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1 – 10 of 110Minna Martikainen, Antti Miihkinen and Luke Watson
Negative disclosure tone in 10-K annual reports has economic consequences, yet relatively little is known about how it is generated. Boards of directors play an important…
Abstract
Purpose
Negative disclosure tone in 10-K annual reports has economic consequences, yet relatively little is known about how it is generated. Boards of directors play an important governance role with respect to mandatory disclosures and personally sign off on Form 10-K, leading us to expect directors to influence financial reporting narratives. This study investigates whether the negative tone of firms' narrative annual report disclosures is associated with the human and social capital of its board of directors.
Design/methodology/approach
Multivariate regression analyses of negative disclosure tone (Loughran and McDonald, 2011) on board members' average age, gender, education, financial expertise and turnover is performed. A host of supplemental tests to corroborate our primary analysis, including using Sarbanes-Oxley's financial expert mandate as an exogenous shock to board composition, impact threshold for a confounding variable, placebo analysis, portfolio tests of more and less negative disclosing firms and portfolio tests of “loud” versus “quiet” boards are conducted.
Findings
Evidence that directors' gender, education, financial expertise and board turnover are associated with more negative disclosure tone, while directors' age is associated with less negative disclosure tone is found. The study also looked within the board to differentiate whether these findings are driven by characteristics of inside directors or outside directors serving on the audit committee, or both, as these are the specific groups of directors we would expect to play a role in disclosure. It was found that negative disclosure tone is associated with a lower bid-ask spread, so this study interpreted more negative tone as containing more descriptive information.
Originality/value
This study helps decode the “black box” of annual report disclosure tone, which Loughran and McDonald (2011) show has important economic implications. The results help inform stakeholders such as policymakers, executives and capital market participants as to how board member traits are associated with disclosure. The findings are particularly important as this study bears witness to the increasing prominence of gender/diversity mandates (e.g. Israel, Norway, California) and financial expertise mandates (e.g. Sarbanes-Oxley).
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Joseph F. Hair Jr. and Luiz Paulo Fávero
This paper aims to discuss multilevel modeling for longitudinal data, clarifying the circumstances in which they can be used.
Abstract
Purpose
This paper aims to discuss multilevel modeling for longitudinal data, clarifying the circumstances in which they can be used.
Design/methodology/approach
The authors estimate three-level models with repeated measures, offering conditions for their correct interpretation.
Findings
From the concepts and techniques presented, the authors can propose models, in which it is possible to identify the fixed and random effects on the dependent variable, understand the variance decomposition of multilevel random effects, test alternative covariance structures to account for heteroskedasticity and calculate and interpret the intraclass correlations of each analysis level.
Originality/value
Understanding how nested data structures and data with repeated measures work enables researchers and managers to define several types of constructs from which multilevel models can be used.
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Eileen Taylor and Jennifer Riley
The purpose of this paper is to explore how non-professional investors (NPIs) with varying levels of financial sophistication interpret and perceive corporate disclosures and…
Abstract
Purpose
The purpose of this paper is to explore how non-professional investors (NPIs) with varying levels of financial sophistication interpret and perceive corporate disclosures and management credibility, specifically risk factors, when those disclosures are presented in readable and less-readable formats.
Design/methodology/approach
The paper uses an online experiment to test hypotheses related to the effects of financial sophistication (measured) and readability (manipulated) on NPIs’ equity valuations and perceptions of management credibility (competence and trustworthiness).
Findings
Increased readability appears to counteract less-sophisticated NPIs’ conservatism in equity valuations, such that they are not statistically significantly different from more-sophisticated NPIs’ equity valuations. Further, less-sophisticated NPIs judge management as less competent when disclosures are less readable, while more-sophisticated NPIs judge management as more competent when disclosures are less readable.
Research limitations/implications
The paper has important implications for the SEC’s regulations related to plain English requirements for risk factor and other corporate disclosures. Financial sophistication varies among NPIs, and readability appears to influence these individuals in different ways.
Practical implications
The SEC’s Concept Release (April 13, 2016) acknowledges the need to update and improve risk factor disclosure regulations. This study provides evidence that contributes to those decisions.
