Is audit committee expertise connected with increased readability of integrated reports: Evidence from EU companies

This study contributes to the recent “managerial ability” literature and analyses the impact of audit committees’ financial and sustainability expertise (i.e. combined and separately as individuals) on the readability of integrated reports. Analyses were conducted with data on a sample of European Union (EU) public interest entities (PIE) from the Examples Database of the International Integrated Reporting Council (IIRC) for the fiscal years 2014–2016 (i.e. 215 firm-year observations). Correlation and regression analyses were conducted to evaluate possible links between either financial or sustainability expertise and combined financial and sustainability expertise in audit committees and the readability of integrated reports, as measured by the Flesch Reading Ease and Gunning Fog indices. While audit committees’ financial and sustainability expertise has a positive impact on the readability of integrated reports, combined expertise has a stronger effect compared with either financial or sustainability expertise. This finding is in line with the idea that, to combine financial and sustainability information in integrated reports, audit committees need to have more diverse expertise. Companies, regulators and researchers could be significantly affected by the finding that managerial ability variables such as audit committee expertise can have a considerable impact on integrated reporting

Sustainable management compensation and ESG performance – the German case

This paper takes a closer look at sustainable management compensation and the impacton environmental, social and governance (ESG) performance in the German two tier system. The empirical quantitative study covers a sample selection of German companies listed on the Prime Standard of the Frankfurt Stock Exchange (DAX30, TecDAX, MDAX, SDAX) for the business years 2010-2014 (677 firm-year observations). In order to determine a possible link between nonfinancial indicators of management compensation and ESG performance, a correlation and regression analysis is carried out. On the basis of multiple regressions, non-financial elements (social or environmental aspects) in the management board compensation positively influence ESG performance, as determined by the Asset Four database of Thomson Reuters. This analysis is the first empirical study focusing on a connection between sustainable management board compensation, taking into consideration non-financial aspects, and ESG performance in the German two tier system. Not only users, but also public policy are affected by the findings indicating that national and European regulations on compensation could greatly influence future CSR performance and market reactions. Keywords: ESG performance, stakeholder management, sustainable compensation, corporate governance, management board, non-financial performance indicators. JEL Classification: M4

Rechnungslegung im Spannungsfeld zwischen staatlicher Gesetzgebung und privatrechtlichem Standardsetting: Risiko- und Prognosepublizität im deutschen Konzernlagebericht

Vor dem Hintergrund des durch die Finanzkrise gesunkenen Vertrauens der Öffentlichkeit in die Qualität prospektiver Unternehmensinformationen behandelt der vorliegende Beitrag den Stand und die Entwicklung der Risiko- und Prognoseberichterstattung im handelsrechtlichen Konzernlagebericht. Die Konkretisierung des Handelsrechts durch privatrechtliche Deutsche Rechnungslegungsstandards (DRS) führt zu divergierenden Regulierungsebenen, welche einen negativen Einfluss auf die Qualität der Risiko- und Prognosepublizität haben. Der Betrag würdigt zunächst die normativen, gesetzlichen Entwicklungsstufen der Risiko- und Prognoseberichterstattung sowie Reformen des Deutschen Rechnungslegungs Standards Committee (DRSC). Dem schließt sich eine Analyse bisheriger empirischer Ergebnisse zur Güte der Risiko- und Prognoseberichte bei deutschen, börsennotierten Gesellschaften an. Überdies werden potenzielle Risiken mangelnder Qualität von Risiko- und Prognoseberichten aus Sicht der externen Abschlussprüfung reflektiert, denen im Rahmen der Regulierungsentwürfe der EUKommission vom 30.11.2011 besondere Bedeutung zukommt. Es zeigt sich am deutschen Kapitalmarkt eine mehrheitliche Nichtbeachtung zentraler Inhalte der DRS 5 und 15 zur Risiko- und Prognoseberichterstattung und flankierend ein erhöhtes Prüfungsrisiko auf Seiten des Abschlussprüfers. Dies beeinträchtigt die Aussagekraft der Berichte wesentlich. Während existierendes Hard-Law zur Risiko- und Prognoseberichterstattung durch Auslegungsspielräume bislang kein ausreichendes Regulativ bildet und es dem flankierenden Soft-Law an Durchsetzungskraft fehlt, gilt es für den deutschen Gesetzgeber, diese Lücke durch eine weitergehende Konkretisierung des § 315 HGB zu schließen. Anregungen hierfür lassen sich nur bedingt im Management Commentary des International Accounting Standards Board (IASB) finden. Die Zielsetzung des DRSC, durch die Reform der Berichtsstandards (DRS 20) die Qualität der Risiko- und Prognoseberichte zu erhöhen, bleibt aufgrund der unzureichenden Sanktionierung wenig aussichtsreich.The recent financial crisis undermined the trust in prospective company information. Therefore this paper discusses the state and development of the risk and forecast reporting as part of the consolidated management report. Our analysis shows that a constellation where company law has been concretized by private law (German Accounting Standards, GAS) leads to different layers of regulation which negatively influence the quality of the risk and forecast reporting on the German capital market. Starting with the normative, legal stages of development of the risk and forecast reporting as well as with the reform by the German Accounting Standards Committee (GASC) we continue with a state of the art analysis of empirical findings on the quality of the risk and forecast reporting of German listed companies. Furthermore, we discuss risks of low quality risk and forecast reporting from the perspective of external auditing, which are highly important within the draft regulation of the European Commission (EC) from 30th November 2011. A majority of companies don’t follow central norms of the GAS 5 and GAS 15 concerning risk and prospective reporting. Additionally, we notice an increasing audit risk for the external auditor, limiting the significance of the current risk and prospective reporting. Since the existing hard-law concerning risk and prospective reporting cannot guarantee sufficient regulatory power due to limited scope for interpretation and the additional soft-law doesn't have enough strength of purpose so far there is great need for action of the German legislator to improve this situation by a more concrete form of risk and forecast reporting in § 315 HGB; among others the German legislator might find examples in other legal systems like the Management Commentary by the International Accounting Standards Board (IASB) to carry out the risk and prospective reporting. We remain skeptical, whether the objective of the DRSC to raise the quality of risk and forecast reporting by reforming the reporting standards (DRS 20) can be achieved when there are insufficient sanctions

