Information Disclosure Requirements Research Articles

Regulating Investment Robo-Advisors in China: Problems and Prospects

The robo-advisor excels at simplifying the process of making investments, improving its efficiency. Since its first appearance in the market, it has been welcomed by investors across the world. However, the current regulatory system in China is not only overly restrictive, but also unable to provide proper guidance to regulate securities investment advisors. The development of Chinese robo-advisor business faces various obstacles, such as high entry barriers, the inability to provide comprehensive wealth management services. These difficulties are due to prohibitions on granting securities advisors full power of attorney. The uncertain legal status of robo-advisors also creates issues with legitimacy. In addition, there is severe information asymmetry and a lack of investor protection in the operation of robo-advisors. These problems have impeded the development of the robo-advisor industry in China. In light of the approaches of the US and Australia in regulating robo-advisors, this paper suggests that China should consider an incremental approach that is tailored to domestic conditions to promote the growth of its robo-advisor industry. Recommended measures include: improving information disclosure requirements, refining the fiduciary duties of robo-advisors, and regulating the algorithms of robo-advisors. Regulatory sandbox may also be considered, as it could encourage the development of financial technology while mitigating the risks arising from the use of such technology.

Prospects of audit activity on the capital market of Ukraine

Methods. The results are obtained through the use of methods: analysis and synthesis – in generating the features of state control of auditing activities in the stock market; historical approach – for the analysis of the audit market in Ukraine, under the increased requirements for disclosure of information and the singling out of issuers who make a public offer; logical approach – in a comprehensive study of the results of audit firms that can conduct audits of professional participants in the securities market. Results. The scope of powers of the NSSMC is outlined regarding audit entities in Ukraine in terms of establishing additional requirements for information relating to the audit of financial statements of capital market entities, the mechanism of their interaction with audit entities. The content and features of state control of audit activities in the field of the stock market are revealed. The powers and method of state regulation of the NSSMC securities market are systematized. It is determined that the quality of financial statements, confirmed by audit findings, has slightly improved, but still remains at a fairly low level due to a number of major shortcomings identified in the analysis of financial statements. The current trends in the effectiveness of audit firms, which can conduct audits of professional participants in the securities market. Based on the analysis of audit opinions and reporting of professional stock market participants, ways to improve the quality of the national capital market are proposed. Novelty. In the course of monitoring the development trends of state and independent financial control over the activities of capital market participants, a constant expansion of regulatory requirements was identified against the background of a significant narrowing of the client base of audit entities, which will not necessarily contribute to quality implementation of international standards, corporate governance and strengthening investor protection. Practical value. Guidelines for integrated development of the capital market are proposed, aimed at creating economic and legislative preconditions for intensification of activity as market participants (effective incentives for public attraction of capital by Ukrainian issuers through national capital market instruments, expansion and diversification of investment opportunities for domestic and foreign investors , proper quality of financial and trade information) and audit firms (improving the quality, transparency and security of accounting and communication information).

Impact of Accounting Software among SMEs Accountants in Oman

Financial losses, bankruptcy and closure of the company may be the result of incorrect choice of accounting software, inefficient modernization of such software depending on the specifics of the economic entity and ignorance of technical knowledge of staffs to work with the software product. The paper notes that for companies from member countries of the Gulf Cooperation Council, the technique of implementation and application of tax legislation and International Financial Reporting Standards (IFRS) differs significantly from other countries. The article emphasizes that in Oman, companies need to prepare financial statements in accordance with current applicable IFRS, as well as the Law on Commercial Companies 2019 and the guidelines and requirements for disclosure of capital market information. The purpose of this paper is to study and study the impact of the implementation of accounting software among small and medium enterprises (SMEs) in Oman. The study systematizes the features and issues of assessing the relationship between generalized accounting software (GAS) and its use by accountants working for SMEs. Twenty small and medium business accountants were selected as the target audience, taking into account their experience and basic knowledge of accounting in the context of ownership and use of GAS. The study confirms and theoretically proves that the use of GAS in the financial and economic activities of SMEs has a significant impact on the practice of accountants working in such enterprises, ie, there is a positive and significant relationship between GAS choice and use of GAS by SME accountants. The results of this study can be useful for the government, representatives of tax authorities, higher education institutions in the context of establishing adequate policies regarding the use of software for accounting by economic entities. Keywords: Generalized accounting software, accounting, accountant, small and medium enterprises, international financial reporting standards (IFRS), Oman.

