Risk factor disclosures in the US Airline Industry following the COVID-19 pandemic

This study examines how airlines in the United States report risk at a difficult and uncertain time as a result of the COVID-19 pandemic. The fundamental differences between the years 2019 and 2020 are identified using Leximancer, which is used to locate the key ideas and themes addressed in the risk reporting sections. Following the pandemic, the themes that addressed generic and recurring hazards were afforded less weight than themes that highlighted risks particular to day-to-day business and the stock market. The findings also point to the need for corporations to disclose future-oriented risks more fully in post-COVID-19 reporting, with an emphasis on unpredictability, stock volatility, and operational disruption. This study adds to the body of knowledge on risk profiling, particularly as it relates to the airline business, and it offers stakeholders and investors a glimpse into the general concerns of airlines. The inherent information imbalance between management and investors is lessened and transparency is increased because of this improved understanding of the market.info:eu-repo/semantics/publishedVersio

Resource consents - intangible fixed assets? Yes, but, too difficult by far!

Recent international attempts to draft an accounting standard (IAS38) which establishes the most widely acceptable treatment for intangible assets have sparked debate among standard setters, practising accountants and media analysts. Contentious issues include differing treatment for internally and externally generated intangible fixed assets, and the requirement for the existence of a ready market for the exchange of intangible assets. A further question has been identified, that of whether the ‘right to do something’, as in permission to act, is in itself an intangible asset and if so how should it be treated. An example of this is resource consents issued under the Resource Management Act 1991. The aim of this research was to investigate the nature of resource consents as intangible assets according to ICANZ disclosure and recognition standards and to determine the level of disclosure practised by companies listed on the New Zealand Stock Exchange. Disclosure of resource consent details as non-financial information would provide a significant proportion of the benefits involved in disclosing this class of asset while limiting the costs involved in the production of the information. We conclude that the details of resource consents held should be disclosed in the annual report as additional non-financial information, or as a separate schedule of resource consents held in the notes to the financial statements as per FRS1. This view is not addressed by the requirements of IAS38 or ED87 as this 'class of intangible assets' is not discussed at all. However, it can be argued that the omission of resource consents and other similar intangibles is contrary to the spirit of the true and fair view requirement of the Financial Reporting Act and Generally Accepted Accounting Principles (GAAP)

Features of insurance risks’ classification as the basis of risk management of insurance companies in the financial crisis

Since the global financial crisis had impacted on all aspects of insurance companies' activities, it became necessary to focus on the activities of insurers and further improve the integrated risk and capital management of global and regional insurers. The purpose of the research is to analyze differences between national and European standards for risk identification in Ukrainian insurance companies, and to provide suggestions for improving the mechanism of risk insurance management. Using the method of comparative analysis and the method of content analysis of national and international solvency standards for insurance companies, the national characteristics of the types of insurance risks and the organization of the implementation of European legislation in domestic practice were determined. By the method of generalization and deduction, the key challenges for improving the effectiveness of insurance risk management in Ukrainian practice were identified. The results of the study shows the necessity to implement a unified system of insurance risk management in Ukrainian practice, which contents national and global characteristics of the functioning of insurance markets. The results of the research have significant practical implications for insurance companies and state government insurance market and can serve as a basis for improvement of theoretical principles concerning the identification of insurance risks and implementing European experience of insurance companies in national practice

Multimodal Document Analytics for Banking Process Automation

In response to growing FinTech competition and the need for improved operational efficiency, this research focuses on understanding the potential of advanced document analytics, particularly using multimodal models, in banking processes. We perform a comprehensive analysis of the diverse banking document landscape, highlighting the opportunities for efficiency gains through automation and advanced analytics techniques in the customer business. Building on the rapidly evolving field of natural language processing (NLP), we illustrate the potential of models such as LayoutXLM, a cross-lingual, multimodal, pre-trained model, for analyzing diverse documents in the banking sector. This model performs a text token classification on German company register extracts with an overall F1 score performance of around 80\%. Our empirical evidence confirms the critical role of layout information in improving model performance and further underscores the benefits of integrating image information. Interestingly, our study shows that over 75% F1 score can be achieved with only 30% of the training data, demonstrating the efficiency of LayoutXLM. Through addressing state-of-the-art document analysis frameworks, our study aims to enhance process efficiency and demonstrate the real-world applicability and benefits of multimodal models within banking.Comment: A Preprin

