Environmental incentives for and usefulness of textual risk reporting: evidence from Germany

Drawing on distinct German institutional characteristics related to cultural, legal, financial, and regulatory features, this paper investigates the extent to which environmental incentives influence German non-financial firms in revealing risk information in their annual report narratives. The paper also examines whether risk-related disclosure (aggregate risk reporting and the tone of news about risk) is useful by investigating its impact on market liquidity and investor-perceived risk. We find that the decision to provide or withhold such risk information is less likely to be significantly associated with environmental incentives. Among those incentives, we find that German firms are significantly influenced by their underlying risks rather than other factors including ownership structure, capital structure, external equity finance, and borrowing. The decision to disclose is likely to be influenced by the size of the firm and whether or not it produces lengthy annual reports. The results also suggest that the impact of aggregate risk reporting levels was not observable until a distinction was made between bad and good news about risk. Specifically, we find that the German market tends to positively (negatively) price good (bad) news about risk by either improving (worsening) market liquidity through removing (creating) information asymmetries, or reducing (increasing) investor-perceived risk

Examining the Link Between Religion and Corporate Governance: Insights From Nigeria

This article examines whether the degree of religiosity in an institutional environment can stimulate the emergence of a robust corporate governance system. This study utilizes the Nigerian business environment as its context and embraces a qualitative interpretivist research approach. This approach permitted the engagement of a qualitative content analysis (QCA) methodology to generate insights from interviewees. Findings from the study indicate that despite the high religiosity among Nigerians, religion has not stimulated the desired corporate governance system in Nigeria. The primary explanation for this outcome is the presence of rational ordering over religious preferences thus highlighting the fact that religion, as presently understood and practiced by stakeholders, is inconsistent with the principles underpinning good corporate governance

Let\u27s keep \u27comply-or-explain\u27 in corporate governance burning bright

The UK’s comply-or-explain system of corporate governance, introduced in 1992, has been widely admired and imitated, but it’s not without its critics; there is room for improvement, while retaining the Code’s spirit of flexibility

A typology for exploring the quality of explanations for non-compliance with UK corporate governance regulations

Companies not complying with the UK Corporate Governance Code are required to provide explanations for non-compliance. This is the capstone of the 'comply-or-explain' system. There are no regulations about the content of those explanations, leaving shareholders and others to judge their appropriateness. The study develops a typology to assess the quality of corporate governance explanations for non-compliance of UK FTSE 350 companies based on seven quality characteristics. Code breaches generating the non-compliance explanations for analysis are identified for two accounting periods (2004/5 and 2011/12) relating to the 2003 and 2010 Codes (data for 2011/12 in brackets). There were 204 (125) non-compliant companies, 537 (253) Code breaches and 438 (208) explanations for non-compliance, an average of 2.6 (2.0) Code breaches and 2.2 (1.7) explanations per non-compliant company. Although compliance increased over the period examined, explanations were found to be of variable quality. Results suggest that companies need to improve the quality of their explanations if they are to be useful to users, notably location, complexity and specificity of explanations. There are also important questions raised about the work of auditors and their apparent silence. Companies are being encouraged to move towards compliance. We argue that this is against the 'comply-or-explain' philosophy which accepts that ‘one size does not fit all. Better quality of explanation is more important than compliance and thus companies may be unwittingly heading in the wrong direction

Let's keep 'comply-or-explain' in corporate governance burning bright

The UK’s comply-or-explain system of corporate governance, introduced in 1992, has been widely admired and imitated, but it’s not without its critics; there is room for improvement, while retaining the Code’s spirit of flexibility

Microsoft Word - Revised CPA Submission 1019 May 15 2008.doc

Abstract Sociology and anthropology are especially valuable in providing a critical understanding of the risk-related implications of modernity. There has, however, been relatively little discussion of the work of Mary Douglas within accounting although her pioneering writings in the area of risk have been highly influential. This paper uses Douglas' cultural theory of risk to provide an alternative perspective on the demise of Enron and Andersen. The failure at Enron is interpreted through the gridgroup model and analysed as a series of events that threaten to destabilize established cultures. Accounting is thus construed as an activity that exists on the margins of boundaries. There are two important conclusions drawn from the analysis. First, as the worldviews of both the individualist and hierarchical cultures became threatened by the ensuing crisis they collaborated to ensure their perpetuation. This also averted individuals from becoming susceptible to recruitment by subversive egalitarian groups. Second, the individualistic culture of Andersen shaped practices within the firm weakening its ability to act as a gatekeeper and therefore public accounting firms need to modify their cultures if they are to police the margins effectively

