Mounting local government debt (LGD) harms local firms through financing crowding-out and intensified government debt pressure-shifting. In response, firms may enhance conditional accounting conservatism (AC) either to facilitate financing or to shield themselves from greater government interventions. Using Chinese data, we find that higher LGD accelerates firms’ recognition of bad news, indicating greater conditional AC. Our evidence supports the shielding channel: firms use conditional AC to mitigate increased government debt pressure-shifting through higher taxation and heavier social burdens. Specifically, the effect is more pronounced among firms with greater exposure to government agencies, those facing heavier tax burdens, and those absorbing more social obligations. While this strategy effectively mitigates subsequent administrative interventions, it also raises the likelihood of government procurement contract terminations and involuntary managerial turnover. Managers therefore face a trade-off between the benefits of circumventing government debt pressure-shifting and the costs of weakening political capital. Overall, our study highlights conditional AC as an effective safeguard against excessive government interference and identifies LGD as a critical institutional driver of conservative reporting in emerging economies.
The COVID-19 pandemic profoundly disrupted global economies, social structures, and public finance systems, exposing vulnerabilities in essential services and exacerbating inequalities. This special issue explores the intersection of sustainability imperatives and the reshaping of public finance and accounting in the post-pandemic world. The contributions critically examine whether, and how, accounting can address the challenges posed by the pandemic while advancing the United Nations Sustainable Development Goals. Key topics include the role of accounting discourses in reshaping stakeholder relationships through accountability narratives, the integration of SDGs into public financial management, the impact of economic fluctuations on healthcare budgeting, the financialization of housing policy, trade credit dynamics during crises, the evolution of social investment practices, and the role of foreign direct investment in infrastructure development. In this editorial, we discuss how the articles highlight both the transformative potential of accounting and financial management in fostering sustainable development, as well as tensions in accounting’s role in perpetuating inequalities and democratic deficiencies in ‘official’ accounting narratives. We also outline areas for further research, including greater depth and diversity in studies of public accounting practices, exploration of novel accounting technologies in making outcomes and systemic issues more visible, challenging the epistemic authority of unsustainable practices and collaborating with communities to build authentic alternatives.
We analyse the extent to which companies’ financial statements and audit reports affirm compliance with IFRS as issued by the IASB (IASB-IFRS) to add clarity for international users of financial information. We examine the annual reports of large companies of five major countries that have locally-endorsed versions of IFRS (Australia, France, Germany, Spain and the UK). We find that affirmations of IASB-IFRS in financial statements are rare in the EU but universal in Australia. In the UK, roughly 40 percent of FTSE-100 companies affirm IASB-IFRS, but there are seven different types of affirmation. Audit reports contain fewer affirmations of IASB-IFRS than do financial statements. They are very rare in the EU. Australian audit reports once contained such affirmations, but they are now almost non-existent. Our data strongly support a hypothesis that US listing explains affirmations of IASB-IFRS. We make policy recommendations for various types of regulator and for companies.
Pricing is commonly portrayed as an economically rational practice responsive to competitive conditions; however, the persistence of cost-plus pricing during institutional transition remains insufficiently explained. This study examines how such persistence is reproduced amid economic liberalisation. Drawing on ter Bogt and Scapens’ (2019) concept of situated rationality, pricing is conceptualised as an organisational practice shaped by historically embedded calculative artefacts, approval infrastructures and accountability arrangements. The analysis is based on an in-depth qualitative case study of a manufacturing firm, drawing on 24 semi-structured interviews, more than 40 organisational documents and extensive field observations. The findings show that, despite intensified market-oriented evaluation—manifested in import competition, benchmarking and profitability pressures—authorised price formation remained anchored in cost-recovery reasoning. This persistence is explained through three interrelated dynamics: differential institutionalisation, which accorded cost-recovery reasoning greater procedural authority within pricing infrastructures; recursive material reinforcement, whereby deteriorating market conditions increased calculated unit costs under absorption costing and raised the internally defensible price floor; and structured situated agency, whereby managerial judgement remained reflexive yet constrained by accounting artefacts and approval routines. The study contributes by demonstrating how accounting infrastructures mediate organisational responses to liberalisation and condition the relative authority of competing rationalities during regime transition.
This paper extends understandings of accounting infrastructure by explaining how it can scale net zero transitions. Typically thought of as relatively stable assemblages of calculative devices and related practices, we show how the dynamic assembly and mobilisation of an accounting infrastructure coordinates and controls organizational and system-wide change. We undertook a 16-month study of the Innovation Catalyst: a not-for-profit, non-digital platform designed to convene small and medium-sized enterprises (SMEs) to catalyse net zero transitions. We followed platform managers and users through their co-creative process of accounting infrastructure assembly and extension, as they drew on the infrastructure's increasing, heterarchical calculative potential to extend net zero oriented practices, outcomes and impacts across supply chains, communities, and wider business and policy networks. We reveal and theorize two distinct forms of accounting infrastructure layering: layering for sustainability and layering for scale; further, we show how this layering of accounting infrastructure is implicated in the dynamics of scaling: scaling-out, scaling-up and scaling-deep the impacts of the platform and its users.
