Purpose: This paper examines how the adoption of IFRS 9 – Financial Instruments and calendar provisioning intensity have shaped banks' lending behaviour, risk exposure, and interest income across European listed banks. Furthermore, the analysis investigates whether judicial efficiency, proxied by the clearance rate, moderates these relationships. Design/methodology/approach: Using a sample of 1,304 bank-years, a panel data analysis was conducted, spanning the period from 2014 to 2023. Findings: The results show that the adoption of IFRS 9 is associated with lower loan growth, reduced risk-weighted asset (RWA) intensity, and lower loan interest income. By contrast, calendar provisioning intensity does not affect loan growth, but it significantly decreases RWA intensity and loan interest income. Moreover, judicial efficiency strengthens all baseline relationships when IFRS 9 is used as the main explanatory variable. When calendar provisioning is used as the independent variable, however, its moderating effect is limited to risk exposure and interest income. Originality/value: This study provides novel insights on IFRS 9 and calendar provisioning, unveiling that the two regulatory tools operate through distinct ex ante and ex post channels to shape banks' lending behaviour, risk allocation, and income generation. Moreover, these effects are conditioned by institutional quality, captured by judicial efficiency. Practical implications: For banks, the findings underscore the relevance of aligning credit-risk strategies not only with accounting standards but also with institutional conditions, particularly in terms of risk allocation and income generation. For policymakers, the results hint that enhancing judicial efficiency can reinforce the regulatory role of accounting and prudential measures, thus strengthening their impact on banks' strategic decisions and interest income, rather than on lending volumes.
Purpose: This study investigates whether and to what extent the social disclosure tone used in sustainability reports (herein ‘social tone') is associated with enhanced corporate social performance (CSP) before and after the entry into force of the EU Non-Financial Reporting Directive 2014/95/UE (NFRD). Design/methodology/approach: Using a sample of sustainability reports available for the constituent firms of the Italian FTSE Italia All-Share, we employ a textual analysis approach (i.e., Natural Language Processing [NLP]) to quantify the use of social tone in corporate sustainability reports and assess its relationship with CSP. Findings: Encompassing 329 firm-year observations from 2012 to 2021, we find that social tone is positively associated with CSP, thus demonstrating that the sustainability reporting narrative plays a strategic role in firms' social performance. However, social tone is negatively associated with CSP in the period post-NFRD, suggesting a regulatory ceiling effect. Originality/value: This study underscores the dual importance of regulatory frameworks and narrative disclosure in shaping CSP. It offers significant implications for policymakers and firms aiming to effectively leverage corporate sustainability practices. Practical implications: These results imply that while regulatory mandates elevate baseline CSP, the distinct contribution of social tone becomes less impactful under mandatory regulatory conditions when there is a lack of specific disclosure requirements.
Academic research has played an important role in examining the Enterprise Risk Management (ERM) process and thinking about its organizational implications and value. Collectively, this literature reframes ERM as an organizational capability whose effectiveness depends on engagement from board and C-suite leadership, integration of governance activities overseeing both strategic direction and management's risk-taking, and alignment of risks with strategic incentives. The need for ERM has grown to become a defining element of modern corporate governance, reflecting organizations' need to manage increasingly complex strategic, operational, financial, and compliance risks that are increasingly present and rapidly evolving in today's global business environment. Whereas traditional risk management focuses primarily on insurable and financial risks within siloed, functional areas, ERM represents an enterprise-wide approach linking risk identification, assessment, and response to strategic objectives and performance outcomes (COSO 2017). We believe that advances in financial regulations, especially in Europe, provide an opportunity to create a forward-looking research agenda centered on better understanding the dynamics and practices of establishing an appropriate risk culture, risk appetite and risk management disclosure credibility - three mechanisms that increasingly define ERM effectiveness yet remain underexplored in accounting research.
Purpose: This study compares stakeholder engagement in the sustainability standard-setting processes conducted by the European Financial Reporting Advisory Group (EFRAG) and the International Sustainability Standards Board (ISSB). Drawing on stakeholder theory, lobbying theory, and institutional logics, the study examines how different governance models - multi-stakeholder versus investor-oriented-shape the language, tone, and thematic focus of comment letters submitted during public consultations. Methodology: We analyse all comment letters submitted in the EFRAG consultation on the ESRS and in the ISSB consultations on IFRS S1 and IFRS S2, using Natural Language Processing (NLP) techniques – including sentiment analysis and topic modelling – to identify linguistic and thematic patterns in stakeholder feedback. Findings: The analysis reveals distinct engagement dynamics across the two consultations. EFRAG submissions display a more balanced sentiment and broader thematic orientation, while ISSB feedback emphasises financial materiality and comparability. These differences are consistent with the contrasting institutional orientations of the two standard setters. Originality: This is the first large-scale comparative study of stakeholder engagement in EFRAG and ISSB consultations, integrating NLP techniques with established theoretical perspectives to show how institutional context shapes stakeholder discourse. Practical implications: The findings suggest that differences in institutional orientation influence the type of stakeholder input received during standard-setting processes. These insights are relevant to ongoing debates on interoperability between EFRAG and the ISSB, as understanding how institutional contexts shape stakeholder discourse may inform future coordination efforts.
