Voluntary Nonfinancial Disclosure Research Articles

“Carbon” boards and transition risk: Explicit and implicit exposure implications for total stock returns and dividends payouts

Transition risk disclosure facilitates investors' understanding of the potential company-level risks associated with a low-carbon transition. Among the others, stricter regulations could undermine companies' financial performances, affecting operations costs and revenues and their impact being proportional to the business carbon intensity. Transition risk disclosure takes two forms. One is a textual description of transition risk in compulsory and voluntary non-financial disclosure. The other is the disclosure of carbon emissions and intensity, which is implicitly associated with transition risk exposure. We empirically assess the impact of the two transition risk measures on shareholder returns to test the “carbon premium” hypothesis. We consider shareholder return as the sum of capital gain and dividend paid and analyse the impact of transition risk on both. Evidence supports the “carbon premium” hypothesis but suggests such a premium is transferred to shareholders primarily via dividend payouts. One possible explanation consistent with this evidence is that boards in highly polluting companies use dividends to compensate investors for the relatively lower capital gain, dissuading them from divesting due to low returns, stigmatisation effects and regulatory risks.

Non-Financial Disclosure Policies and Their Influence on the Investor Behavior in NYSE-Listed Financial Firms

A country’s accounting and disclosure system is part of its financial system and more generally its institutional infrastructure. Economic theory suggests that, in well-functioning economies, the elements of the institutional infrastructure evolve to fit and reinforce each other. Thus, the accounting system is likely to be geared towards the informational and contracting needs of the key parties in the economy. Due to the existence of private information channels, financial statements are less important in terms of monitoring economic performance and assume other roles, such as determining dividends. However, for this reason, arm’s length or outside investors relying primarily on public disclosures are not as well informed in the German system as they are in Anglo-American economies. Since 2005, listed German groups have been required to prepare their consolidated accounts under International Financial Reporting Standards, IFRSs. The study was a literature based which sought to empirically assess the effect of voluntary non-financial disclosure on performance of financial firms listed on NYSE, United States. The study established that Non-financial reporting by German companies has long been a voluntary matter. As of fiscal year 2017, the CSR Directive Implementation Act makes it mandatory for some 500 large German companies. Non-financial reporting by German companies has long been a voluntary matter. Since the early 2000s, German companies have published non-financial information mostly as CSR or sustainability reports. Publishing comprehensive non-financial information will be mandatory as of fiscal year 2017 for some large German companies as a result of the CSR Directive Implementation Act. The CSR Directive Implementation Act obliges large companies of public interest, in particular, capital market-oriented companies, credit institutions, and insurance companies to publish non-financial information. The study concluded that since stock volatility is linked to information asymmetries and to a higher risk of a company, this analysis implies certain practical implications for both managers and regulators regarding the importance of specific disclosure strategy in capital markets. The study also concluded that the level of disclosed information, the interpretation and the effectiveness of forward-looking information depends on the reputation of a company. Companies disclosing nonfinancial information through sustainability reporting practices provide markets with data on their social, environmental, and governance performance. The study recommended that there is need to have a proper execution of regulatory framework which in turn increases the proper governance disclosures leading to an effective management system. Keywords: Voluntary, non-financial disclosure, performance, financial firms, listed NYSE, United States.

Voluntary Non-Financial Disclosure and its Impact on Corporate Environmental Responsibility in the Iraq Stock Exchange

Purpose: This Study aims to test the impact of voluntary non-financial disclosure on corporate environmental responsibility, In other words, examining the relationship between voluntary non-financial disclosure and corporate environmental responsibility. Theoretical framework: The theoretical aspect of this study was covered by previous studies published in international journals related to voluntary non-financial disclosure and corporate environmental responsibility. Design/methodology/approach: The main tool for data collection was the questionnaire, by surveying the opinions of 211 CEOs, certified accountants and academics In the Iraq Stock Exchange, the statistical program SPSS was used to analyze this data. Finding: The results showed that voluntary non-financial disclosure has a positive effect on encouraging Companies to disclose environmental information and increase their responsibility in this direction. Research, Practical & Social implications: This study explains the environmental responsibility of companies and clarifies the role of companies in addressing environmental issues as they have the economic and human capabilities to face these issues. This study also helps direct the attention of decision makers and users of financial reports towards environmental issues by increasing voluntary non-financial disclosure. Originality: To the best of our knowledge, this study is the first of its kind at the local level, which discusses the impact of voluntary non-financial disclosure of companies listed on the Iraq Stock Exchange on the environmental responsibility of these companies.

