Mandatory Financial Disclosure Research Articles

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

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

Access to Financial Disclosure and Knowledge Spillover

ABSTRACT Access to firms’ innovation outputs determines the extent of knowledge spillover that poses risk to innovation appropriability. We provide plausibly causal evidence that processing costs of financial disclosures, which inform users of the economic value of innovation, play a key role in firms’ management of knowledge spillover. We exploit an exogenous, randomly assigned, and staggered policy shock by the SEC that reduces processing costs of mandatory financial disclosures. In response, firms reduce patenting rates, with the effect concentrated among firms in more competitive industries and with lower costs of capital. Firms also reduce their patent disclosure quality. Our results suggest firms rely more on trade secrecy as their innovation property protection mechanism. Lower processing costs of financial disclosures affect neither innovation inputs nor voluntary disclosure practices. Our results show that firms strategically manage access to their innovation outputs through financial disclosures, patent disclosures, and trade secrecy to curb knowledge spillover. JEL Classifications: D23; G30; O31; O32; O34.

Mandatory Financial Disclosure and M&A Activity

Abstract Taking advantage of the implementation of the 2003 European Commission (EC) directive on financial reporting, we explore the impact of mandatory financial disclosure on mergers and acquisitions (M&A). We find robust evidence that the number (and volume) of private firms becoming an M&A target increases with mandatory disclosure. Analyses of cross-industry differences, deal-level data, and post-deal performance indicate that financial disclosure increases M&A activity by reducing information frictions in the market for corporate control. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online

South African governance legal framework for corporate disclosures and reporting: Part 2—Mandatory financial disclosure and reporting

In this second part of this article, I focus on the efficacy of the framework for mandatory financial disclosure and reporting. In particular, I investigate the governance of auditors within the corporate jurisprudence. Independence of auditors remains contentious in the light of the funding model of the regulator, functioning of audit committees and the connection between directors and companies.

Nowhere to hide: Response of corporate restructuring activities to mandatory segment disclosure

We examine the effect of mandatory financial disclosures, specifically SFAS 131, on corporate restructuring activities by using difference-in-differences (DiD) and regression discontinuity design (RDD) settings. After the adoption of SFAS 131, firms are less likely to engage in acquisitions than are the control firms. Furthermore, conditional on firms' engagement in acquisition activities, acquirers are less likely to complete their initiated acquisition deals, especially for those value-destroying deals. After the implementation of SFAS 131, we find that the equity market reacts positively to large and diversifying deals that are subject to mandatory segment disclosures. Overall, our results suggest that the segment disclosure standard helped prevent managers from undertaking new, value-destroying M&As post-SFAS 131. Finally, these SFAS 131–induced corporate restructuring activities are shown to help reduce the risk of a stock price crash.

South African Governance Legal Framework for Corporate disclosures and reporting: Part 1 – Voluntary sustainability reporting

The general dissatisfaction of shareholders and other users of financial statements with both voluntary sustainability and mandatory financial disclosure and reporting, prompt an appeal for increased government-commanded reporting requirements. State-based standardsetting and voluntary sustainability reporting within the corporate jurisprudence must therefore evolve, which includes, among others, the variety of legal and regulatory standards, their dynamism, and the manner in which standards can be imposed. Directors and auditors must act ethically to observe their various functions as regulated by the Companies Act 71 of 2008 and the Auditing Profession Act 26 of 2005. National and international companies persistently undermine good governance. Directors’ and auditors’ failure to comply with ethics can certainly not continue with impunity. The global trend in the use of voluntary sustainability reporting highlights the prominence that auditors play in good corporate governance, although compliance with voluntary sustainability reporting does not warrant good corporate governance. Independence of auditors remains contentious in the light of the funding model of the regulator, working of audit committees, the connection between directors and companies, and the corporate governance expectation gap.

Mandatory Financial Disclosure and M&A Activity

Taking advantage of the implementation of the European Commission directives on the financial reporting of private firms, we explore the impact of mandatory financial disclosure on mergers and acquisitions. We find robust evidence that the volume of private firms becoming the target in M&A deals is positively correlated with mandatory disclosure. The analyses of deal characteristics and post-deal performance confirm our interpretation that financial disclosure increases M&A activity by reducing asymmetric information and uncertainty.

