Mandatory Disclosure Research Articles

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.

The inverted U-shaped relationship between corporate social responsibility and default risk: The role of financing constraints

With increased corporate liquidity and debt repayment pressure, CSR's “insurance” role has received more attention. We conducted a comprehensive empirical analysis of 4988 listed companies in the Chinese context during 2011–2020. Our research has three findings: First, the initial increase in CSR will lead to a rise in default risk. However, once the CSR level exceeds a specific threshold, the default risk decreases as the CSR rises. We tested the robustness of the results by replacing the explanatory and the explained variables and taking into account the lag time effect, which proved the reliability of our research conclusions. Second, the mediation analysis shows financing constraints play an important mediating role in this inverted U-shaped relationship. On the left side of the U-shape, CSR performance intensifies financing constraints, while on the right side, increasing CSR reduces financing constraints. Finally, we confirm heterogeneity in the impact of CSR on the default risk of different enterprises' ownership and size. Our study complements the current literature on the effects of CSR on default risk. We are making policymakers and stakeholders aware of the importance of mandatory CSR disclosure.

A Study on the Effect of Mandatory Corporate Governance Disclosure on Corporate Value

A Study on the Effect of Mandatory Corporate Governance Disclosure on Corporate Value

Firm characteristics and compliance with IFRS 15 mandatory disclosures: Evidence from French firms

Firm characteristics and compliance with IFRS 15 mandatory disclosures: Evidence from French firms

Stakeholders’ perspectives on critical success factors for environmental social and governance (ESG) implementation

Environmental Social and Governance (ESG) has emerged as a sensitive issue, attracting the attention of a large audience that could not be ignored. Government bodies continue to pass regulations mandating organizations to comply with ESG principles. However, many organizations have had unsatisfactory results while promoting sustainability ideals due to various challenges. To achieve ESG goals, the present study offers a thorough framework for ESG implementation across organizations based on the critical success factor (CSF) theory and the opinions of diverse stakeholders. Following a literature review and brainstorming with ESG experts and academicians, a survey questionnaire was sent to 400 respondents to evaluate the 20 factors identified as ‘super-set’ CSFs for ESG implementation. This paper represents a novel attempt in ESG research as it conducts a survey supported by exploratory factor analysis (EFA). The interactions between the significant CSFs were studied by employing total interpretative structural modeling (TISM) and fuzzy MICMAC approach. ESG implementation is found to be highly driven by firm characteristics, earnings quality, and environmental performance, which can be argued to be the fundamental determinants of ESG implementation. According to these findings, organizations' leadership should (1) focus on effectively structuring firms' attributes to swiftly operate the ESG implementation framework, (2) ensure consistent business earnings that signal improved future performance, and (3) continuously monitor and assess their environmental performance. These efforts should be supported by engaging with diverse stakeholder groups, each playing its respective role in ESG implementation. Consequently, ESG implementation across organizations is anticipated to accelerate with thoughtful organizational coordination, strategic planning, and compliance with authoritative policies. However, rather than solely focusing on creating ESG disclosure laws, policymakers should also focus on creating better ESG outcomes through effective ESG implementation. Therefore, this research offers valuable insights into improving ESG practices, which facilitates the adoption of mandatory ESG disclosure regulations.

The challenges and potential benefits of the external assurance of mandatory non-financial reporting. Evidence from Poland

Purpose: The paper analyses the challenges and potential benefits that stem from the relationship between an auditing firm and the companies engaged in mandatory sustainability reporting from the companyʼs point of view. Methodology/approach: Semi-structured interviews were conducted with a sample of Polish companies that engage in mandatory non-financial disclosure. Findings: The evidence collected through the interviews suggests that cooperation with an auditing company that goes beyond the minimum normative requirements brings benefits to the reporting company while also improving the non-financial reporting process, as well as the companyʼs awareness. This is particularly true for companies that started their non-financial reporting experience when it was not mandatory, as they were able to gradually adopt and grasp the related potential benefits. Research limitations/implications: A significant limitation is that the research was conducted on a small sample. To draw broader conclusions, the sample should be expanded to include additional companies. Originality/value: The paper provides empirical evidence on the relationship and cooperation between companies and auditors in the field of non-financial reporting, focusing on the conditions that enable the potential benefits of this relationship to materialize. Such relationships can be essential drivers that foster a sustainability culture within companies.