Product Market Competition and Voluntary Corporate Social Responsibility Disclosures†

ABSTRACTThis study examines whether and how firms' voluntary forward‐looking nonfinancial disclosure, specifically their corporate social responsibility (CSR) disclosure, is associated with the intensity of product market competition (PMC). Despite the importance of the proprietary cost argument in explaining corporate disclosure incentives, there is little empirical evidence of the relationship between firms' proprietary cost concerns and their voluntary nonfinancial disclosure decisions. Using a reduction in industry‐level import tariffs as an exogenous shock to competition intensity, we find that the likelihood, frequency, and length of stand‐alone CSR reports decrease in response to heightened PMC. We also find that higher PMC intensity is associated with a reduced likelihood of CSR disclosure with external assurance, CSR disclosure in accordance with the Global Reporting Initiative guidelines, and CSR disclosure integrated with financial statements. Our results are robust to multiple alternative measures of PMC—namely, the level of nonprice competition, product similarity, and managers' perceptions of competition. Further analysis suggests that firms facing intense competition tend to commit more resources to advertising activities after reducing their CSR disclosure, presumably to mitigate the effect of this reduction. Overall, our findings suggest that proprietary cost concerns reduce firms' incentive to report their competition‐sensitive CSR activities.

Financially Constrained Firms and Voluntary Non-Financial Disclosure: A Study of Initiation of Corporate Social Responsibility Reporting

We examine effects of initiation of corporate social responsibility reporting (CSRR) concurrent with experiencing a negative event. In primary analyses, we examine whether these firms experience an increase in investor interest and a reduction in cost of capital, postdisclosure. In general, we find little evidence that these firms experience capital market benefits from CSRR initiation. However, these primary tests ignore the relative CSR performance scores of our sample firms. In additional analyses, we find a positive association between CSR performance scores and firm profitability. We also find a positive association between changes in CSR performance scores and institutional investor interest. Finally, we examine the effects of earnings announcements in relation to the timing of initial CSR disclosures on shareholder value and find that shareholders earn greater abnormal returns when CSR disclosures are released after or concurrent with earnings announcements.

New Product Announcements, Innovation Disclosure, and Future Firm Performance

This study examines the relation between the degree of innovation disclosed in new product announcements (NPAs) and future firm performance. Using a new text-based measure of the amount of innovation disclosed in NPAs, we find that higher innovation disclosure predicts favorable future sales and earnings for up to two years (after controlling for R&D capital and patents) but has little effect on costs. We also document a positive relation between market reaction at NPAs and the degree of innovation disclosure. Next, we examine the effect of capital market pressures on innovation disclosure. We find that managers subjected to capital market pressures disclose a higher level of innovation in NPAs. The capital market pressures do not affect the relation between disclosed innovation and future sales, but are associated with higher future costs, leading to lower future earnings. Taken together, our results suggest that the degree of innovation disclosure predicts favorable financial performance, and that capital market pressures drive managers to unveil new products that are more innovative while sacrificing cost efficiency. This would allow myopic managers to reap the benefits of an immediate positive market reaction at NPAs while deferring the higher costs to deliver the new products. Our study contributes to the understanding of managers’ voluntary non-financial disclosure of the innovation in new products.

Social and Environmental Reporting and the Co-creation of Corporate Legitimacy

This paper extends the legitimacy theory by empirically investigating the extent and context of social, environmental and total voluntary non-financial disclosures across industries. The study uses 312 annual reports of publicly listed Indian companies for the accounting years 2006, 2012 and 2014. We follow a Multivariate Ordinary Least Squares (MOLS) modelling framework to test the hypotheses. Our empirical results indicate that the decision to provide voluntary non-financial disclosure is positively related to a firm’s age, profitability, industrial category and leverage. Our results further indicate that, contrary to legitimacy theory, the decision to provide social and environmental non-financial disclosures by sampled publicly listed companies is found to correlate negatively with consumer proximity, leverage and industrial transport industry membership. Our results add new empirical evidence to support the view that non-financial disclosure by companies is influenced by country-specific characteristics within which the firm operates. Future research could extend the study to other emerging countries and include data from unlisted companies to validate our findings.
 
 To cite this document: Asit Bhattacharyya and Frank Wogbe Agbola, "Social and Environmental Reporting and the Co-creation of Corporate Legitimacy", Contemporary Management Research, Vol.14, No.3, pp. 191-223, 2018.
 
