’ CSR performance. HEXUN is one of the most professional institutions that sell CSR-related products. Following You et al. (2018) and An et al. (2022), the authors identify the nine most popular media consisting of state-controlled media. The ordinary least squares (OLS) method is adopted for regression, and various robustness tests are conducted including using alternative measures, expanding the regression model and instrumental variable method.FindingsThe empirical results show a significant positive relationship between negative reports by state-controlled media and firms’ CSR performance. The cross-sectional analyses indicate that the effect of negative reports by state-controlled media on firms’ CSR performance is stronger for firms with mandatory CSR disclosure requirements, firms with political connections and firms with more severe financial constraints. Furthermore, improved CSR performance resulting from negative reports by state-controlled media indeed helps repair firms’ relationship with the government and thus leads them to attain government benefits, such as more government subsidies and lower tax rates.Research limitations/implicationsThis study finds that media reports issued by state-controlled media can be treated as signals of the relationships between firms and the government, which generate political pressure to push firms to take CSR as a strategic management tool to repair their relationships with the government. It helps policymakers and investors more comprehensively understand firms’ incentives behind their improved CSR performance and develop more effective policies. This study focuses on firms’ overall CSR performance. We anticipate that future research can extend the analysis of the impact of negative reports by state-controlled media on specific aspects of CSR investment.Originality/valueThis study illustrates the significantly positive effect of negative reports by state-controlled media in promoting CSR performance. It fills the research gap in studying the role of state-controlled media in CSR, especially for emerging markets. Moreover, the study also contributes to the strand of literature on strategic CSR management.

Information content and consensus effect of fiscal plans

This paper investigated the extent to which fiscal plans provide novel information to investors and induce consensus over governments’ fiscal forecasts. Based on the mandatory disclosure requirements of the Stability and Growth Pact, we documented that fiscal plans are generally informative, but investors interpret their content differently. We further showed that, while fiscal plans that foresee spending cuts during downturns have substantial information content, they cause opinion divergence. Although these findings are consistent with recent evidence on the contractionary and uncertain effects of procyclical fiscal policy during recessions, they cast doubt on governments’ ability to anchor fiscal expectations in these periods.

Linking physical climate risk with mandatory business risk disclosure requirements

Mandatory disclosure of physical climate risks to businesses is planned or being implemented in many countries. This raises the question, how viable is it to link increasing physical climate risk, expressed as extreme events, to an individual business. We demonstrate how the characteristics of increasing frequency, magnitude and duration of extreme events impact a hypothetical business supply chain using the analogy of a spider’s web, where an extreme event impacting a strand of the web (supply/market line) impacts the efficiency of the web (supply chain). We demonstrate that our hypothetical business, located in the centre of the web, can be unaffected by a very large number of extreme events, or be severely impacted by a small number of events, depending on exactly where the event occurs and the properties of the event. This implies that a business cannot assess physical climate risk based on a change in the frequency of events; the business needs to know the precise location of the events, as well as the magnitude and duration of each event. This information is not available and is unlikely to ever be available from climate model projections. Therefore, individual businesses required to disclose future physical climate risk are very unlikely to be able to provide useful quantitative assessments. We recommend that a business-specific storyline approach to future risk is used where multiple lines of evidence are woven into a risk assessment, including climate projections. Generic top–down prescriptions of future scenarios are very likely to lead to misrepresentation of risk and very poor outcomes for business, investors or financial regulators seeking to build resilience to future climate change.

Are green and healthy building labels counterproductive in emerging markets? An examination of office rental contracts in India

Financial prudence compels businesses to improve their Environmental, Social, and Governance (ESG) performance when the marginal benefits, pecuniary or non-pecuniary, exceed the marginal costs. For many firms, renting green offices is a feasible ESG activity which may increase their willingness to pay higher rents. Analyzing over 17,000 green rental contracts in India between 2010 and 2022, we find that rents in green-labeled assets and those with health certification command significant premiums between 4 and 21%. However, green rents increased much faster compared to their non-green counterparts, and the propensity to rent green varies significantly across industry segments. We further examine how the market for green offices evolved after a mandatory ESG Disclosure Requirement was enacted in India in 2021. We find that suppliers (landlords) benefited from the regulation by disproportionately increasing rental rates. Existing tenants and foreign firms ended up paying higher rental prices while most other firms, including the assumed target groups of the new policy, redirected their green commitment away from green buildings. Although the policy may yield more positive results in the longer run, a reduced propensity to rent green offices is the opposite of what the ESG Disclosure Requirement tried to achieve.