Nowhere to Hide: Corporate Restructuring Activities Response to Mandatory Segment Disclosure

We examine the effect of mandatory financial disclosures, specifically the segment disclosure SFAS 131, on corporate restructuring activities such as mergers and acquisitions (M&As) and spin-offs. After the implementation of the mandatory segment disclosure standard, we find that firms have less incentive to engage in M&A activities and to complete the M&A deals. However, conditional on engaging in acquisition activity, SFAS 131 drives firms to acquire large diversified targets. The market perceives these large diversified M&As as value- enhancing after the SFAS131. Similarly, we further show that the probability of a division being spun off is lower after the SFAS 131 adoption than that before the SFAS 131 adoption, suggesting that firms are more likely to spin off their different operating units ex-ante to avoid disclosing these unit’s information and to strengthen their public image ex-post. We also find a positive market reaction to spin-off events, especially after the SFAS 131 was mandated. Overall, our results suggest that the segment disclosure standard disciplines managers’ (value- enhancing) corporate restructuring activities.

How does Mandatory Financial Disclosure Regulation affect the Liquidity Risk of Private Firms?

How does Mandatory Financial Disclosure Regulation affect the Liquidity Risk of Private Firms?

CEO Confidence and Unreported R&D

We investigate whether managerial traits influence corporate decisions to provide mandatory financial disclosures. The results indicate that firms with confident chief executive officers (CEOs) are 24% more likely to report their research and development (R&D) expenditures relative to firms with cautious CEOs. Exploiting staggered, state-level regulatory shocks and changes in CEO type, we find substantial evidence that cautious CEO firms fail to report R&D expenditures. After a plausibly exogenous shock to managerial reporting liability, cautious CEO firms exhibit a 35% larger reduction in unreported R&D relative to confident CEO firms. Interestingly, confident CEO firms do not exhibit more innovation than their cautious CEO counterparts after taking into account their differing propensities to report corporate R&D. Overall, our analysis suggests that the precision or reliability of mandatory disclosures systematically varies with managerial characteristics. The Internet appendix is available at https://doi.org/10.1287/mnsc.2017.2809 . This paper was accepted by Amit Seru, finance.

The Consistency of Mandatory and Voluntary Management Earnings Forecasts and Implications for Analyst and Investor Information Processing

In this study we examine whether managers' voluntary forecasts of future earnings are consistent with the implicit forecasts of future earnings that underlie a specific mandatory accrual, the valuation allowance. This accrual relies heavily on managerial estimation and is also based, in part, on managers’ private, forward-looking information. Thus, it provides an ideal setting to investigate the interplay between voluntary and mandatory financial disclosures. By examining the consistency between the voluntary and mandatory forecasts, we are also able to provide insight into whether the predictable accrual-related bias in voluntary earnings forecasts carries over into the mandatory forecast embedded in the valuation allowance. We then investigate whether the biased voluntary earnings guidance helps analysts and investors more accurately interpret the information in valuation allowance changes about future earnings expectations. To increase the power of our tests we utilize a sample of loss firms, which frequently record valuation allowances to fully or partially offset deferred tax assets.We first document that more than 62 percent of our sample of loss firms report valuation allowance changes and management earnings guidance that convey the same basic information about future earnings (i.e., either both forecast profit or both forecast loss). Thus, these voluntary and mandatory forecasts are largely consistent with each other. We then provide evidence that managers provide overly pessimistic forecasts for observations whose valuation allowance changes signal bad news about future earnings, but overly optimistic forecasts for observations whose valuation allowance changes signal strong good news about future earnings. Finally, our results suggest that managers' biased earnings forecasts actually help analysts and investors more accurately interpret the information about future earnings in valuation allowance changes. Our findings provide new insights into actions managers can take to improve investor and analyst processing of financial statement-based tax information.

