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Disclaimer language in US banks’ audit committee reports: determinants and consequences

Christine Naaman (Department of Accounting, Arthur J. Bauernfeind College of Business, Murray State University, Murray, Kentucky, USA)
Karen Naaman (The State University of New York (SUNY) at Plattsburgh, Plattsburgh, New York, USA)
Najib Sahyoun (Department of Accounting, Arthur J. Bauernfeind College of Business, Murray State University, Murray, Kentucky, USA)

Meditari Accountancy Research

ISSN: 2049-372X

Article publication date: 17 December 2021

Issue publication date: 8 May 2023

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Abstract

Purpose

This paper aims to investigate the determinants and consequences of using disclaimer language in the banks’ audit committee (AC) reports. This study aims to analyze the factors tempting AC members of banks to disclose disclaimer language in the AC reports and the effect of such language on the cost of equity.

Design/methodology/approach

The data cover the period from 2006 to 2015 and considers the top US bank holding companies. Voluntary disclosure in the AC report is manually coded by using a scoring grid. Multivariate regression analysis is mainly used in the study.

Findings

The findings suggest that the ACs are using the disclaimer language to protect themselves when disclosing a high level of voluntary information that describes their oversight activities or to reduce their liability exposure due to lower financial reporting quality. The findings also reveal that investors are requiring a higher return on their investments whenever ACs use disclaimer language in their reports.

Originality/value

The AC report provides useful information to shareholders who evaluate the AC’s performance and accordingly vote for or against AC members on annual basis. The paper sheds lights on the motives and consequences of disclaimer language in the ACs report. Thus, the study benefits shareholders by providing empirical evidence in regard to the usage of disclaimer language. Also, the findings benefit industry, corporate governance organizations, standard setters and regulators that analyze AC disclosures and issue recommendations or new standards for improving those disclosures.

Keywords

Acknowledgements

The authors are grateful for the constructive comments of the two anonymous reviewers, Associate Editor David Hay, and Editor-in-Chief Warren Maroun. The authors would like to thank Michel Magnan for his guidance and support, Samer Khalil for his review and comments, and the two research assistants Nguyen Y Nhi Le and Caitlyn Shelton. The authors acknowledge financial support from the Stephen A. Jarislowsky Chair in Corporate Governance and the Institute for the Governance of Private and Public Organizations.

Citation

Naaman, C., Naaman, K. and Sahyoun, N. (2023), "Disclaimer language in US banks’ audit committee reports: determinants and consequences", Meditari Accountancy Research, Vol. 31 No. 3, pp. 635-657. https://doi.org/10.1108/MEDAR-04-2021-1259

Publisher

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Emerald Publishing Limited

Copyright © 2021, Emerald Publishing Limited

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