Penalties for Information Disclosure Violations and Independent Directors' Dissenting Behaviors at Director-Interlocked Firms: Spillover Effects Through Director Networks

Exploiting the mandatory disclosure requirement for independent directors’ votes in Chinese listed firms, this study investigates how penalties for information disclosure violations influence the dissenting behaviors of independent directors at firms with director interlocks. The results suggest penalties for information disclosure violations may encourage independent directors to express dissent on board proposals that are raised by director-interlocked firms. Further analyses show that as the severity of penalties increase, independent directors become more likely to express dissent, particularly about information disclosure issues. This dissenting behavior significantly improves the director-interlocked firm’s information disclosure quality and reduces the likelihood of being penalized for information disclosure violations. Finally, cross-sectional tests show that interlocked independent directors and independent directors with a background in finance, a greater reputation, and more power are more likely to dissent.

A Cost-Benefit Analysis of Mandatory and Voluntary Corporate Disclosure

Disclosure is important for corporate financing and business activities, as explained by Signalling Theory and Principal-Agent Theory. Corporate disclosure can be divided into voluntary and mandatory. Driven by the pursuit of maximising economic benefits, companies are motivated to opt to disclose voluntarily, notwithstanding the self-interest of managers and the dilemma of free-riding reduces the incentives and role of such disclosures. This inherent limitation of voluntary disclosure mechanisms has catalysed the widespread adoption of mandatory disclosure requirements. However, a simplistic discussion of the advantages and disadvantages of voluntary versus mandatory falls short of providing a conclusion. To address this gap, this study incorporates a cost-benefit analysis framework from law and economics. The effectiveness of mandatory disclosure, conceptualized as a form of governmental intervention in economic activities, hinges on the balance between its implementation costs and the derived benefits. The value of mandatory disclosure is related to regulatory effectiveness, which in turn influences the costs borne by companies in meeting disclosure requirements and the challenges faced by investors in utilising disclosed information.

How does Employee Education Affect Employer's Corporate Social Responsibility? Evidence from China

This paper explores how employee education affects the performance of Corporate Social Responsibility (CSR). By investigating 1,358 Chinese firms, we find that employee educations are positively associated with the quality of CSR reporting. Moreover, highly-educated employees have a stronger impact on the improved CSR reporting quality than other employees with lower educations. Further tests confirm these findings by including the external influences of state-owned regulations and mandatory disclosure requirements.

Corporate Social Responsibility and Revenue Misclassification: Evidence from India

The study examines the relationship between Corporate Social responsibility (CSR) and revenue misclassification in Indian institutional settings. Malikov et al. model has been used to operationalise revenue misclassification. Using a sample of Bombay Stock Exchange listed firms spanning over 14 years (March 2009 until March 2022), I find that CSR-oriented firms prefer revenue misclassification over expense misclassification for managing core earnings, consistent with the notion that CSR firms prefer earnings management (EM) tool having a greater relative advantage in terms of reporting favourable operating performance metrics. The subsequent tests suggest that big four auditors have a constraining effect on the revenue misclassification practices of firms. The findings alert auditors about the suspected firms (high-CSR firms) that are more likely to manage earnings through revenue misclassification and suggest authorities make more mandatory disclosure requirements for recording revenue items to curb the corporate misfeasance of revenue misclassification.

The extent of mandatory and voluntary Shariah compliance disclosure: evidence from Malaysian Islamic financial institutions