Three Essays on Risk Factor Disclosures

Beginning in 2005, the US Securities and Exchange Commission (SEC) proposed changes to the disclosure of risk information in the annual 10-K reports. Based on these changes, large firms in the US are required to disclose risk factors in Item 1A of their 10-K. This study contains three essays that review the current literature on Risk Factor Disclosures (RFDs) and employ empirical methods to test the usefulness of this disclosure. The first essay reviews the existing literature on RFDs and provides direction for future research. This review discusses the strengths and limitations of current research in the field and suggests further research relating to the call for comment by the SEC, the contents and topics in RFDs, the usefulness of RFDs to investors, in contractual settings, and the market in general. In the second essay, I develop a new measure of RFDs that captures managerial discretion in risk factor reporting to examine the usefulness of RFDs in the private and public debt markets. In both debt markets, I find that RFDs are informative and that the risk profile of firms is reflected in their cost of debt. In the private debt market, I find that firms with RFDs above expectation have lower cost of debt as possible reward for transparency. Similarly, firms with RFDs below expectation also have lower cost of debt, suggesting banks already know that the firms are less risky. In the public debt market, I find that firms with RFDs above expectation have higher cost of debt while firms with lower risk disclosure than expected have lower cost of debt. The results suggest public lenders take RFDs as representative of firm risk. The third essay examines the effect of corporate governance on managerial discretion in reporting RFDs and the subsequent impact on cost of debt. To examine this effect, I focus on firms that pay a penalty for perceived higher risk in the public debt market. I find evidence that corporate governance promotes transparency in reporting RFDs. I also find that risky firms with either strong or weak corporate governance have higher cost of debt, suggesting corporate governance may not be important to public lenders. The findings in this dissertation suggest that RFDs are both informative and useful to borrowers and lenders. The findings are useful to regulators in setting mandatory disclosure requirements, debt providers in evaluating firm risk, and management in implementing organizational corporate governance structures

Three Essays on Risk Factor Disclosures

Beginning in 2005, the US Securities and Exchange Commission (SEC) proposed changes to the disclosure of risk information in the annual 10-K reports. Based on these changes, large firms in the US are required to disclose risk factors in Item 1A of their 10-K. This study contains three essays that review the current literature on Risk Factor Disclosures (RFDs) and employ empirical methods to test the usefulness of this disclosure. The first essay reviews the existing literature on RFDs and provides direction for future research. This review discusses the strengths and limitations of current research in the field and suggests further research relating to the call for comment by the SEC, the contents and topics in RFDs, the usefulness of RFDs to investors, in contractual settings, and the market in general. In the second essay, I develop a new measure of RFDs that captures managerial discretion in risk factor reporting to examine the usefulness of RFDs in the private and public debt markets. In both debt markets, I find that RFDs are informative and that the risk profile of firms is reflected in their cost of debt. In the private debt market, I find that firms with RFDs above expectation have lower cost of debt as possible reward for transparency. Similarly, firms with RFDs below expectation also have lower cost of debt, suggesting banks already know that the firms are less risky. In the public debt market, I find that firms with RFDs above expectation have higher cost of debt while firms with lower risk disclosure than expected have lower cost of debt. The results suggest public lenders take RFDs as representative of firm risk. The third essay examines the effect of corporate governance on managerial discretion in reporting RFDs and the subsequent impact on cost of debt. To examine this effect, I focus on firms that pay a penalty for perceived higher risk in the public debt market. I find evidence that corporate governance promotes transparency in reporting RFDs. I also find that risky firms with either strong or weak corporate governance have higher cost of debt, suggesting corporate governance may not be important to public lenders. The findings in this dissertation suggest that RFDs are both informative and useful to borrowers and lenders. The findings are useful to regulators in setting mandatory disclosure requirements, debt providers in evaluating firm risk, and management in implementing organizational corporate governance structures

The evolution of 10-K textual disclosure: Evidence from Latent Dirichlet Allocation