Regulatory changes for redesigned securities markets with distributed ledger technology

AbstractDistributed ledger technology (DLT) is regarded as a revolutionary solution that offers immutability, transparency, trust, and efficiency while ‘transcending law and regulation’. One of the potential applications of DLT is in the securities market. Share registration, settlement, regulatory compliance, information disclosure, payment systems, and market service requirements can be redesigned with the use of DLT. This paper will examine the impact that such changes will have on legal theories and governance, while also discussing the effects on enforcement techniques. In addition, general blockchain-legal issues will be critically analyzed in the context of securities markets.

Rethinking Dual-class Share Structure in the Context of China

The dual-class share structure enables founders to maintain control of the company while obtaining external financing. It is popular with innovative companies. However, it deviates from the default rule of “one share, one vote” and has hence elicited heated debates on the topic. This article aims to contribute to the debate on dual-class share structure in the context of China. Chinese Company Law insists on the “one share, one vote” principle, and joint stock companies are not allowed to issue weighted voting shares. This article suggests that it is necessary to allow dual-class share structure in China for two reasons. First, the immense pressure of exchange competition from other jurisdictions, and second, to meet the demands of innovative companies and heterogeneous shareholders. The China Securities Regulations Committee (CSRC) recently launched the Science and Technology Innovation Board on the Shanghai Stock Exchange, issuing a new listing rule, which allows listed company to adopt dual-class share structure. However, some defects were found on the rules of dual-class share structure and needs to be improved. First, we should modify the Company Law and allow listed company to issue weighted voting shares. Second, shareholders ought to be encouraged to lay limitations on dual-class share structure in the articles of association, rather than through mandatory legal provisions. Third, information disclosure requirements imposed on the founder ought to be enhanced to prevent the founder from procuring private benefits. Fourth, the Investor Service Center (ISC) should be allowed to bring a lawsuit on behalf of the investors as long as the number of investors who have authorized it to do so hits a certain quota, and the cases supported by the ISC should become guiding cases which has de facto binding effect for similar subsequent cases. Last of all, the application of dual-class share structure should be made available to all listed companies after this area of company law has matured after years of practice.

Compliance with Disclosure Requirements under IFRS 3 of Companies Trading at Prague Stock Exchange

This article analyses compliance with information disclosure requirements under IFRS 3 Business Combinations in 23 companies trading at Prague Stock Exchange. The analysis was performed with the use of publicly available data contained in annual reports of the companies. Beyond quantification of the level of compliance, the research explores which factors affect diligence in following IFRS 3 disclosure requirements, specifically the company size, history of trading on the stock exchange, ownership structure and the acquisition price paid. The literature review also focuses on aspects with a potential to influence the level of diligence in areas of disclosure and consequences of infringing the disclosure rules. The paper concludes that the level of compliance can be considered average and in some cases unsatisfactory, while the company size and longer history of trading on PSE are positively correlated with the quality of disclosure.

Do Mandatory Disclosure Requirements for Private Firms Increase the Propensity of Going Public?

This paper investigates the effect of mandatory disclosure requirements for private firms on their decision to go public. Using detailed project-level data for biopharmaceutical firms, we explore the effects of a legal reform---the Food and Drug Administration Amendments Act (FDAAA)---which exogenously required that firms publicly disclose information regarding clinical trials. Exploiting cross-sectional heterogeneity in firms' exposure to the regulation based on their internal development portfolios, we find that affected firms are significantly more likely to transition to public equity markets following the reform. We also find that firms that go public due to the increased disclosure requirements subsequently reduce the size of their project portfolios while shifting to safer investments acquired externally. The results suggest that private firms' general information environment and disclosure requirements influence the propensity of going public, and the nature of their subsequent project decisions.