PurposeThis study aims to assess the extent of the mandatory and voluntary Shariah compliance disclosure in the Shariah Committee Report of Islamic financial institutions (IFIs) in Malaysia. The study highlights the accountability and transparency of the Shariah Committee members to provide full disclosure of relevant Shariah compliance information to the stakeholders.Design/methodology/approachThe study adopts content analysis to quantify and code the number of sentences in the Shariah Committee Report disclosed in the 2016 annual report of 47 IFIs in Malaysia. The extent of Shariah compliance disclosure in the Shariah Committee Report is measured based on the Standard (S) and Guidance (G) items outlined in the Shariah Governance Framework (SGF) as well as the Financial Reporting for Islamic Banking Institutions and takaful operators guidelines issued by Bank Negara Malaysia (BNM) as the reference.FindingsThe findings indicate that majority of IFIs complied with the minimum mandatory disclosure requirement based on the Standard (S) items in the Shariah Committee Report as required by the SGF. Highest information on the purpose of Shariah Committee engagement and scope of work performed is disclosed to the stakeholders in almost all IFIs. Only two prominent full-fledged Islamic bank and Islamic banking business in development financial institutions have shown highest accountability to go beyond the minimum disclosure requirement. This includes disclosing higher voluntary information on Shariah governance processes in the Shariah Committee Report of these two IFIs.Research limitations/implicationsThis study adopts the SGF (Bank Negara Malaysia, 2010), Financial Reporting for Islamic Banking Institutions (Bank Negara Malaysia, 2016) and Financial Reporting for Takaful Operators (Bank Negara Malaysia, 2015) as the reference to develop the measurement of Shariah compliance disclosure in the Shariah Committee Report. These guidelines issued by BNM are still effective during the period of study, i.e. the year 2016.Practical implicationsThe findings contribute towards the relevance for BNM as the regulator to enhance the current disclosure requirement in the Shariah Committee Report as stated in the SGF especially in Islamic windows and takaful operators. The main argument of this paper is that the more information being disclosed in the Shariah Committee Report will lead to better Shariah assurances. The issuance of Shariah Governance Policy Document in 2019 is expected to enhance the credibility, accountability and transparency of the Shariah Committee members concerning their oversight responsibility towards Shariah matters in IFIs’ business operations.Originality/valueAfter five years since the issuance of the SGF in 2010, further study on the extent of mandatory and voluntary Shariah compliance disclosure is important to highlight the accountability and transparency on the implementation of the Shariah governance across various types of IFIs in Malaysia.

IFRS adoption, firms’ investment efficiency and financial reporting quality: a new empirical assessment of moderating effects from Saudi listed firms

PurposeUnder a gradual long-term plan of the Saudi Stock Market (TADWUAL) from 2016, Saudi Arabia decided to work with International Financial Reporting Standards (IFRS) board to fully adopt its accounting standards. Saudi Arabia has undergone several reforms in governance and standards of internal controls are changing rapidly. This study aims to assess whether IFRS adoption has any moderator role in the relationship between disclosure quality and firm-specific characteristics in the Saudi Stock Market.Design/methodology/approachThis study assesses whether IFRS adoption has any moderator role in the relationship between disclosure quality and firm-specific characteristics in the Saudi Stock Market. The key research hypotheses postulate that compared to IFRS status, after adoption, several independent variables influence the disclosure level. The analysis covers a local sample of 184 Saudi listed firms over the period 2016 to 2020. Using an in-depth content analysis technique, the voluntary disclosure and number of annual report pages are measured manually and year by year to capture levels and unique characteristics. The authors apply cross-sectional regression, first difference method, Pooled OLS and feasible general least square estimations. The mean of disclosure level increases from 33.03% in 2016 to 56.14% in 2020.FindingsThe results reveal that the vast majority of firm-specific characteristics were significant in pre-IFRS adoption period. First difference analysis shows a significant impact of firm size and non-executive composition on the disclosure level. The authors confirm that IFRS adoption plays a critical role in the quality of firms’ financial reports and supports to create a conducive economic environment in Saudi Arabia.Practical implicationsFirst, the implementation of IFRS adoption should impact the Saudi accounting information and disclosure quality in Saudi context markedly. Second, firm-specific characteristics align with corporate governance are the main determinants of accounting information and transparency; therefore, focusing on this angle enables regulators and policymakers to mitigate uncertainty and asymmetric information. Third, the findings of this research state that there is a negative relationship between disclosure quality and board meetings. This encourages policymakers to reconsider the number of board meetings in firms that was not as high as in the developed markets. Notwithstanding all previous implications, it is recommended that future research undertake a various quasi-experimental design such as a difference-in-difference approach to estimate the causal effect of corporate governance mechanisms on IFRS 7 mandatory disclosure requirements on in Saudi Arabia context.Social implicationsThere is a lack of studies on this realm and such as these studies will enrich the understanding of aspects of IFRS adoption and contribute to the prior empirical literature. Importantly, the extend of this sample into other Gulf Cooperation Council countries and exhibition the difference effect can be very useful to enrich the knowledge of IFRS adoption aspects in corporate disclosure and accounting information quality.Originality/valueSaudi Arabia has undergone several reforms in governance, and their standards of internal controls are changing rapidly. This has been attributed to the importance of providing guidelines, practices and regulations for listed companies. One of the major turning points of financial reporting quality in Saudi listed firms was adoption of IFRSs. This adoption deems to be necessity in ensuring the highest level of transparency and information reliability. Based on the findings of this research, the present investigations set up a platform and furnish many implications for policymakers, companies’ board of directors, financial analysts and other related authorities. The results should provide policymakers with greater insight of the relationship between disclosure quality and corporate-specific characteristics throughout the IFRS adoption periods. Thus, the results derived from this study can be effective and useful for the IFRS adoption committee in the Saudi Organization for Certified Public Accountants (SOCPA). According to the best of the authors’ knowledge and based on official secondary information sourced from the SOCPA website, there are several standards that are subject to difficulties in measurement and are modified from time to time, such as: IFRS1, IFRS8, IFRS12, IFRS16 and IFRS18.