The impact of IFRS on financial statement data in Greece

Purpose– The purpose of this paper is to examine the effects of IFRS adoption on financial statement data and their usefulness in Greece. Additionally, the authors examine the effect on the informativeness/usefulness of financial statement data for stock prices in Greece and the effect of the Greek Financial Crisis.Design/methodology/approach– This study examine the effects of IFRS adoption on financial statement data and their usefulness in Greece. Additionally, the authors examine the effect on the informativeness/usefulness of financial statement data for stock prices in Greece and the effect of the Greek Financial Crisis.Findings– The results indicate that several financial ratios were dramatically affected by IFRS adoption in Greece. In contrast to other countries, IFRS has not resulted in improved statistical behavior of these ratios in Greece: the ratios are highly skewed and the normality of their distribution is not improved. Additionally, when examining the usefulness of financial statement data for stock prices in Greece, results indicate that IFRS adoption did not necessarily improve the usefulness of the financial statements. However, the authors do find that since the financial crisis in Greece these IFRS financial statement measures are significant when regressed on stock prices.Research limitations/implications– The authors are not able to necessarily rule out other causal factors that may have occurred in Greece during the sample period. The authors do look at the financial crisis as a potential confounding factor, but other factors such as political or macroeconomic factors have not necessarily been ruled out. Also, this study only examines the Greek situation.Practical implications– This study may have implications for other countries in similar situations as that found in Greece – IFRS adoption and severe economic crisis.Originality/value– To date only the impact of IFRS on earnings, stockholders’ equity, and some financial ratios has been investigated in prior Greek research studies (Hellenic Capital Market Commission, 2006; Grant Thornton, 2006). However, no academic research has been developed in this area. In addition, the authors examine the impact of IFRS on stock prices emphasizing the mandatory financial disclosure and IFRS adoption in a financially and politically distressed country – Greece.

Does Voluntary CSR Reporting Affect the Informativeness of Mandatory Financial Disclosures?

This study examines whether voluntary CSR reporting affects the informativeness of information contained in mandatory financial disclosures. In particular, I study the impact of CSR reporting on investors’ response to realized earnings released in earnings announcements. I find that voluntary adoption of CSR reporting is associated with higher subsequent earnings response coefficients (ERCs), suggesting that the disclosure of CSR reporting improves the informativeness of earnings announcements. The finding is also consistent with a complementary relation between mandatory and voluntary disclosures, which indicates that mandatory disclosure confirms the credibility of voluntary disclosure. If a similar type of complementary relation between mandatory and voluntary disclosures works in the opposite direction as well (i.e., voluntary disclosure enhances credibility of mandatory disclosure), then higher ERCs could also be observed. Because voluntary CSR reports could complement mandatory quarterly earnings announcements through two non-mutually exclusive channels – improvement in informativeness or credibility, I provide some additional evidence, which suggest that it is the increase in informativeness that leads to the higher response coefficient to quarterly earnings announcements.

Mandatory Financial Disclosure Harmonisation of Local Governments in Peninsular Malaysia

Harmonisation in accounting refers to either disclosure or measurement harmonisation where two financial reports are comparable in terms of one specific event, if under the same circumstances, this event is accounted for the same way in both reports. This study focuses on the actual reporting practices, i.e. disclosure harmonisation, rather than measurement harmonisation. Since one of the characteristics of public sector accounting among the local governments in Malaysia is lack of harmonisation in financial disclosure, therefore the objective of this study are to examine the extent of mandatory financial disclosure harmonisation of local governments in Peninsular Malaysia. Annual reports from 76 local governments in Peninsular Malaysia for the financial year ended 2008 were scrutinised. Each local government was rated based on the Mandatory Financial Disclosure Harmonisation Index (MFDHI) and scoring procedure. Seventy one items (divided into seven sections) were included in the MFDHI, and this requirement is in accordance with the Local Government Act 1971, FTC No. 4/2007 and FRS. The study shows that the level of mandatory financial disclosure harmonisation (MFDH) by local governments in Peninsular Malaysia is high, i.e. 79.62 percent. The result of this study supports the stewardship theory as it is able to explain the objective of a mandatory financial statement to provide useful information to assess management’s stewardship. This is reflective of the expected relationship between the public and the local governments in managing their resources efficiently and effectively so as to discharge their accountability through harmonised financial statements. Keywords: Mandatory Financial Disclosure Harmonisation, Local Government, Harmonisation, Mandatory Financial Disclosure Harmonisation Index