Financial Structure Reform and Enterprise Debt Risk Prevention

Based on the financial structure database (FSD) and the global listed enterprises database (Osiris), this paper investigates the relationship between financial structural reform and corporate debt risk by using the two-way fixed effect model. Research results show that for every 1% increase in the degree of financial development, the corporate leverage ratio will decline by about 0.4%. We have studied the heterogeneity of the relationship. The empirical results show that for enterprises with weaker associations with the government, the improvement of financial development is more conducive to reducing the leverage ratio of enterprises. For countries with higher household savings rate, higher GDP growth rate or higher M2 growth rate, enhancing financial development to guard against corporate debt risk would be less effective. For countries with higher information disclosure requirement or stricter market supervision, promoting financial development can reduce corporate leverage ratio more effectively. To prevent the risk of corporate debt, the government needs to restructure the financial structure, improve the transparency of listed company information, strengthen market supervision and improve the level of financial marketization.

Information booms and busts: Examining oil and gas disclosure policies across the states

Today's 'fracking debate' includes a familiar set of actors and arguments. Advocates of unconventional oil and gas production contend that it has contributed to an economic renaissance for many subnational governments and has improved American energy security. Opponents suggest that unconventional production is an environmental and public health hazard. One way that states are trying to balance the economic benefits of continued energy production with environmental protection is through the use of information disclosure requirements. Prior work notes that the rigor of state disclosure standards relative to unconventional oil and gas production vary. Through measures of association and exact logistic regression, this project expands the disclosure literature by focusing on three types of disclosure: pre-drilling notification, chemical disclosure during operations, and trade secret exemptions.

Accessibility as a Principle of Public Authorities Functioning

The article provides a general analysis of the content and essence of the principle of accessibility as a component of the rule of law in the activities of state authorities and local self-government bodies. The author offers a general understanding of the features and peculiarities of the principle of accessibility as one of the basic theoretical principles of public services providers in accordance with European standards of public administration. The article suggests that accessibility should be considered in its two meanings. A broader understanding of the principle of accessibility implies the ability of any person to directly and unconditionally have a real access to the results of the public activity of any government authority or local self-government body under conditions determined by law. In this case, it is not even so much about specific administrative services but about the efficient functions of the governmental authority as a public institution in general. From this point of view, the principle of accessibility is a special criterion for the efficiency of the public authority’s functioning, since it aims to assess the quality of “access” of a person to the results of the activity of such an authority. Concerning a narrower understanding of the accessibility principle, this means a system of definite measures to ensure the real and physical capacity of a person to receive a public service, which involves a set of legal requirements for the organization of the public authority. Such interpretation actually contains an understanding of the principle of accessibility as a set of certain standards for the activity of the body that provides public services. It is proposed to consolidate these standards for public services providers into several blocks: informational, organizational and a block for comfort requirements. The information block includes requirements for the public disclosure of information on the competence of the public authority. For example, this imples the information on the list and the meaning of the authority’s powers in the field of administrative services; the procedures on accepting documents for consideration and general stages of their passing; the procedure for appeals, etc. The organizational unit contains a number of requirements for ensuring a person’s real access to the administrative service provider. This should include, first of all, requirements for offices where reception of citizens and initial processing of documents are carried out. The comfort block is a certain system of generalization of information and organizational units with a specific focus of the public authority’s activity on providing administrative services in the most convenient way for the applicant. The requirements of this block are based on respect for the dignity of people seeking specific administrative services or trying to get advice on a particular issue without proper formalization and formal initiation of the process of granting / receiving an administrative service. The article also presents an analysis of the trends and the development of the current legislation in the field of providing public services.