Purpose: This paper presents a narrative review of the research on the drivers and effects of firm herding behavior on corporate decision-making. It aims to synthesize the knowledge and develop a research agenda for financial reporting scholars. Design/methodology/approach: We identified 65 journal articles in the Web of Science and Scopus databases and coded the findings to classify the drivers and implications of firm herding behavior. We adapted the PRISMA protocol to our interdisciplinary approach. Findings: Herding is primarily driven by peer influence, uncertainty reduction, and career concerns, and often has negative outcomes such as market inefficiencies and suboptimal decisions. However, herding also has some benefits in the areas of innovation and research and development. Implementing these insights within the financial reporting domain, we identify areas for further study, such as the role of regulatory pressures and the effect of new technologies. Originality/value: This review examines the potential influence of firm herding behaviors on financial reporting, offering a new perspective on conformity in corporate communications.
Purpose: This study examines whether and how participation in the COVID-19 debt moratoria program impacted the transparency of Eurozone-listed banks. By suspending loan repayments and routine borrower monitoring - while prompting discretionary disclosures on moratoria exposures - the program introduced opposing forces on transparency. Design/methodology/approach: We analyse a sample of Eurozone-listed banks from 2018 to 2022. We identified banks holding portfolios with loans that adhere to (or do not adhere to) debt moratoria. First, we employ a difference-in-difference approach to estimate the effects of adopting the debt moratoria program on transparency. Then, we run a set of OLS panel regressions to examine how the composition of the loan portfolio affects transparency. Findings: We show that banks exposed to a larger volume of loans subject to debt moratoria experienced a reduction in transparency. Furthermore, we find that the impact on transparency is not uniform across banks but varies with loan portfolio composition. Banks with a higher share of corporate loans tend to exhibit a less pronounced decline in transparency, suggesting that lending practices influence how banks adjust their disclosure behaviour in response to regulatory interventions. Originality/value: This study sheds light on the unintended consequences of regulatory interventions during crises. While debt moratoria helped banks manage the risks associated with non-performing loans, they also came at the cost of reduced transparency. These findings suggest that regulators should carefully consider the potential trade-offs between transparency and other objectives when crafting crisis-response measures. Data availability: Financial accounting data is retrieved from BankFocus Orbis BVD; loan amounts under moratoria measures have been collected from the Eurozone-listed bank's annual reports for 2020-2022.
Purpose: This study investigates how Chief Financial Officers' (CFOs) personal characteristics affect qualitative materiality decisions during the preparation of financial reporting. While materiality is a key principle in financial reporting, the subjective nature of qualitative judgments remains underexplored, particularly from the perspective of preparers rather than auditors. Methodology: Drawing on Upper Echelons Theory (UET), the study adopts a survey-based approach targeting 160 CFOs from IFRS-compliant, European-listed companies in France, Germany, Italy, and Spain. The survey captures CFOs' weighting of qualitative materiality factors using a Likert scale. Findings: Results reveal that CFO characteristics significantly affect the integration of qualitative materiality factors. Specifically, older, longer-tenured CFOs and those with prior audit experience are more inclined to integrate qualitative factors into financial materiality decisions, reflecting a more conservative and risk-sensitive approach. Originality/value: The study shifts focus from auditors to financial statement preparers, offering novel insights into how materiality judgments are shaped at the preparatory stage. By integrating Upper Echelons Theory (UET) into the context of materiality assessments, the research introduces a behavioral perspective that enhances the understanding of how executive characteristics shape accounting judgments. This approach expands the boundaries of behavioral accounting literature and provides new insights into the subjective dimensions of financial statement preparation. Practical implications: Findings have implications for standard setters, regulators, and corporate governance by emphasizing the role of CFO characteristics in ensuring consistent and transparent financial reporting. Understanding these behavioral dynamics can inform better training, policy design, and oversight mechanisms.