 Permanent link to this document:
 http://dx.doi.org/10.7903/cmr.18247

Board Diversity in Terms of Gender: a Recommendation for Mauritius

AbstractThe increased presence of women on the boards of corporations is an international trend worth following by all countries. There are many good reasons for increasing gender diversity on boards have been evidenced by various studies such as better decisions, performance, and representation of the consumer base. However, the country of Mauritius has been lagging behind in terms of legislative initiatives to promote female representation on corporate boards. A study conducted by the Hay Group in association with the Mauritius Institute of Directors in 2015 supports this fact.The study seeks to identify the relative benefits behind the global trend of achieving gender diversity on corporate boards and on the factors that impact the representation of women on such boards. Some various kinds of regimes and initiatives that have been developed in some countries mainly Norway and the UK will be analysed to deal with the issue of underrepresentation of women on corporate boards. The purpose behind this research is to provide effective recommendations for Mauritius to achieve a greater level of gender diversity on corporate boards.The methodologies for the research are, in essence, comprised of the black letter approach which analyses the legal provisions relating to directors in Mauritius, Norway, and the UK. Journals, books, and reports amongst others will be also examined.The paper aims at responding to the research objectives set out above. In particular, a soft-law approach in terms of voluntary target and non-financial disclosure in terms of gender diversity status is suggested as a first step to resolve low representation of women on corporate boards in Mauritius.

Social Media and Voluntary Nonfinancial Disclosure: Evidence From Twitter Presence and Corporate Political Disclosure

This study uses a sample of 1,316 firm-year observations of S&P 500 companies (2012–2016) to investigate whether and how social media (i.e., Twitter) affects firms’ voluntary nonfinancial disclosure (i.e., corporate political disclosure). Our results show that Twitter-adopting firms are generally more transparent in their disclosure of corporate political contributions and of related policies and board oversight. Moreover, firms with more Twitter followers and firms whose corporate political activities are targeted in more Twitter messages are more transparent in such disclosures. Our cross-sectional analysis suggests that this effect is stronger for firms whose stakeholders are more active on Twitter and firms that are less visible or more reputable. Our results remain robust to different econometric model specifications that address the endogeneity issue, including Heckman two-stage procedure, a difference-in-difference analysis, and controlling for preceding year’s corporate political disclosure transparency. Our results remain qualitatively the same when we control for alternative social media platforms (i.e., Facebook) and non-interactive social media platforms (i.e., blogs and Really Simple Syndication feeds). Taken together, our findings suggest that social media (i.e., Twitter) presence exerts pressure on firms’ voluntary nonfinancial disclosure practices (i.e., corporate political disclosure).

Social Media and Voluntary Nonfinancial Disclosure: Evidence from Twitter Presence and Corporate Political Disclosure

ABSTRACTThis study uses a sample of 1,316 firm-year observations of S&P 500 companies (2012–2016) to investigate whether and how social media (i.e., Twitter) affects firms' voluntary nonfinancial disclosure (i.e., corporate political disclosure). Our results show that Twitter-adopting firms are generally more transparent in their disclosure of corporate political contributions and of related policies and board oversight. Moreover, firms with more Twitter followers and firms whose corporate political activities are targeted in more Twitter messages are more transparent in such disclosures. Our cross-sectional analysis suggests that this effect is stronger for firms whose stakeholders are more active on Twitter and firms that are less visible or more reputable. Our results remain robust to different econometric model specifications and controlling for alternative social media platforms. Taken together, our findings suggest that social media (i.e., Twitter) presence exerts pressure on firms' voluntary nonfinancial disclosure practices (i.e., corporate political disclosure).JEL Classifications: G38; M41; M48.Data Availability: Data are available from the sources indicated in the text.

Value Relevance of Voluntary Nonfinancial Disclosure: Corporate Social Responsibility Reports

Value Relevance of Voluntary Nonfinancial Disclosure: Corporate Social Responsibility Reports

Voluntary disclosure of non-financial information and its association with sustainability performance

This paper investigates management incentives for disclosing voluntary non-financial information and whether such disclosure is associated with firms' environmental, social, and governance (ESG) sustainability performance. We hand-collect 580 sample firms' voluntary non-financial disclosure on product, competition, industry, customers, trends, and technology data from their annual reports in 2010. We find that information contents and managerial motivations play an important role in assessing the antecedents and consequences of non-financial disclosure. Specifically, we find that earnings quality is a more pronounced factor in influencing forward-looking non-financial disclosures whereas proprietary cost is a more pronounced factor in influencing historical non-financial disclosures. Using the ratings from the KLD database to construct ESG sustainability performance, we find a two-directional association between non-financial disclosures and sustainability performance. Specifically, forward-looking non-financial disclosures are associated with a one year lead in sustainability performance, whereas current year sustainability performance is linked to more disclosures of historical non-financial information in the year-end annual filings.