Effects of mutual fund advertising disclosures on investor information processing and decision-making

Purpose– This research aims to examine the effects of financial services advertising disclosures by pairing a content analysis documenting how mandatory financial disclosures are presented in mutual fund advertisements with a between-subjects experiment assessing whether inclusion of the disclosures influences consumer responses to advertisement, brand and company evaluations.Design/methodology/approach– This research examines the effects of financial services advertising disclosures by pairing a content analysis documenting how mandatory financial disclosures are presented in mutual fund advertisements with a between-subjects experiment assessing whether the inclusion of the disclosures influences consumer responses to the ad, brand and company.Findings– The findings show more positive consumer responses for perceived advertising responsibility, recall, and cognitive response as well as higher risk perception when consumers are exposed to the financial disclosures in mutual fund advertisements. Also, the results indicate a mediating role of positive cognitive responses on attitude toward the mutual fund company only when consumers are exposed to advertising disclosures.Originality/value– The paper extends knowledge of whether and how required information disclosures pertaining to mutual funds influence investors ' psychological responses in mutual fund advertising contexts. From a managerial perspective, it has implications for financial services advertising and other social marketing campaigns by uncovering the effects of advertising-as-information in financial decision-making. From a public policy standpoint, the paper is among the first to make explicit claims regarding the role of advertising disclosure in retail investment circumstances.

Commentary on “Disclosure of funding source and conflict of interest: exposure of biases affecting evidence and clinical utility of plastic surgery publications” by Y. Tahiri et al.

The authors should be commended for conducting a study on the disclosure of funding source, conflict of interest, and level of evidence in plastic surgery publications. The European Journal of Plastic Surgery has recently established a mandatory financial disclosure process which will be published both online and in print with each manuscript. This is an important step to improve the transparency and integrity of our journal and its published articles. This step will be continued through the introduction of evidence-basedmedicine (EBM) to the review process. Authors will be asked to assign an EBM value to their own papers and reviewers will be asked to rank every reviewed paper. Although, the practice of EBM has been just recently introduced in our surgical specialty, plastic surgery research already seems to becoming more evidence based. Such change will certainly be translated into a rational and better clinical practice.

Disclosure practices in Egypt: what are factors beyond the low level?

In Egypt, as one of the emerging markets, mandatory disclosure of financial information on annual reports has attracted the attention of many researchers. Results of prior studies analysing disclosure level concluded that mandatory financial disclosure in annual reports is low. The purpose of this paper is to shed the light and analyse those factors affecting disclosure level in the Egyptian environment including political and economic conditions, legal system and regulatory framework, nature of the capital market, prevailing culture, and accounting practices. Our analysis suggests that secretive culture is the major reason behind the low disclosure practices found in Egypt overcoming the efforts exerted by regulators. Additionally, the paper provides the reasons that lead to the low disclosure level as follows: 1 presence of uniform, secretive, and conservative accounting practices, 2 absence of a unified law governing Egyptian companies’ activities and transactions 3 lack of strict enforcements imposed by the Egyptian Capital Market Authority on non-complying companies to comply with the mandatory requirements of the Egyptian accounting standards.