QUALITY OF SUSTAINABILITY REPORTING AND BANK STABILITY: EMPIRICAL EVIDENCE FROM VIETNAMESE COMMERCIAL BANKS

The purpose of this study is twofold. First, we attempt to quantify the quality of bank sustainability reporting (QSR) since the 2016 mandatory sustainability disclosure in Vietnam. Content analysis of banks’ annual reports is performed to assess 11 QSR items that are used to build the QSR index. Second, we investigate whether the quality of sustainability reporting influences banks’ financial stability. Employing a sample of 159 banking firm observations over the period 2016–2021, we document that the quality of sustainability reporting in Vietnamese commercial banks increased from year to year. Importantly, our empirical evidence shows that a higher level of QSR contributes to better bank stability. This result is robust to various estimation methods, different components of QSR, an alternative measure of bank stability, and controlling for reverse causality. Our findings provide important implications for bank managers by highlighting that the enhancement of QSR increases bank stability.

The Impact of Mandatory Corporate Social Responsibility Disclosure on Enterprise Risk-Taking: Facilitative or Constraining?

Using Chinese A-share listed companies from 2006 to 2013 as the research sample, this paper empirically examines the impact and mechanism of the mandatory CSR disclosure policy on Chinese firms’ risk-taking by combining the difference-in-differences (DID) approach. This study finds that the implementation of the policy increases firms’ operating costs and leads to an increase in their financing constraints, which ultimately creates a disincentive for firms to take risks. Second, we also find that, relative to firms that do not disclose CSR reports, the sales revenues, R&D investment and investment levels of firms subject to CSR disclosure are significantly reduced, which may be the result of firms’ tendency to operate conservatively. In addition, heterogeneity analyses suggest that the dampening effect of mandatory CSR disclosure policies on risk-taking is stronger for firms with higher financing costs and for non-state-owned firms. This study further explores the mechanism of the impact of mandatory CSR disclosure on firms’ risk-taking, which will help the government to formulate and improve the information disclosure policy regarding driving the transformation of corporate development in the future.

Media Pressure and Carbon Disclosure of Indonesian Greenest Firms

Even with the advantages, carbon taxes are still one of the least effective instruments for climate policy. The purpose of this study is to examine the connection between non-mandatory carbon disclosures specifically in developing countries. This research sample is a green ranking company, and 108 data observations were carried out on 36 selected companies in the year between the Covid-19 out-break 2019-2021. Multiple linear regression testing is carried out to test the alleged hypothesis, by first testing the assumptions. The statistical results support the hypothesis that only legitimacy pressure (media exposure) increases corporate motivation to disclose carbon emissions. This study is novel because, while earlier research has mostly focused on the external factors that drive voluntary disclosure, our findings provide new perspectives and imply that media pressures offer a supplemental explanation for the variation in corporate carbon disclosure propensity that has been largely ignored in the body of existing literature. This suggests for the need to call for holistic mandatory disclosure requirements that encourage companies to participate in climate policy.

Corporate social responsibility disclosure and cash holdings

Purpose: the demand for firms to disclose their corporate social responsibility (CSR) activities has risen steeply over the last two decades, pushing many jurisdic-tions to implement mandatory non-financial reporting. We exploit the European non-financial reporting directive (NFRD) to study how companies change their cash management policies in response to additional mandatory CSR disclosure requirements. Methodology: we adopted a difference-in-differences (DID) approach, which is designed to estimate causality between the mandatory adoption of the NFRD and firms' cash holdings. We implemented a two-way fixed effect model in the context of mandatory disclosure and staggered adoption of regulation, in order to study how firms changed their cash holdings following the introduction of the NFRD. Findings: we find that firms increased cash holdings following enactment of the NFRD, which is in line with the theory that cash is held for precautionary reasons. The growth in cash holdings is not equally distributed, as it is less pronounced in firms that are in a high-investment phase. Our findings reveal that mandatory non-financial disclosure can have real effects. Originality/value: This research shows that, in the short-term, mandatory CSR disclosure can have real effects on cash holding. Long-term effects should be con-sidered further by future research. Practical implications (optional): Policymakers should consider that additional CSR requirements are costly to firms, and thus find mechanisms that induce firms to adopt these requirements despite their costs