Abstract We document marked trends in 10-K disclosure over the period 1996–2013, with increases in length, boilerplate, stickiness, and redundancy and decreases in specificity, readability, and the relative amount of hard information. We use Latent Dirichlet Allocation (LDA) to examine specific topics and find that new FASB and SEC requirements explain most of the increase in length and that 3 of the 150 topics—fair value, internal controls, and risk factor disclosures—account for virtually all of the increase. These three disclosures also play a major role in explaining the trends in the remaining textual characteristics

Predicting Earnings Management from Qualitative Disclosures

While analysts, customers, and lenders rely on financial disclosures to make decisions regarding a company, executives often manage the disclosed earnings. Detecting such practices is thus a concern for company stakeholders and regulators. Qualitative disclosures are an additional source of information about a company's financial situation, but executives likely attempt to hide their earnings management activity in these disclosures, as well. We use supervised machine learning models to predict earnings management by property and casualty insurers from the Management’s Discussion and Analysis filings. For this, we utilize a new algorithm that interprets textual data conditional on the reported financial situation of the company. We show that the qualitative disclosures can predict earnings management, revealing that executives are unable to remove all subliminal messages from them. The results demonstrate that qualitative disclosures can be useful for learning about the accounting choices of companies

Essays on the role of narrative disclosures in financial reporting

This thesis contains two essays on the role of narrative disclosures in financial reporting. The first essay, “Tightening rating standards: The effect of narrative risk-related disclosures” (co-authored with Argyro Panaretou and Grzegorz Pawlina), examines how narrative disclosures affect rating stringency, a phenomenon where credit rating agencies assign ratings worse than what firm fundamentals justify. Results suggest that narrative disclosures about risk and uncertainty in Form 10-K reports moderate rating stringency. Moreover, this moderating effect is more pronounced when Form 10-K reports have textual attributes that can affect how users contextualize firm risk. The second essay, “Context matters: The role of fair value footnote narratives” (co-authored with Argyro Panaretou and Catherine Shakespeare), investigates how narrative disclosures in Form 10-K report footnotes that discuss the measurement of fair values affect investor uncertainty. The findings of this essay show that longer fair value footnote narratives reduce investor uncertainty for opaque fair values, and are particularly informative to sophisticated investors. Further test results suggest that standardized and non-specific fair value narratives increase investor uncertainty for Level 3 fair values, and that fair value narratives offer incremental information to investors relative to tabulated fair value footnote disclosures. Finally, the thesis includes a technical appendix, “A guide on extracting, processing, and operationalizing Form 10-K report narratives,” on the advantages and challenges in identifying, collecting, and integrating narrative disclosure data from Form 10-K reports into archival accounting studies

Three Essays on the Governance of Cybersecurity

This dissertation consists of three interrelated essays that examine the governance of cybersecurity. The first essay synthesizes the literature on the of cybersecurity risks and incidents to identify its drivers, informativeness, quality, theoretical perspectives, and future directions. The review identifies several drivers for cybersecurity disclosure, highlights that while the level of informativeness of such disclosure meets the usefulness expectations of regulators, its quality falls short, mostly lacks an explicit theoretical framework, and uses predominantly textual content analysis and event studies. The review identifies the need for research in both governance and management of cybersecurity disclosure, thus providing the motivation for the second and third essays. The second essay examines where cybersecurity risk oversight resides within a firm’s governance structure, what determines such positioning, and how it impacts the firm’s response to a cybersecurity breach. In proxy statements, breached firms explicitly disclose oversight assignment with a wide variation, ranging from full board to a named board committee - the audit committee being the most common. Results show that board connectedness and cyber competency are positively associated with oversight assignment, full board oversight is more likely with smaller boards, and boards’ shareholding and cyber competency steer oversight to the audit committee. In the event of a breach, the presence of oversight decreases the time firms take to announce and resolve the breach, as well as reduces the recurrence of breaches. While the audit committee cybersecurity oversight discloses and resolves the breach quicker, full board oversight leads to fewer recurrences. The increase of data breaches leads firms to adopt various risk management strategies, hence the third essay examines the relation between cyber insurance disclosure and a firm’s likelihood of being target of a future breach. Using textual analysis of the risk factors disclosed in 10-K filings and comparing cyber insurance disclosures of firms that are breached to those that are not, the evidence shows that firms disclosing cyber insurance have a significantly higher subsequent probability of being breached. Furthermore, it appears that disclosing cyber insurance leads to delayed public breach disclosure but more timely breach resolution, and higher breach recurrence