Measuring Our Investment in the Carbon Status Quo: Case Study of New Oil Development in the Russian Arctic

If we are to separate climate change talk from the actual carbon emissions data, an unpleasant picture emerges: emissions have increased globally by 40% since 1992, the year when U.N. Framework Convention on Climate Change (UNFCCC) was adopted. The carbon emissions curve follows the global increase in production of oil and other fossil fuels. This should not come as a surprise – almost all extracted crude ends up in internal combustion engines, and eventually, in the atmosphere in the form of green house gases (GHGs). The status quo is unlikely to change as long as oil remains the backbone of the world’s economy. In fact, according to some forecasts, oil production will be on a rise for several decades. Significant financial investments will be required to accommodate this trend. Investments in oil production are often heralded as the means of achieving important and even noble causes such as providing jobs, ensuring energy independence, and keeping the lights on. However, there is another dimension of investing in oil rigs and tankers – every cent creates a financial incentive for keeping the economy’s carbon content high and GHG emissions steady. As the 40% increase in emissions illustrates, the current domestic and international carbon controls have thus far failed to end our dependence on fossil fuels. The global landscape is a complex system where some non-state actors have more control over carbon emissions than some states, and where some states with aggressive emission reduction goals have strong incentives to continue the status quo. Therefore, any approach to reducing GHGs that focuses predominately on the demand side of the equation is unlikely to propel the world toward a low-carbon economy. The overarching goal of this paper is to introduce the concept of the Carbon Detriment on Investment (CDI). CDI is a decision-making tool that measures the amount of carbon (in CO2 equivalent) that needs to be emitted over a period of time to receive a desired return on investment. Essentially, CDI provides a quantitative and temporal assessment of our financial dependence on fossil fuel-based infrastructure. CDI differs from carbon accounting and life cycle indices as it focuses on the financial interest created by an investment in an asset whose performance inevitably leads to carbon emissions. CDI is a multi-purpose tool. It provides information to investors about a company’s commitment and readiness to transition to a low-carbon economy. It helps policy makers design climate change controls without incurring economic waste. Finally, it allows a state to coordinate its domestic and international climate change mitigation policy by making better-informed investment decisions. To illustrate a possible application of CDI, I explore the development of new oil production capacity in the Russian Arctic. In particular, I analyze the CDI implications of the ongoing negotiations between the oil super major British Petroleum and Russian state oil champion Rosneft to develop three license blocs in the South Kara Sea. I explore the effect that a CDI disclosure may have on the BP’s otherwise “green” reputation. I propose including CDI into mainstream mandatory financial disclosure as means of educating investors. I also highlight the importance of knowing the CDI of a state whose economy depends on fossil fuel production by looking at geo-political consequences of investment in offshore oil exploration and production in the Russian Arctic. Finally, using the United Kingdom as an example, I explore the benefit of CDI for designing a balanced climate change policy for developed states that lead the global climate change mitigation effort. As a means of assessing national CDI, I propose a corresponding disclosure as part of national notifications under the UNFCCC.

Legislative Voting on Ethics Reform in Two States: The Influence of Economic Self-Interest, Ideology, and Institutional Power

This article examines roll-call voting in New York and Massachusetts on four conflict-of-interest proposals pertaining to limits on representation by lawyer-legislators before state agencies, mandatory financial disclosure, and the establishment of an independent ethics commission. Logistic regression is used to test six hypotheses regarding why legislators support or oppose these measures. Legislators with an economic self-interest at stake were less likely to support reform, whereas liberal ideology was a positive predictor of support. The influence of institutional power-holding depended on the political context. The implications of these findings for current reform efforts are explored. It is suggested that it is possible, but not easy, to overcome the obstacles to legislative ethics reform in the states.

On the Frequency, Quality, and Informationl Role of Mandatory Financial Reports

In this paper we study the relation between the frequency of mandatory financial disclosures, the amount of information voluntarily disclosed by privately informed managers, and the resulting informational efficiency of stock prices. Our analysis emphasizes the confirmatory role of mandatory financial reports and uses frequency to highlight the difference between this view of reporting and the prevailing view of mandatory disclosures as sources of information. We model the mandatory financial disclosures as verifiable but noisy and, possibly, late signals of management's private value-relevant information. Accordingly, financial statements may be of little use as a timely, primary source of information for the purpose of valuing the firm. However, since the audited statements can be used to evaluate the truthfulness of management's past voluntary disclosures (i.e., to confirm that they are indeed truthfully, they may be useful in creating an environment in which management