Governance Components and Sustainability from the Perspective of Voluntary and Mandatory Disclosure

Governance Components and Sustainability from the Perspective of Voluntary and Mandatory Disclosure

Does mandating corporate social and environmental disclosure improve social and environmental performance?: Broad-based evidence regarding the effectiveness of directive 2014/95/EU

Given that the aim of corporate social and environmental disclosure mandates is to improve corporate social and environmental performance, this study investigates the impact of such mandates on performance. Using a difference-in-differences analysis, we examine trends in corporate social and environmental performance before and after the introduction of Directive 2014/95/EU (hereafter, the Directive), comparing affected European companies with companies in the United States (US), based on a balanced sample of 358 European companies (excluding United Kingdom (UK) companies, because they were subject to additional regulations that came into effect around the same time) and 470 US companies from 2009 to 2020. We find that European companies' performance has not improved substantially since the Directive came into effect in 2017, nor have they improved compared to US companies. Thus, the evidence suggests that the Directive has not improved European companies’ social and environmental performance. Our study provides broad-based evidence of the (in)effectiveness of mandating corporate social and environmental disclosures to enhance performance. Our findings will be of interest to regulators considering disclosure mandates, as well as stakeholders and investors interested in enhancing social and environmental performance.

Corporate social responsibility, CEO characteristics, and earnings management: Evidence from China

AbstractThis study examines the relationship between corporate social responsibility (CSR), earnings management (EM), and the characteristics of chief executive officers (CEOs) within the context of China's economic transformation. Drawing on stakeholder theory and upper echelon theory, this study investigates the influence of CSR on EM and the role of CEO characteristics. The empirical analysis is based on a sample of 1,980 Chinese firm‐year observations from the Shenzhen and Shanghai stock markets, between 2013 and 2017. The findings reveal a negative relationship between CSR performance and discretionary accruals (DA), suggesting that higher CSR is associated with lower EM. Moreover, this relationship is more pronounced among firms with highly educated CEOs (postgraduates) and mature CEOs (approaching retirement age). Notably, the negative CSR–EM relationship is strengthened in firms with mandatory CSR reports. This study expands prior research by exploring the impact of CEO characteristics on the CSR–EM relationship, incorporating CEO attributes alongside ownership structures and governance mechanisms. The findings offer insights for organizations in terms of selecting ethically committed CEOs, as well as guidance for shareholders in understanding CEO selection criteria. Furthermore, this study highlights the importance of mandatory CSR disclosure (CSRD) for policymakers evaluating CSR performance according to the disclosure type.

Does auditor style influence non‐GAAP earnings disclosure?

AbstractRegulators and practitioners have concerns that the lack of standardization in non‐GAAP disclosure can make it challenging for users to process non‐GAAP earnings and use it in decision‐making. We examine whether auditor style extends beyond mandatory disclosures to induce similarity in non‐GAAP earnings disclosures. Specifically, we find that clients audited by the same auditor are more likely to disclose non‐GAAP earnings in a similar manner. We assess disclosure similarity using (1) the decision to disclose non‐GAAP earnings, (2) the disclosure prominence of non‐GAAP earnings in the earnings press release, (3) the discussion of non‐GAAP earnings in the management discussion and analysis of the annual report, (4) the choice to exclude recurring items, and (5) the receipt of SEC comment letters related to non‐GAAP earnings. We find that the association between auditor style and non‐GAAP disclosure is determined by Big 4 accounting firms and clients audited by the same audit office. The results are stronger for larger audit offices and smaller clients. We provide evidence that auditors facilitate non‐GAAP disclosure, which can improve compliance with SEC requirements and increase the standardization of non‐GAAP earnings disclosures. Our results are relevant to current policy discussions regarding auditor involvement in unaudited non‐GAAP earnings reporting.

ESG disclosure standards: international and chinese case studies

This study is dedicated to revealing the implications of international ESG (Environmental, Social, Governance) disclosure standards and practices for China. The research task is to systematically sort out and analyze the current mainstream international ESG standards and their latest developments. At the same time, combined with China’s ESG disclosure policies and practices, it provides helpful references for formulating ESG disclosure standards and frameworks with Chinese characteristics. This paper is based on processing secondary data obtained through qualitative analysis of relevant literature and official government documents (plans, strategies, reports, and programs). The paper suggests that the current Chinese government needs to (1) formulate an ESG disclosure standard system with Chinese characteristics; (2) guide ESG market entities to jointly participate in the formulation and development of the ESG standard system; (3) create a mandatory ESG disclosure system.