Originality/value
The paper extends the research on processing fluency, by examining readability of disclosures with a consistent tone (negative). The NPIs surveyed are directly representative of the population of interest for risk factor disclosure regulations.
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Research has called for increased relevance of business reporting. A step towards that goal is an increased disclosure of non‐financial information. At the present time…
Abstract
Purpose
Research has called for increased relevance of business reporting. A step towards that goal is an increased disclosure of non‐financial information. At the present time, non‐financial information is mostly provided on a voluntary basis.
Design/methodology/approach
Valuation relevance of non‐financial information is studied by examining the information content of 200 analyst reports written on a respective number of firms listed in the S&P 500 index, while simultaneously performing a disclosure study of non‐financial information by the same 200 firms in their annual reports.
Findings
We found the valuation relevance of non‐financial information to be related to the size of the target firm. Further, analysts’ use of non‐financial information is related to the level of non‐financial information in the 10‐k report of the target firm. Finally, analysts tend to rely more heavily on forward‐looking non‐financial information than on historical non‐financial information.
Practical implications
The findings in this paper have implications for policy makers, preparers of business reporting, and others having to make judgments on information usefulness.
Originality/value
This study looks at the valuation relevance of non‐financial information, as opposed to earlier studies that have judged the usefulness of non‐financial information by measuring its value relevance. Information is regarded to have valuation relevance if it is used by analysts in the valuation process. Hence, valuation relevance offers an alternative way of measuring information usefulness.
Subhash Abhayawansa and Carol Adams
This paper aims to evaluate non-financial reporting (NFR) frameworks insofar as risk reporting is concerned. This is facilitated through analysis of the adequacy of climate- and…
Abstract
Purpose
This paper aims to evaluate non-financial reporting (NFR) frameworks insofar as risk reporting is concerned. This is facilitated through analysis of the adequacy of climate- and pandemic-related risk reporting in three industries that are both significantly impacted by the COVID-19 pandemic and are at risk from climate change. The pervasiveness of pandemic and climate-change risks have been highlighted in 2020, the hottest year on record and the year the COVID-19 pandemic struck. Stakeholders might reasonably expect reporting on these risks to have prepared them for the consequences.
Design/methodology/approach
The current debate on the “complexity” of sustainability and NFR frameworks/standards is critically analysed in light of the COVID-19 pandemic and calls to “build back better”. Context is provided through analysis of risk reporting by the ten largest airlines and the five largest companies in each of the hotel and cruise industries.
Findings
Risk reporting on two significant issues, pandemics and climate change, is woefully inadequate. While very little consideration has been given to pandemic risks, disclosures on climate-related risks focus predominantly on “risks” of increased regulation rather than physical risks, indicating a short-term focus. The disclosures are dispersed across different corporate reporting media and fail to appreciate the long-term consequences or offer solutions. Mindful that a conceptual framework for NFR must address this, the authors propose a new definition of materiality and recommend that sustainable development risks and opportunities be placed at the core of a future framework for connected/integrated reporting.
Research limitations/implications
For sustainable development risks to be perceived as “real” by managers, further research is needed to determine the nature and extent of key sustainable development risks and the most effective mitigation strategies.
Social implications
This paper highlights the importance of recognising the complexity of the issues facing organisations, society and the planet and addressing them by encouraging robust consideration of the interdependencies in evolving approaches to corporate reporting.
Originality/value
This study contributes to the current debate on the future of corporate reporting in light of two significant interconnected crises that threaten business and society – the pandemic and climate change. It provides evidence to support a long-term oriented and holistic approach to risk management and reporting.