Purpose: The paper investigates the circular economy (CE) disclosure released by companies in response to the issuing of CE-related policies since the CE Action Plan 2015, using the institutional view of legitimacy theory. Design/methodology/approach: The study adopts a multiple case study methodology by content-analyzing the CE disclosure released by all listed Italian agri-food companies in their sustainability reports in the period 2016-2021. Findings: The findings show that Italian agri-food companies released low levels of CE disclosure. This result suggests a lack of strategic relevance attributed to the CE issue or the absence of CE-related standards to rely upon. The results could also reveal companies' scarce implementation of CE business models. The findings also show an increase in both the quantity and quality of CE disclosure released in response to the issuing of a public CE-related policy or framework, supporting the theoretical arguments of the institutional view of legitimacy theory. Originality/value: In light of the worldwide increasing attention toward environmental issues and the CE paradigm, particularly in the food industry, this study is the first to investigate the CE disclosure released by agri-food companies in response to the issuing of CE-related policies and voluntary frameworks. Practical implications: The findings show that institutional pressure through the issuing of new CE-related policies and voluntary frameworks promotes increased CE disclosure by companies, suggesting that implementing both Directive 2022/2464/EU and the EFRAG standards would further encourage the release of CE disclosure.
Purpose: This study investigates the relationship between conditional conservatism and the market reaction of firms' stock prices in Mergers and Acquisitions (M&A) operations. Design/methodology/approach: Leveraging a sample of 224 U.S. listed companies and event study methodology, as well as regression models, this study analyses 735 M&A deals from 2010 to 2018. Findings: We find that conditional conservatism is positively associated with cumulative abnormal returns of acquiring firms post-M&A announcement; moreover, one of the drivers of this result is the information asymmetry channel. Additional analysis also shows that while acquirers with high conditional conservatism experience a positive reaction to M&A announcements, there is no significant reaction for acquirers with low conditional conservatism. Originality/value: Our main results provide evidence that a high conditional conservatism limits the reduction of acquiring firms' stock prices post-announcement of M&A. Our additional analyses show that low conditional conservatism does not exert a significant negative impact on acquiring firms' stock prices post-announcement of M&A, as would be expected. Practical implications: This paper may be useful for both investors and practitioners since it offers interesting insights on how to deal with accounting policies and benefit from M&A transactions. Indeed, if they are informed on how conditional conservatism exerts a role on stock prices, they are less likely to engage in value-destroying M&A transactions. In addition, our results may interest standard setters interested in the role of the conservatism principle under the Generally Accepted Accounting Principles.
Purpose: This study examines how firms with no connections to Mafia organiza-tions respond to the tax avoidance and earnings management practices of mafia-con-nected peers, focusing on both industry and geographic spillovers. While prior re-search has documented the financial practices of mafia-connected firms, little is known about how their presence influences otherwise "clean" firms. Design/methodology/approach: We leverage a proprietary dataset from the Italian Internal Intelligence and Security Agency (AISI), which records individuals under investigation for mafia-related crimes. Using a large sample of private firms in the Lombardy region from 2006 to 2013, we examine how exposure to mafia-connected peers - measured at the industry and geographic levels - affects firms' tax avoidance and financial reporting choices. Findings: We find that greater mafia presence is associated with lower effective tax rates among unconnected peers. Geographic proximity to mafia-connected firms is associated with increased tax-related restatements and income-decreasing abnormal accruals. We also document that unconnected firms in high-crime provinces show stronger tax avoidance responses, suggesting that broader criminal exposure ampli-fies the influence of mafia-connected peers. Originality/value: This study provides the first large-sample evidence of how orga-nized crime influences non-criminal firms' tax and reporting strategies. Our findings contribute to research on financial reporting and tax avoidance spillovers. Future studies could explore broader implications, including investment and employment decisions. Practical implications: Regulators may benefit from enhanced anti-money launder-ing enforcement and transparency measures to curb organized crime's economic in-fluence. Firms in high-risk regions should strengthen governance and auditing prac-tices to mitigate exposure.
Purpose: This study investigates the relation between ownership structure and fi-nancial default in private firms, focusing on two key dimensions: ownership concen-tration - the share held by the top three shareholders – and institutional ownership – the share held by institutional investors. Design/Methodology/Approach: The empirical research augments traditional de-fault prediction model with ownership structure indicators, using an unbalanced panel of 28,562 Italian private firm-year observations from 2012-2019. Findings: The results show that ownership concentration has a significant positive association with default likelihood, while institutional ownership reduces the prob-ability of default. Further, I find that default prediction models including ownership structure variables have a higher predictive ability than the traditional default pre-diction model. Originality/Value: This study contributes to the literature on ownership structure and financial default by providing empirical evidence on private firms, a setting where market-based predictors are unavailable. It shows that ownership concentra-tion and institutional ownership systematically influence financial stability and im-prove default prediction accuracy. Practical implications: This study suggests that ownership structure indicators can be integrated into credit risk assessment and early warning systems, as promoted by recent European Union insolvency frameworks, to strengthen monitoring of finan-cially distressed private firms.