Transparency and the disclosure of risk information in the banking sector

The essence of any bank is that it is a risktaking enterprise and therefore, as a part of good corporate governance, it is expected that relevant risk-related information will be released to the marketplace. Currently, however, it is suggested that there is insufficient disclosure of risk information by banks and as a consequence Pillar 3 of Basel II lays out a comprehensive framework for risk disclosures with the intention that this will enable stakeholders to assess the risk pro.le of a bank. In addition, one outcome of the UK company law review is that there will be a requirement for all quoted companies to discuss risks and uncertainties within the annual report. This paper analyses these risk disclosure requirements while also reviewing current bank disclosure practices within the context of this risk disclosure debate. The important issues of disclosure of forward-looking risk information, location of disclosure and proprietary risk information are also discussed together with their implications for the proposed disclosure requirements.Accounting, Annual report, Basel II, Disclosure, Risk

Examining risk reporting in UK public companies

Purpose – This paper examines risk information disclosed by UK public companies within their annual reports. The types of risk information disclosed are analyzed and the authors examine whether a relationship exists between company size or level of risk and risk disclosure totals. Design/methodology/approach – No prior empirical studies of the risk information content of annual reports have been undertaken. To analyze the risk disclosures, a sentence-based approach was used. Findings – Overall the results indicate that the companies sampled are not providing a complete picture of the risks they face. There is minimal disclosure of quantified risk information and a significant proportion of risk disclosures consist of generalized statements of risk policy. More usefully directors are releasing forward-looking risk information. The principal driver affecting levels of risk disclosure is company size and not company risk level. Research limitations/implications – Further risk disclosure research is possible in many different areas. Cross-country studies could be undertaken as could risk disclosure studies within specific industry sectors. A limitation of the sentence-based methodology is that it does not measure the quality of the risk disclosures and therefore different methods may be adopted in future studies. Practical implications – Professional bodies attempting to improve risk reporting have not convinced directors of the benefits associated with greater voluntary risk disclosure. In the UK this has led to a mandatory requirement to provide better risk information being forced upon companies through legislation enacted by the UK government. Originality/value – The area this paper researches is of particular importance given recent accounting scandals that have occurred. No previous risk disclosure studies have been published, therefore this exploration is also valuable in linking risk management and transparency.Corporate governance, Disclosure, Financial reporting, Risk management, United Kingdom

A note on comparative language interrogation for content analysis : the example of English versus German

This paper raises and explores a number of issues relevant to the content analysis of voluntary disclosures in general but international content comparisons in particular. Using the example of voluntary environmental narratives in the annual reports of the top 30 British and German companies for the year ending 2002, content analysis was undertaken to determine the validity of volumetric comparison by recording word and sentence counts using both German and English translations of disclosures published by the German companies themselves. The study had two main outcomes. First, it found that the English rendering of German environmental narrative is generally accurate (suggesting that companies do not discriminate by reporting jurisdiction) and is most commonly, but not exclusively, translated at the coding resolution of the sentence. Second, the study concludes that German–English comparative international volumetric content analyses should be carried out using same language versions where possible due to differences in syntactic and textual renderings in the two languages yielding unrepresentative volumetric separation statistics

Content analysis in environmental reporting research: enrichment and rehearsal of the method in a British-German context

A number of previous studies have utilised content analysis as a method for analysing environmental reporting. In this study, a method, devised by the authors and capable of both mechanistic and interpretative narrative interrogation is presented. By adopting a matrix approach to environmental narratives, multiple information characteristics can be taken into account when analysing disclosures. The method developed in this paper (termed CONI or consolidated narrative interrogation) provides a measure of information diversity, information content and volume. The content analysis instrument facilitates data capture inaccessible to less penetrating research instruments. The joint objectives of this paper are to report on the development of CONI and to demonstrate its capacity to extend the capability of content analysis methods. In particular, the paper demonstrates the utility of CONI through the application to a matched sample of 14 pairs of companies from the United Kingdom and Germany over a period of five years. Findings include the observation that information diversity has broadened over time. The study also notes the dominance of narrative over numerical content with little disclosure containing comparative or contextualised numerical information. There were few significant differences in environmental reporting between the two countries. The paper concludes with suggested opportunities for future research using the CONI research instrument