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Boards of directors often attempt to foster corporate entrepreneurship by replacing a firmʼs chief executive officer (CEO). Compelling theoretical arguments and anecdotal evidence…
Abstract
Boards of directors often attempt to foster corporate entrepreneurship by replacing a firmʼs chief executive officer (CEO). Compelling theoretical arguments and anecdotal evidence suggest that when firm performance has suffered, a new CEO is best suited to lead the firmʼs creative endeavors. On the other hand, among firms that retain their existing CEO after a decline in performance, manipulating the CEOʼs compensation package is a common governance practice used by boards to encourage innovation. In these cases, some have argued that increasing the CEOʼs pay will encourage corporate entrepreneurship, because the CEO has been compensated for assuming additional risk. Counter to these propositions, this study develops theoretical arguments that a firmʼs existing CEO is better equipped to foster corporate entrepreneurship and that this probability increases when the CEOʼs cash compensation is decreased. Results from a sample of 100 single-product manufacturing firms suggest firms that retain their current CEO and decrease the CEOʼs cash compensation are most likely to engage in corporate entrepreneurship. Implications that this research has for corporate entrepreneurship, corporate governance, and firm performance are discussed.
To deal with highly energetic younger generation patiently, need academicians who can spread happiness while teaching/mentoring are needed. This is possible when an academician…
Abstract
Purpose
To deal with highly energetic younger generation patiently, need academicians who can spread happiness while teaching/mentoring are needed. This is possible when an academician himself is a happy person. This paper aims to explore the factors that generate happiness among academicians, studies the impact of demographic variables on academicians’ happiness and examines the relationship between academicians’ happiness and their performance.
Design/methodology/approach
Convenience purposive sampling method was used to obtain data through self-administered survey questionnaire based on a five-point Likert scale, delineating the research purpose and assurance of confidentiality. For data analysis, statistical techniques like mean, percentage method, Levene’s test, t-test and analysis of variance were used. To study the relationship between performance and happiness, the attitude, motivation and outcome theory was applied and happiness index was developed.
Findings
After analyzing the various factors impacting academicians’ happiness, this study found that except for work–life balance, research activities and working environment, all other factors are available to academicians according to their ranked importance assigned to them. This study also obtained a happiness index using matrix and has developed an equation which can be applied to find out the relationship between happiness and performance in future.
Research limitations/implications
This study has certain limitations, first, this study has been conducted on academicians working in higher education institutes situated in Delhi/NCR and thus entails a specific socio-cultural environment that may limit the potential level of generalization.
Practical implications
The results of this research might help institutes/higher education bodies to make rules and policies which may further augment academicians’ happiness to accomplish their desired goals.
Social implications
An academician who is happy, satisfied and motivated can easily deal with today's enthusiastic younger generation and can spread happiness amongst them. so it is very much necessary for an academician to be happy and energetic all the time.
Originality/value
This study found the factors impacting higher education academicians’ happiness and its impact on their teaching performance.
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As cryptocurrencies continue to gain viability as an asset class, institutional investors and publicly traded firms have started taking investment positions in digital currencies…
Abstract
Purpose
As cryptocurrencies continue to gain viability as an asset class, institutional investors and publicly traded firms have started taking investment positions in digital currencies. What firms may not be considering, however, is the effect these assets may have on their risk profiles. This study aims to (1) measure the effect of cryptocurrencies on the risk and return characteristics of publicly traded companies; (2) decipher the motives behind holding cryptocurrencies as an asset class; and (3) determine whether one reason for holding is more effective than another. To conduct this research, the four largest publicly traded holders of cryptocurrency as well as four of the most prominent cryptocurrencies are explored.
Design/methodology/approach
The cross-sectional analysis approach has been used to analyze the daily returns, volatility, betas and Sharpe Ratios of firms during periods without cryptocurrency strategies and during periods with cryptocurrency strategies.
Findings
The impact of the cryptocurrency asset class on common stock performance and corporate disclosures are documented. The importance of risk disclosures on cryptocurrency holdings is emphasized: Firms must better inform their stakeholders through comprehensive disclosures in financial statements. Firms utilize cryptocurrencies for various reasons such as treasury management tools or as direct sources of income. Consequently, the impact on returns and risks varies substantially.
Originality/value
To the best of the authors’ knowledge, this is one of the first studies on cryptocurrency investments in the treasury departments of publicly traded companies. The study contributes to the literature by extracting relevant information regarding company risk reporting and cryptocurrency risk at firms. The conclusions also promote firm transparency with detailed reporting of cryptocurrency holding risks.
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