Disclosing for Promotion or Perquisites: Local Government Financial Disclosure Strategy

ABSTRACT How to stimulate local officials to improve the financial disclosure quality is a fundamental question of the public accountability theory. Based on the manually collected data on disclosure quality of provincial final accounts report in China, this study examines the influence of provincial leaders’ utility goals on final accounts disclosure strategies. We find that provincial leaders voluntarily disclose higher-quality final accounts information in the first and last years of their tenure relative to other years. Furthermore, excellent governance performance and stronger position change expectations significantly increase the improvement degree of final accounts disclosure quality in the last years of the term. We also document that officials’ voluntary improvement in the final accounts disclosure quality directly leads to an increase in public satisfaction and trust in the government. Moreover, the voluntary improvement in the final accounts disclosure quality significantly strengthens the positive relationship between the governance performance and the promotion probability. Overall, based on the distinction between mandatory disclosure requirements and officials’ voluntary disclosure motives, this paper, from the perspective of officials’ utility goals, empirically investigates the micrologic behind local government’s financial disclosure decisions in authoritarian countries.

Nothing but the Truth? Private Information and Reporting on Corporate Social Responsibility

This paper develops and tests a model in which 1) purpose-driven firms emerge as an optimal organizational form even for profit-maximizing entrepreneurs; and 2) CSR arises endogenously as a response to imperfect regulatory oversight. Purpose-driven organizations allow entrepreneurs to create rents for socially responsible (e.g. environmentally concerned) workers by allowing them to reduce the negative externalities (e.g. pollution) that would be generated without them, and to extract these rents through lower wages. Through this rent extraction entrepreneurs internalize the pro-social preferences of their responsible workers, and in turn engage in CSR through self-regulation, provided that regulatory oversight is poor enough - and hence regulation is loose enough - to make self-regulation worthwhile. The key prediction of the model is a negative impact of regulatory oversight on CSR activity. To test this, we exploit the UK's 2012 decision to mandate greenhouse gas emissions disclosure in all public firms. Consistent with our theory, we find that firms in the UK receive lower CSR ratings after increased regulatory oversight compared to firms from the other 15 European countries which did not experience mandatory disclosure requirements. We also perform a number of robustness checks and explore the interaction between oversight, wages and CSR. These empirical findings provide further support for the model.

Do tax-based proprietary costs discourage public listing?

This study investigates whether tax-based proprietary costs associated with being a public firm (i.e., costs resulting from increased visibility to the tax authority) discourage public listing. I exploit the introduction of a mandatory disclosure requirement (FIN 48) which generated a signal to the government regarding the uncertainty of public firms’ tax positions, allowing for more carefully targeted audits. I hypothesize and find evidence of an increased propensity to go private by public, tax aggressive firms following the enactment of the disclosure rule but prior to its adoption. Cross-sectionally, the effect is stronger among firms that are more sensitive to tax-based proprietary costs. Moreover, IPOs by tax aggressive firms exhibit a relative decline after FIN 48, consistent with the disclosure requirement deterring private, tax aggressive firms from going public. Overall, my findings suggest that mandatory disclosure rules imposing tax-based proprietary costs may discourage some firms from operating as public entities.

SOCIAL RESPONSIBILITY ACCOUNTING AND SOCIAL RESPONSIBILITY REPORTING

The word social responsibility means to help the society in every manner as well as social accounting is attracting the attention of many industrialists today as a result of industrial growth & economic prosperity of many nations. If an organization has to function effectively and survive, it has to be accountable to the public at a large. Many Indian companies have given “value added statement” and sustainability reports in their annual reports in place of social reporting.
 Social accounting is a method by which a firm seeks to place a value on the impact on society of its operations. The effect on society of the packaging it produced share holders, mandatory social disclosure requirement and management’s motivation to improve the firm image more and more corporations of developed countries.