КРАУДЛЕНДІНГ У СИСТЕМІ FINTECH

Інтеграція кредитних послуг з інноваційними технологіями створила підгрунтя для розширення можливостей залучення додаткових фінансових ресурсів представниками малого та середнього бізнесу і фізичними особами. Це зумовлює актуальність обраної теми.Обгрунтовано детермінанти розвитку краудлендінгу на базі дослідження його функціонування в системі фінансових технологій та аналізу міжнародних і вітчизняних нормативно-правових актів.Теоретичною та методологічною базою статті стали праці вітчизняних і зарубіжних науковців. Дослідження проведено із застосуванням методів теоретичного узагальнення, порівняльного аналізу, аналізу та синтезу, що дозволило обгрунтувати напрями розвитку краудлендінгу в Україні.Аналіз наукової літератури та міжнародних нормативно-правових актів дозволив виділити операційний, діяльнісний, суб’єктний та договірний підходи до розуміння краудлендінгу. Запропоновано розглядати краудлендінг як діяльність інтернет-платформ щодо задоволення потреб малого і середнього бізнесу та фізичних осіб у фінансових ресурсах за рахунок коштів кредиторів (інвесторів) на основі зворотності й платності. Краудлендінгові платформи виконують організаційну, аналітичну та моніторингову функції. Проаналізовано етапи зародження, розвитку та застосування інноваційних підходів у краудлендінгу.Отже, краудлендінг – складова краудфандінгу, виникненню та розвитку якого сприяв FinTech. Нині специфікою краудлендінгу є міжнародний характер діяльності; орієнтованість на соціальні, енергозберігаючі, інноваційні проекти; захист прав споживачів; управління ризиками кредитування. В Україні необхідно впровадити ліцензування краудлендінгової діяльності. Стосовно P2P- та P2B-кредитування варто встановити вимоги щодо розкриття інформації інтернет-платформами щодо можливих ризиків надання коштів у позику, а також потенціальних позичальників, максимального розміру здійснення разової інвестиції або протягом року. Також важливо внести відповідні зміни до Податкового кодексу України щодо оподаткування доходів, отриманих при наданні коштів у позику через краудлендінгові платформи.

Quality disclosure when firms set their own quality targets

We investigate how firms adjust their target quality levels when they - or their competitors - become subject to an information disclosure requirement. Our setting is the U.S. airline industry, where all large domestic carriers are required to report their on-time performance (OTP). OTP is measured by comparing a flight’s actual arrival time to its scheduled arrival time, which is chosen by the airline. Therefore, airlines can improve their OTP by simply increasing their scheduled flight times. We study three airlines which become subject to the disclosure requirement and find that they lengthen their schedule times by 1.4 min on average. Moreover, other airlines also increase their schedule times on routes where they compete with newly reporting airlines, by about 2.3 min, while actual flight times remain unchanged. While these numbers are small, the longer schedule times translate into a 15% improvement in OTP for previously reporting airlines. We conclude that newly reporting airlines and their direct competitors adjust their quality targets when they become subject to quality disclosure, which improves their reported quality without improving the actual time that it takes to travel from gate to gate.

The Impact of Nutrition Label Regulation on Firm Marketing Action and Performance in China

Although considerable research has been conducted on the impact of nutrition labeling in the economically developed world, there has been relatively little attention to the impact of such programs in developing economies. In 2013, China implemented the Food Nutrition Labeling Act (FNLA), requiring that more standardized information be provided on the packaging of food items. The focus of the current study is the impact of the standardized information disclosure requirement on firms in China, the world's biggest developing economy. In particular, the authors examine the effect of this law on firms in terms of marketing responses (e.g., advertising, R&D, corporate social responsibility) and sales, using a longitudinal, quasi-experimental field study. Findings indicate that, in general, the FNLA has had a positive effect on advertising and R&D investment but a negative effect on donations. When accounting for firm size as an asymmetry, we observe that the FNLA has led to a greater increase in advertising for large firms and a greater increase in sales for small firms.