An Effect of the Voluntary Nonfinancial Disclosure through the Sustainability Report on the Cost of Equity Capital

An Effect of the Voluntary Nonfinancial Disclosure through the Sustainability Report on the Cost of Equity Capital

Voluntary Non-Financial Reporting: The Role of Strategic and Operational Controls

This research looks internally to investigate the role of both strategic and operational controls in motivating the broadness of the organization’s accountability definition and in turn its willingness to provide voluntary disclosure on environmental, social, and governance issues. The premise of this research is that the existence of internal controls within the organization provides a higher degree of confidence in the integrity of the voluntary non-financial disclosures to ward off any disclosure risk that might occur from revealing poor performance results. Strategic control evolves from the structure and characteristics of the board of directors. The board’s direction then cultivates operational controls through an environmental management system. Using archival data, we study the existence of two board characteristics (independent directors and CEO/Chair duality) and three components of an organization’s environmental management system (policy, training, and assurance). All, except CEO/Chair duality, are significantly related to the organization’s voluntary non-financial disclosure score, predicting over 50 percent of the variance in the disclosure score (R squared of .509). Our findings show that various levels of control provide additional insights into the voluntary disclosure decision.

Voluntary Nonfinancial Disclosure and the Cost of Equity Capital: The Initiation of Corporate Social Responsibility Reporting

ABSTRACT: We examine a potential benefit associated with the initiation of voluntary disclosure of corporate social responsibility (CSR) activities: a reduction in firms’ cost of equity capital. We find that firms with a high cost of equity capital in the previous year tend to initiate disclosure of CSR activities in the current year and that initiating firms with superior social responsibility performance enjoy a subsequent reduction in the cost of equity capital. Further, initiating firms with superior social responsibility performance attract dedicated institutional investors and analyst coverage. Moreover, these analysts achieve lower absolute forecast errors and dispersion. Finally, we find that firms exploit the benefit of a lower cost of equity capital associated with the initiation of CSR disclosure. Initiating firms are more likely than non-initiating firms to raise equity capital following the initiations; among firms raising equity capital, initiating firms raise a significantly larger amount than do non-initiating firms.

Voluntary Nonfinancial Disclosure and the Cost of Equity Capital: The Initiation of Corporate Social Responsibility Reporting

We examine a potential benefit associated with the initiation of voluntary disclosure of corporate social responsibility (CSR) activities: a reduction in firms’ cost of equity capital. We find that firms with a high cost of equity capital in the previous year tend to initiate disclosure of CSR activities in the current year and that initiating firms with superior social responsibility performance enjoy a subsequent reduction in the cost of equity capital. Further, initiating firms with superior social responsibility performance attract dedicated institutional investors and analyst coverage. Moreover, these analysts achieve lower absolute forecast errors and dispersion. Finally, we find that firms exploit the benefit of a lower cost of equity capital associated with the initiation of CSR disclosure. Initiating firms are more likely than non-initiating firms to raise equity capital following the initiations and among firms raising equity capital, initiating firms raise a significantly larger amount than do non-initiating firms.

The Value of Assurance on Voluntary Nonfinancial Disclosure: An Experimental Evaluation

SUMMARY: This study examines whether assurance on the voluntary provision of nonfinancial performance indicators affects the stock price estimates of a group of sophisticated financial report users. We conducted an experiment where participants were provided with a case study containing excerpts from a hypothetical company's annual report. Nonfinancial performance and assurance were manipulated in a 2 (positive and negative nonfinancial performance indicators) ×2 (assurance and no assurance) +1 (control condition) between-subjects design. After reading the case materials, the participants indicated whether they believed the company's stock price would increase or decrease based on the information provided. As expected, we found that the nonfinancial performance indicators had a significant effect on stock price estimates. In addition, consistent with attribution theory, an assurance report on the voluntarily disclosed nonfinancial performance indicators only had a significant effect on stock price estimates when the nonfinancial performance indicators were positive, suggesting that the value of assurance is context-specific. Our research contributes to the discussion on the value of expanded assurance services and also on the value of enhanced corporate disclosure.

Voluntary Non-Financial Disclosure and the Cost of Equity Capital: The Case of Corporate Social Responsibility Reporting

Voluntary Non-Financial Disclosure and the Cost of Equity Capital: The Case of Corporate Social Responsibility Reporting