Separating Ownership and Information

This paper identifies an upside of the separation of ownership and control, typically the source of inefficiencies in the theory of the firm. Because insiders obtain private information by exercising control, the separation of ownership and control leads to a separation of ownership and information. We show that this separation is necessary for efficient trade in the market for corporate control. The analysis reveals how strategic communication between inside and outside shareholders facilitates takeovers by eliciting external bidders’ private information. Our results call into question mandatory disclosure requirements during takeovers. (JEL D21, D82, G32, G34)

Factors that influence the disclosure of mandatory intangible assets by Polish listed companies

Purpose: The purpose of this paper is to investigate the factors that influence compliance with IAS 38 mandatory disclosure requirements for intangible assets by companies listed on the Warsaw Stock Exchange. Methodology/approach: Based on the content analysis of 117 consolidated financial statements for 2018, disclosure indexes were calculated, which serve as independent variables in multiple regression analysis. Findings: In line with signaling theory, entities signal their superiority (high profita-bility) with costly signals, i.e., disclosing information that cannot be easily obtained from accounting systems (referred to as advanced disclosures). Low-quality firms (with lower profitability) disclose basic information more intensively, which can be easily obtained from accounting systems, and at a low cost. A higher number of significant shareholders (higher information asymmetry) forces better compliance, especially with regard to advanced disclosure. Research limitations/implications: Limited and cross-sectional research sample. Originality/value: The paper demonstrates that mandatory disclosure items differ with respect to the preparation cost. Considering basic and advanced disclosure (with low and high preparation costs, respectively) is potentially beneficial for a deeper un-derstanding of the field.

Public and Private Information: Firm Disclosure, SEC Letters, and the JOBS Act

This paper examines the impact of the recently passed Jumpstart Our Business Startups (JOBS) Act on the behavior of market participants. Using the JOBS Act — which relaxed mandatory information disclosure requirements — as a natural experiment on firms’ choices of the mix of hard, accounting information and textual disclosures, we find that relative to a peer group of firms, initial public offering (IPO) firms reduce accounting disclosures and change textual disclosures. Because it allows a partial revelation of IPO quality, only textual disclosures affect underpricing. We also find that the Securities and Exchange Commission (SEC) changes its behavior post-JOBS Act in responding to draft registration statements. Specifically, the SEC’s comment letters to firms are more negative in tone, and more forceful in their recommendations, focusing on quantitative information. Finally, under the JOBS Act, investors place more emphasis on the information produced by the SEC when pricing the stock. Returns following public release of the letters vary by about 4% based on letter tone.

How far can mandatory requirements drive increased levels of disclosure?

IMPACT This article reveals that compliance with mandatory disclosure requirements improves over time. However, simply publishing regulations is not sufficient to drive a substantive change in terms of transparency. This study has implications for regulators and professionals about legitimizing laws passed about accounting and reporting by public sector organizations.

Research on the Current Situation of Carbon Disclosure of Chinese Listed Companies under the Dual Carbon Target

With the proposal of the "dual carbon" target, carbon emission has become the focus, and the requirement of carbon disclosure for enterprises has come. At present, there are still a few listed companies that disclose carbon information in China, and there is no unified way of disclosure, and the content of carbon disclosure is lack of consistency. Therefore, it is urgent to raise the awareness of carbon disclosure among enterprises and increase the number of disclosing enterprises by improving the awareness of social responsibility and mandatory disclosure requirements. The carbon disclosure reports will be more comparable by standardizing carbon disclosure requirements, unifying channels and formats. The quality and reliability of carbon disclosure will be increased by building a reasonable evaluation system and implementing effective supervision policies.

New Aspects of Sustainability: Analysis of the European Practice of Non-Financial Reports

Companies must report compliance with environmental (E), social (S) and governmental (G) criteria in accordance with the disclosure rules (framework) for non-financial information. In our study, we examine the characteristics of ESG reports, whether they reflect the sustainability performance of individual market players, as well as what the most relevant problems are regarding this issue, not underestimating the fact that the most serious problem of corporate sustainability in 2022 was energy supply difficulties and price problems. In the course of our research, we have come to the conclusion that there are a number of parallel mandatory and optional disclosure requirements that require the publication of different data, so they are only partially suitable for comparing the sustainability activities of companies. Some of the corporate reports deal with ESG issues only in principle and only a small proportion reports on actions and results. We have also made suggestions that support the comparability of companies based on ESG indicators.