Pragmatics and problemmatics of the banking sector functioning in Ukraine

Introduction. The permanent occurrence of crisis phenomena in the Ukrainian economy requires the state authorities and the National Bank to search for effective and optimal ways to overcome the economic downturn. Among the important elements in building a system of measures to counteract the recession and stimulate stable economic growth is to ensure a high level of financial stability of the banking system of the country. The banking system has key functions in the mechanism of implementation of the state economic policy to counteract the emergence of negative trends in both the real and financial sectors of the economy. In connection with this, the urgency of the issue of ensuring the proper level of functioning of the banking system is violated.
 Aim and tasks. The purpose of the research is to deepen the theoretical positions regarding the problematic aspects of the activities of banking institutions and to develop practical recommendations for improving the efficiency of their functioning in Ukraine.
 Research results. The paper examines the current state of functioning of the banking sector. On the basis of the conducted research, the existence of direct and indirect influence on functioning of the banking system in Ukraine was noted. The existence of the relationship between the main macroeconomic factors and functioning of the banking sector has been proved. By means of mathematical tools, a direct correlation between the growth of gross domestic product and the growth of net bank assets was established. The positive foreign experience of countries with transition economies, which managed to ensure the efficient functioning of the banking system has been considered. The promising measures that will promote the improvement of the banking system and stimulate economic development have been outlined.
 Conclusions. The analysis of the status of banking institutions indicates the need for changes and effective reforms in the banking system. Realization of any type of reforms carries both potential advantages and the possibility of occurrence of certain risk situations. Therefore, it is expedient and consistently to outline a list of measures that will promote the improvement of the banking system and stimulate economic development, namely: a systematic approach to solving the problem of asset quality; increase of the savings base, which will allow to expand lending; strengthening of the requirements for disclosure of information about the financial status, ownership and management structure of banks; increasing financial literacy of the population; provision of corporate governance of banks on the basis of the best world standards; carrying out constant supervision of the degree of concentration of bank capital in terms of the country and its origin.

Why do firms make an additional cross-listing? An empirical investigation using multiple failure time model

This paper aims to understand the recurrence of the cross-listing event using a unique and comprehensive sample of multiple cross-listed firms. By implementing multiple event-time experiment using an appropriate extension of the Cox (J R Stat Soc Ser B 34(2): 187–222, 1972) model, we find no evidence to support the bonding and the market segmentation hypothesis. However, firms, especially those from developed countries, list their shares in multiple foreign markets to commit themselves to higher information disclosure requirements, and to benefit from cross-listing in proximate geographic foreign markets. Firms that produce internationally tradable goods are also more likely to cross-list in additional foreign market to develop their global business strategy. Empirical analysis further show a significant explanatory power of market structure consideration in that firms go primarily to order-driven markets.

Divergence of opinion and moderating effect of investors’ attentions in IPO market

PurposeThe purpose of this paper is to bridge the gap between the theory underlying divergence of opinion (DOP) and a cognitive concept termed as attention by specifically focussing on the volume and price behaviour in initial public offering (IPO) settings.Design/methodology/approachEmploying the hierarchical regression for a sample of 282 Malaysian fixed price IPOs issued from 2004 to 2014, this research investigated the effect of investors’ attention on other information that complements the information revealed by initial return on DOP. Measure of market adjusted turnover (AbTO) from non-IPO setting was used to capture the DOP in the after-market, while investors’ attention was on a dichotomise scale variable which was captured by the increase/decrease of the Google search index (GOGC2) on the month of listing compared to a month prior to listing.FindingsThe findings indicate that attention moderates the relationship between initial return (also surrogates underpriced IPOs) and DOP. The findings suggest that disagreement to initial returns is reduced, while liquidity in the after-market is promoted, when investors pay more attention to other information that complements price change. The findings also indicate that behavioural tendency is less when individual participation is weak.Research limitations/implicationsThis paper highlights the importance of interaction effects in explaining the behavioural tendency in the after-market.Practical implicationsThe weak individual investors’ participation and greater attention reduce the market inefficiency in Malaysia.Originality/valueThe finding is consistent with the view that the level of individual investors’ participation and information disclosure requirements has an implication on behavioural bias, which affects DOP in the after-market.