Do Reported Intangible Assets Create a Better Information Environment?

Purpose: This study investigates whether the identifiable intangible assets (IIA), goodwill (GW), and research and development expense (R&D) reported in the financial statements and annual reports of firms on the Stock Exchange of Thailand (SET) can improve the information environment, as represented by a narrower bid-ask spread in the capital market. Additionally, this study explores the impact of intangible asset disclosure scores on the information environment. Design/methodology/approach: This study tests the association between reported intangible assets, intangible asset disclosure score, and bid-ask spread. The sample is 2,691 firm-year observations in SET from 2012-2021, and ordinary least squares (OLS) regression is used to test the hypothesis. Findings: The results found that IIA and R&D are associated with the information environment. It is reported that IIA and bid-ask spread have a positive relationship, whereas R&D and bid-ask spread have a negative relationship. In addition, the intangible asset disclosure score can also reduce bid-ask spread. Research limitations/implications: This study highlights the benefits of intangible assets, which can help bridge the information gap. However, the intangible asset disclosure score is determined through self-index construction. This process involves discretion and may be prone to errors. Furthermore, using the bid-ask spread as the sole indicator of the information environment might be inadequate. Originality/value: Research on information asymmetry about intangible assets in Thailand is scarce. This study provides empirical evidence to support the benefit of some intangible assets in reducing asymmetric information among investors. By utilizing the intangible asset disclosure score, including mandatory and voluntary disclosure, it is also possible to observe how different disclosure quality levels impact the information environment.

Effect of mandatory sustainability performance disclosures on firm value: Evidence from listed European firms

AbstractCorporate Sustainability Performance (CSP) reporting is becoming increasingly important to investors who seek to identify and invest in companies that are managing their Environmental, Social and Governance (ESG) risks effectively. The European Union's Non‐Financial Reporting Directive (NFRD), which was implemented in 2017, mandates that certain large companies must disclose their sustainability performance. This study examines the impact of the EU NFRD on the firm value of listed European firms using a difference‐in‐differences regression model. We find that the mandatory disclosure of corporate sustainability performance does not significantly affect firm value at an aggregate level. However, the results suggest minor inter‐industry differences, which can be attributed to varying sustainability performance metrics across industries. These findings contribute not only to the nascent literature on mandatory sustainability disclosures but also to the deliberations of policymakers and regulators across the world who are devising and implementing mandatory corporate sustainability performance disclosure regulations.

The Impact of Mandatory Operating Information Disclosure on Related‐Party Transactions: Evidence From China

The Impact of Mandatory Operating Information Disclosure on Related‐Party Transactions: Evidence From China

Does corporate governance report disclosure increase stock retirement? Evidence from Korea

This study examines the influence of the mandatory disclosure of corporate governance reports on stock retirement in Korea. Given the challenges of applying stock repurchasing to measure shareholder return policy in the Korean stock market, this study focuses on stock retirement as a key indicator to examine the effectiveness of introducing the corporate governance report on shareholder return policy. Employing the Difference-in-Differences approach followed, this paper conducts empirical analyses based on 5,932 observations from 2011 to 2020. The main findings indicate a significant increase in stock retirement by companies implementing mandatory disclosures of corporate governance reports (coef = 0.018, p-value <0.01) compared to companies that do not disclose them. The results of the alternative measures for stock retirement and propensity score matching (PSM) model also present a positive association between mandatory disclosure of corporate governance reports and stock retirement, respectively (coef = 0.400 and 1.421, p-value <0.01; coef = 0.019, p-value < 0.1). This study provides evidence to support the notion that introducing corporate governance reports enhances overall shareholder returns, leading to an increase in stock retirement. Moreover, these findings validate that stock retirement is an adequate proxy for analyzing the level of shareholder returns in Korean firms.

Can Mandatory Disclosure of CSR Information Drive the Transformation of Firms towards High-Quality Development?

Can Mandatory Disclosure of CSR Information Drive the Transformation of Firms towards High-Quality Development?