Purpose: Economic uncertainty affects mergers and acquisitions (M&As); however, there is limited evidence regarding its effect on the propensity to acquire privately held versus publicly traded companies, as well as how institutional factors influence such decisions. I hypothesize that economic uncertainty and financial market devel-opment influence the preferences for the type of acquisition targets. Design/methodology/approach: Using a sample of European M&A transactions and employing both measures of economic uncertainty and the uncertainty spike re-sulting from the pandemic, as well as the degree of financial market development, I test whether these factors are associated with the frequency of acquisitions involving privately held companies, further distinguishing between stand-alone private firms and subsidiaries. Findings: My analysis indicates that, under market uncertainty, acquisitions of pub-licly traded company diminish, while transactions involving privately held compa-nies increase. Furthermore, I demonstrate that the COVID-related spike in uncer-tainty generates an additional effect beyond general economic uncertainty. I also find that the positive association between uncertainty and acquisitions of privately held companies particularly applies to stand-alone private firms rather than subsidiaries. My findings also reveal that acquisitions of private companies are more likely in financially developed markets. Originality/value: This study contributes to the literature on the effects of economic uncertainty on M&As by highlighting the importance of uncertainty in shaping the relative frequency of acquisitions involving private versus public companies, while also emphasizing the significance of institutional factors in influencing such prefer ences. Moreover, my research enhances the understanding of privately held firms, whose specificities have largely been neglected in the academic debate.
Purpose: Tax strategy affects earnings. However, little is known about how tax incen-tives affect accounting quality. Existing research suggests that firms are more likely to engage in earnings management (EM) when tax costs are lower and when tax minimi-sation motives prevail. We hypothesise that tax incentives mitigate EM activities. Design/Methodology/Approach: We exploit the implementation of the Hyper-De-preciation provision, a tax investment incentive provision within the Italian Industry 4.0 Plan. Our analysis examined private firms' EM practices through panel regression and a difference-in-differences approach, comparing behaviour before and after the tax incentive enactment using a matched sample of Austrian firms as a control group. Findings: Our analysis indicates that private firms' overall EM activity decreases fol-lowing the enactment of the incentive, with varying responses dependent on govern-ance structures. Firms that are closely held, i.e., managed by an owner-manager, re-main largely unaffected by the financial reporting implications of the tax incentive. Conversely, firms that are not closely held, experiencing different levels of stakeholder pressure, demonstrate a consistent reduction in earnings manipulation across various EM metrics. Originality/value: We provide novel insights into how tax incentives can influence accounting quality, an important yet understudied aspect of corporate taxation. We contribute to the accounting literature by demonstrating how governance structures can significantly influence firms' responses to tax incentives in terms of EM. Practical implications: By highlighting the unintended consequences of tax invest-ment incentives, these findings have implications for policymakers when designing tax stimulus measures.
Purpose: This explorative study investigates the determinants of auditor choice in small private firms, leveraging an Italian regulatory change from 2023 mandating audits while allowing selection among different auditor types. It examines how au-ditee characteristics influence small entities' choice between individual auditors, au-dit firms, and Big4 firms. Design/methodology/approach: Using a large cross-sectional data set of Italian small private firms subjected for the first time to mandatory audit, this study esti-mates a set of regression models to identify the client firm-level drivers of auditor selection. Findings: The results show that auditee characteristics such as firm size and com-plexity increase the likelihood of appointing an audit firm, particularly a Big4 one. At the same time, some governance-related variables (i.e., managerial ownership, ownership dispersion, external financing) are associated with selecting an audit firm. Most auditees opt for individual auditors, even in contexts where stronger external monitoring would seem more necessary. Originality: This study offers novel evidence on auditor choice in a setting where the appointment is mandatory, but firms can choose among different auditor types, highlighting how firm-specific characteristics and governance dynamics particular to private firms shape auditor choices. Practical implications: Oversight bodies may benefit from these results. The clear preference for individual auditors, even in contexts where stronger monitoring mechanisms could help in coping with agency problems, suggests that maintaining con-sistent quality standards across the market is important. Robust public oversight mechanisms applying uniformly to all auditors are essential to ensure audit quality and strengthen stakeholder confidence.