Online P2P Lending and Regulatory Responses in China: Opportunities and Challenges

As a main form of the Fintech industry, China’s online P2P lending market has undergone a period of explosive growth in the past few years to become the largest in the world, with online lending platforms having mushroomed across the country. This is a consequence of the simultaneous emergence of three key factors, namely deep penetration of internet, large supply of funds and unmet financial needs. The market exhibits several distinctive features in terms of the size of platforms, the level of market concentration and business models. As online lending gathers moment in China, many problems have come into light. China has recently established a relatively complete regulatory regime for online lending, introducing a number of significant changes, such as the restriction on the business model that can be adopted by platforms, registration requirements, custodian requirements, information disclosure requirements and lending limits. The new regime will have far-reaching implications, including a reshuffling of the market and more collaboration between online lending platforms and traditional banks. A comparative analysis of the Chinese experience with those in other jurisdictions such as the US, the UK, Hong Kong and Japan is conducted to examine the extent to which the new regime is likely to achieve a proper balance between its two main objectives, namely facilitating the growth of the online lending market and protecting financial consumers. While the new regime is generally sound, its efficacy will ultimately depend on how it is enforced in practice.

Protecting knowledge: How legal requirements to reveal information affect the importance of secrecy

Most firms use secrecy to protect their knowledge from potential imitators. However, the theoretical foundations for secrecy have not been well explored. We extend knowledge protection literature and propose theoretical mechanisms explaining how information visibility influences the importance of secrecy as a knowledge protection instrument. Building on mechanisms from information economics and signaling theory, we postulate that secrecy is more important for protecting knowledge for firms that have legal requirements to reveal information to shareholders. Furthermore, we argue that this effect is contingent on the location in a technological cluster, on a firm’s investment in fixed assets and on a firm’s past innovation performance. We test our hypotheses using a representative sample of 683 firms in Germany between 2005 and 2013. Our results support the moderation effect of a technological cluster and a firm’s investment in fixed assets. Our findings inform both academics and managers on how firms balance information disclosure requirements with the use of secrecy as a knowledge protection instrument.

Financial Disclosure based on Web-ICT Determinants

The purpose of this research is to analyze the influence of local government characteristic and accountability performance on the financial disclosure based on WEB-ICT and how it’s implications for local government financial performance as a response to the public information disclosure requirements. Using 307 regencies and cities local government in Indonesia as samples based on purposive sampling and analyze by SEM-PLS technique. The result shows that local government characteristic and accountability of local government performance has a positive influence on financial disclosure based on web-ICT. It indicates that local governments with better performance accountability levels and have greater or more mature characteristics will disclose wider financial information through the website. These findings are consistent with the signaling theory which states that organizations tend to provide a signal in the form of information disclosure to stakeholders to describe positive conditions. This study also found that financial disclosure based on web-ICT has a negative influence on local government financial performance, public sector characteristics that are nonprofit oriented cause disclosure of financial information does not encourage the financial performance of local government. Unlike the private sector, the disclosure of information encourages better corporate financial performance.

Jobs and SOX: Information Design and Capital Formation

Following the economic recession of 2009-11, the U.S. Congress approved legislation weakening the information disclosure requirements for small companies seeking financing in public and private markets. This policy has been criticized by analysts who warn against a reduction in investors’ willingness to invest, and hence in the amount of capital firms can raise. We argue that a risk sharing motive for trading implies that the new legislation is indeed consistent with its intended goal, and in fact, that a full disclosure requirement minimizes the capital that a firm can raise, given its business scale. Disclosure requirements that become more stringent at a larger business scale, such as those in the new legislation, may improve economic efficiency in the Pareto sense, increasing both financing of small and large firms and investors’ welfare. When liability is unlimited, disclosure that requires more detailed announcements of events with negative impact on return is ex ante favorable for the firm.