Meta-analyses on Corporate Social Responsibility (CSR): a literature review

This paper addresses quantitative meta-analyses on corporate governance-related determinants and firms' (non) financial consequences of Corporate Social Responsibility (CSR). Legitimacy theory as our theoretical framework assumes that, through a social contract, a company must fulfil the respective society's values and expectations and gain legitimacy. We also rely on the business case argument, assuming a positive relationship between CSR and financial outcomes of the firm. This analysis focusses on 54 quantitative meta-analyses on CSR and includes a structured literature review in order to increase our knowledge, which corporate governance variables and proxies of firm's (non) financial outcome have been heavily included in archival research, and if there is an overall impact of these variables. Prior meta-analyses indicate that board independence, board gender diversity, and board size have a positive impact on CSR performance. Moreover, both CSR performance and environmental performance increase financial performance. This literature review makes a useful contribution to prior studies by summarizing the overall impact of corporate governance variables on CSR and their (non) financial consequences and by deducing recommendations for future research

Sustainable institutional investors, corporate sustainability performance, and corporate tax avoidance: Empirical evidence for the European capital market

This study addresses the influence of sustainable institutional investors (SII), based on the signatory status of the UN Principles for Responsible Investment (PRI), on corporate tax avoidance. Moreover, the moderating influence of corporate sustainability performance (CSP) is analyzed. The analyses concentrate on a European sample consisting of 1689 firm‐year observations between 2014 and 2020 (EUROSTOXX 600) embedded in a stakeholder agency theoretical framework. Correlation, regression, and robustness analyses are conducted. The results are in line with prior studies on equity ownership and tax avoidance and indicate that SII have a negative impact on tax avoidance and that CSP strengthens this negative effect. These results are robust to a battery of sensitivity analyses. SII represent a major monitoring mechanism in promoting responsible tax behavior, which is in line with other stakeholders' interests. Tax avoidance should be integrated into overall sustainability management to realize an increased firm reputation. As the European Commission initiated several regulations on sustainable finance, sustainability reporting, and tax disclosure, the empirical results stress the interdependencies between ownership structure, CSP, and tax avoidance. The study makes a major contribution to prior analyses, as this study is the first to assess the link between SII and tax avoidance and the moderating impact of CSP to urge top management to increase sustainability efforts

Schätzung des Projektfortschritts bei Fertigungsaufträgen nach FRS

Longterm construction contracts according to IAS 11 usually have to be accounted by the percentage of completion method. Several techniques (input- and output oriented) can be used for estimation of the stage of completion which will be focused in this article. The companies are obliged to apply the zero profit margin if a reliable estimation does not exist. The companies will try to avoid this method