Supply-chain relationships have become an increasingly important research topic in accounting and finance, driven by recent disruptions including pandemics and geopolitical instability. We document this growing prominence through the marked rise in academic publications. Despite increased attention, significant gaps remain in understanding the mechanisms through which informational frictions can be mitigated and how firms strategically respond to supply-chain risks. To address these gaps, we propose an organising framework centred on two interconnected problems. The first concerns information asymmetry between trading partners and the mechanisms that can reduce it. The second addresses risk transmission along supply-chains and the strategic responses firms adopt to manage such exposures. We show that these problems also underpin emerging research on sustainability in supply-chain contexts and identify promising directions for future research.
The information processing costs faced by external investors may provide corporate insiders with a comparative advantage. We examine how the phased introduction of the eXtensible Business Reporting Language (XBRL) mandate, designed to lower investors' costs of processing public disclosures, affects insiders’ trading profitability. We find that opportunistic insider sales, but not purchases, become significantly less profitable following the first wave of mandatory XBRL adoption. This decline is consistent with a reduced number of insider sales preceding 10-K filings that convey unfavorable news, as well as with a general fall in insider trading activity and profitability across all three mandate waves. Further analysis reveals that the effect is most pronounced among firms with high levels of ex-ante information asymmetry proxied by a greater fraction of investors with less processing ability, less readable financial reports, and wider bid-ask spread, supporting the interpretation that reduced information asymmetry functions as the underlying channel. Our results remain consistent across a range of robustness checks.
Cross-border mergers and acquisitions (M&As) constitute the primary channel of foreign direct investment but involve substantial risk due to informational frictions, institutional differences, and the liability of foreignness. This study examines how accounting regulation affects such high-risk investment decisions by exploiting the adoption of Financial Accounting Standard (FAS) 123R, which required firms to expense stock options at fair value and thereby altered CEO risk-taking incentives. Using a difference-indifferences design that leverages crosssectional variation in firms' exposure to the accounting reform, we document a significant decline in cross-border M&A activity following FAS 123R. The reduction is concentrated in settings where investment risk is higher, including acquisitions in culturally distant or civil-law countries, as well as among weakly governed firms and non-diversifying deals. Importantly, despite fewer acquisitions, firms more affected by FAS 123R undertake higher-quality crossborder M&As, as reflected in higher announcement returns. Overall, the findings provide causal evidence that accounting-driven changes in executive compensation reshape managerial risk-taking and improve the quality of firms' international investment decisions.
We examine how bank-issued green bonds affect the environmental characteristics of lending portfolios. We develop a framework in which green bond issuance lowers banks’ funding costs but increases the cost of misalignment between the “green” label and the environmental profile of their loan portfolios. Because existing lending relationships involve switching costs and information rents, banks may respond by adding visibly green borrowers while retaining carbon-intensive legacy clients. This selective adjustment increases the dispersion of outcome-based environmental performance within the lending portfolio. Using data on 725 banks across 44 countries and regions from 2007 to 2022, we find that green bond issuance is followed by higher average environmental ratings but weaker and more dispersed outcome-based environmental performance. Instrumental-variable estimates exploiting staggered entry into the Network for Greening the Financial System (NGFS) confirm the divergence between score-based and outcome-based measures. The divergence is stronger where institutional investor monitoring and regulatory scrutiny are greater. Overall, the evidence suggests that green bond commitments reshape lending portfolios through selective adjustment rather than broad-based environmental improvement.
This study examines how firms engage in impression management in earnings-related disclosures on Weibo and how regulatory communication influences such practices. Using a large sample of Chinese A-share listed firms from 2010 to 2019, we find that firms with improving performance are more likely to disclose earnings-related information and to emphasise favourable earnings news through the inclusion of quantitative data, net profit figures, and comparative performance information, whereas firms with declining performance disclose less information. However, following the China Securities Regulatory Commission's statement strengthening oversight of social media disclosures, these impression management practices decline significantly. Cross-sectional analyses indicate that the regulatory effect is most pronounced among state-owned enterprises, firms with stronger internal controls, firms with higher levels of Weibo engagement and larger follower base, and firms subject to stronger external governance mechanisms. Overall, the findings suggest that regulatory scrutiny constrains impression management more effectively when firms face greater detection risks and more severe penalties. This study contributes to the literature on impression management in social media disclosure and demonstrates how regulatory interventions shape corporate communication practices, offering practical insights for regulators, stakeholders, and corporate managers.
This editorial introduces a special issue of the British Accounting Review on alternative finance, comprising four papers on venture capital social networks, the relationship between corporate social responsibility and corporate hedging, regional patterns in private equity buyout pricing and performance in the United Kingdom, and the internationalisation of equity crowdfunding platforms. We position the four contributions within the broader literature on information asymmetry, the geography of capital allocation, and the role of environmental, social, and governance (ESG) engagement as a financial signal. We then discuss policy implications relating to institutional reform, regional finance policy, crowdfunding regulation, and mandatory ESG disclosure, and outline an agenda for future research, with attention to data limitations, identification, and international generalisability.
The assurance of sustainability and CSR reporting has emerged as an important mechanism for enhancing the credibility and reliability of non-financial disclosures. Although assurance practices have expanded rapidly, academic evidence regarding their quality, determinants, and consequences remains fragmented and is still evolving. This paper synthesizes the historical development of CSR assurance, outlines its core objectives, evaluates existing evidence on assurance quality, and identifies key gaps and avenues for future research. In doing so, we offer a critical assessment of what is known and what remains unknown about CSR assurance as it gains prominence in corporate accountability and the functioning of capital markets.
This paper investigates whether customer firms opportunistically engage in real earnings management (REM) following litigation events involving their major suppliers. Using a large language model (LLM) to parse court judgments, we construct a novel dataset matching Chinese listed firms to their major suppliers' litigation from 2015-2020. We find that customer firms significantly increase REM after following the major supplier's litigation publication. To establish causality, we use production safety accidents at supplier locations and judicial efficiency in supplier jurisdictions as instrumental variables for exogenous shocks to litigation risk. Further, these results are driven by managerial opportunism through two primary channels: the diversion of stakeholder attention away from the customer firm and the customer's enhanced bargaining power over its distressed supplier. We find no evidence that the effect stems from responses to genuine operational uncertainty. The effect is concentrated in firms characterized by high managerial myopia, prior regulatory violations, poor operating performance, and non-state ownership. Crucially, we document a powerful asymmetry—customer litigation does not trigger supplier REM—which reinforces our causal interpretation. Our findings demonstrate that supply chain partner distress creates systematic opportunities for financial misreporting, identifying a novel behavioral spillover within corporate networks.
While traffic congestion poses a significant risk to companies’ operations, little is known about how capital providers respond to such risk. Our study fills the knowledge gap by investigating the impact of traffic congestion on the cost of debt capital. We find that lenders impose stricter price and non-price loan provisions on borrowers exposed to higher levels of traffic congestion. We further document that lenders respond to traffic congestion with more intensive use of covenants and performance pricing grids that trigger an ex-post transfer of control rights rather than those that align interests. These findings, supported by a series of additional analyses, suggest that lenders are concerned about the operational risk of traffic congestion. We also find that traffic congestion impairs lenders’ monitoring ability. Specifically, traffic congestion hinders lenders’ monitoring advantages from the proximity to borrowers. Meanwhile, lenders with superior monitoring ability are better at protecting themselves against traffic congestion.
Under Statement of Financial Accounting Statement (SFAS) 131, segment asset information is not required to be disclosed if a reason for non-disclosure is provided (Financial Accounting Standards Board, 1998). Since SFAS 131 was issued, there has been a noticeable declining trend in segment asset disclosure, from 97% in 1997 to 72% in 2020. Therefore, it is crucial, and an opportune time, to explore the impacts of firms discontinuing segment asset disclosure—in particular, the effects on financial report users' decision-making processes—to evaluate the effectiveness of SFAS 131. Using a stacked difference-in-differences analysis combined with a propensity score matching approach, this study shows that a higher level of analyst earnings forecast errors and dispersion exists for firms that have discontinued segment asset disclosure compared with firms that maintain it. Further, the detrimental effect of ceasing segment asset disclosure on analyst earnings forecast accuracy is more pronounced for firms with more complex structures, more opaque information environments and suboptimal performances. Our findings suggest that regulatory flexibility in 'management approach' standards may inadvertently compromise the information environment and impair users’ decision-making, highlighting the need for standard-setters to reconsider the balance between managerial discretion and prescriptive disclosure requirements in segment reporting.
Increasingly, in their annual reporting, companies are required to disclose climate-related sustainability risks and opportunities, including their governance and the effects on strategy and finance. While this generates legitimate need for accountants' knowledge, skills, and capabilities about the entailed accounting practices, evidence suggests some levels of unpreparedness by the profession. Accordingly, our study explores the role of accounting academics in adapting university accounting curricula to prepare future accounting professionals. Based on interviews with 30 academics in Australian and New Zealand universities, findings show curricula adaptations are currently being achieved by entrepreneurial educators whose actions are underpinned by their commitment to societal and regulatory expectations for climate-related sustainability. Participants' belief in the cognitive and moral legitimacy of adapting curricula to prepare students for professional accounting roles is sustaining their actions. Our focus on the micro-foundations of change show academics’ agency has two dimensions: reflective evaluation of their current position (cognitively valuing the need for accounting education to develop requisite skills), and pre-reflective consideration of their own moral and ethical values (derived from prior knowledge and commitments). As such, some structural constraints affecting change to accounting curricula are being obviated by enabling conditions associated with global imperatives for climate-related sustainability.
This paper investigates the relationship between different types of media coverage and audit fees. We theoretically and empirically distinguish between the media's information and monitoring role resulting from impartial, neutral coverage, which is associated with lower audit risk, and the media's attention-grabbing role resulting from sensational or biased reporting, which is associated with higher auditor business risk. Using data from US public firms between 2003 and 2021, we find that client firms with large amounts of neutral media coverage pay lower audit fees, consistent with the neutral coverage hypothesis, whereas those with large amounts of (especially negatively) toned media coverage pay higher audit fees, consistent with the attention-grabbing hypothesis. We find media's attention-grabbing effect to be stronger for client firms of large auditors and firms with more analysts following and high institutional ownership. Our channel analyses suggest that auditors adjust risk assessments and expected audit effort in response to media coverage. Overall, the findings indicate diverse effects of different types of media coverage on audit fees and highlight the complex interplays among auditors, media, and major market participants.
Over the past decade, the Chinese government has reformed its commercial system to streamline administration, decentralize authority, and enhance regulation, services and oversight of commercial activities, which aims at improving the business environment and promoting sustainable economic development. Digital technologies have been integrated into the regulatory reform. We examine whether this reform affects corporate investment efficiency. Using a stacked difference-in-differences research design, we find that the reform enhances corporate investment efficiency. This enhancement is driven by more efficient government administration, increased transparency of commercial information, and stronger regulatory monitoring of commercial activities. The positive impact on investment efficiency is more pronounced for non-state-owned enterprises, firms in regions with higher market segmentation, and those facing greater commercial uncertainty. Further analysis reveals that the reform curbs both corporate underinvestment and overinvestment. Overall, our findings highlight the pivotal role of commercial reform in enhancing corporate investment efficiency, and provide valuable insights for policymakers worldwide in designing more effective regulatory frameworks to support business investment.
This study examines the impact of analyst attention to ESG issues during earnings conference calls on firms’ future ESG incidents. Using a large language model fine-tuned for ESG contexts, we find that ESG attention is negatively associated with the number of future negative ESG incidents, suggesting that analyst attention to ESG encourages firms to proactively mitigate potential ESG risks. Moreover, when analysts focus on a specific ESG topic, firms are more likely to reduce incidents related to those particular topics. This relationship holds regardless of whether the ESG topic is classified as material or non-material under SASB materiality guidelines. The effect is stronger when analyst questions convey a negative tone and in settings with higher reputational pressure, stronger governance, or higher managerial ability, indicating that both external and internal factors shape the effectiveness of analyst scrutiny. We also find reductions in both new and recurring ESG incidents, as well as in their severity. Collectively, our findings highlight the role of analysts as external monitors that influence corporate ESG behavior.
This study investigates whether business strategy influences firms' holistic Environmental, Social, and Governance (ESG) performance, and which strategic orientation has the greatest impact both across and within the distinct ESG pillars. Drawing on the Miles and Snow (1978) business strategy typology, we analyse a panel of 6408 firm-year observations mostly drawn from the US. Our findings reveal a positive association between business strategy and aggregate ESG performance. Specifically, firms adopting a Prospector strategy exhibit significantly higher ESG performance relative to Defender firms, with notable advantages in the Environmental and Social dimensions. This differential, however, does not extend to the Governance pillar, likely due to the homogenisation of governance practices across industries. Importantly, even firms operating under substantial financial constraints or within environmentally sensitive sectors can enhance their ESG outcomes through a Prospector strategic orientation. These insights have significant implications for firms navigating evolving sustainability reporting regimes, particularly amid the growing adoption and implementation of mandatory IFRS Sustainability Standards. For managers and stakeholders, our results emphasise the importance of understanding both the intended and unintended consequences of strategic choices on ESG performance and demonstrate how strategic orientation can shape a firm's capability to meet emerging sustainability compliance demands.
