Guo et al. ( 2026 ) investigated whether country-level generalized trust is associated with the provision of auditor-provided nonaudit services (NAS) in Europe. Using a large cross-country sample covering 2011–2020, the authors documented a positive association between societal trust and both the level and proportion of NAS. They presented additional analyses addressing capital market perceptions, regulatory quality, NAS restrictions, and different NAS categories. In this discussion, I review the paper’s contributions by emphasizing its key strengths, including the importance of trust in the auditing setting, its treatment of trust as an informal institutional determinant of audit market outcomes, and the use of a multicountry European setting. At the same time, I raise selected conceptual, institutional, and methodological considerations. In particular, the discussion examines the applicability of generalized trust in audit settings, the credibility of competing theoretical mechanisms, the role of regulation and selection in shaping observed NAS outcomes, and limitations related to the measurement of trust.
SynopsisThe research problemWe investigated the effect of country-level generalized trust on the demand and supply of auditor-provided nonaudit services (NAS).MotivationWhether NAS impairs auditor independence has been - and continues to be - a topic of intense debate among practitioners and regulators. In response, regulators worldwide are increasingly imposing restrictions on the provision of NAS, and audit firms have begun voluntarily abstaining from offering NAS to their audit clients. Nevertheless, the overall level of NAS provision varies significantly across countries, and the reasons for this variation remain unclear. The lack of evidence on the role of country-level generalized trust in explaining cross-country differences in the demand and supply of NAS motivated our study.The test hypothesisWe hypothesized that generalized trust is associated with the level of NAS. Given competing theoretical arguments, we adopted a nondirectional hypothesis.Target populationOur study focused on listed companies in Europe. We used a sample of 3,528 publicly listed companies in 27 European countries for the period 2011-2020. Using a European sample offered the advantage of examining firms operating under similar regulatory frameworks established by EU law.Adopted methodologyWe performed ordinary least squares regressions to test our hypothesis.AnalysesTo measure country-level generalized trust, we used data from the Integrated Values Survey. We captured NAS supply and demand using the natural logarithm of nonaudit fees and the ratio of nonaudit fees to total auditor fees.FindingsWe found a positive association between generalized trust and NAS. In additional analyses, we found that, first, the often-reported positive association between NAS and cost of capital is present only in low-trust countries, which suggests that generalized trust mitigates concerns related to the appearance of independence. Second, the effect of generalized trust on auditor-provided NAS is more pronounced in countries with low regulatory quality. Third, our main findings on the positive effect of generalized trust on auditor-provided NAS are not conditional on the strictness of NAS requirements at the country level. Fourth, the positive association between NAS and generalized trust holds only for NAS other than audit- or tax-related NAS.
This discussion paper critically evaluates the current research on the impact of the regulatory switch from International Financial Reporting Standards (IFRS) to local Generally Accepted Accounting Principles (GAAP) on the analyst’s information environment. While the voluntary and mandatory adoption of IFRS has been examined extensively, research on the voluntary switch from IFRS back to local accounting standards is sparse. The study by Filip et al (2026) enhances our understanding by examining the effects of a firm’s reversion to local GAAP on the analyst’s information environment. It reveals that a voluntary switch leads to reduced analyst following, lower forecast accuracy, and diminished informativeness of analyst recommendations. Future research could further investigate the economic implications, regulatory influences, and methodological concerns associated with such voluntary switches.
SynopsisThe research problemWe examine the insights from prior studies on the question of whether management-provided environmental, social, and governance (ESG) disclosure can reduce ESG-related rating disagreement (hereafter, ESG disagreement). Specifically, we summarize evidence from prior studies on: (a) what ESG disagreement is, (b) the importance of ESG disagreement, (c) the causes of ESG disagreement, (d) potential solutions for mitigating ESG disagreement, and (e) the specific role of ESG disclosure as a potential solution. We outline directions and provide insights for future research in this area.MotivationESG rating agencies often disagree with each other about individual firms' ESG performance, as reflected in substantial differences in ESG ratings. Such disagreement is associated with adverse capital market and firm outcomes, sparking interest from researchers, policymakers, and firms in strategies to mitigate it. ESG disagreement is attributable to different understandings of what constitutes good ESG performance as well as differences in data sources, methodologies, and rating agency incentives. In addition, the lack of completeness, standardization, and consistency in ESG data allows for varying interpretations, further contributing to ESG disagreement. Transparency about ESG performance can resolve ESG disagreements by addressing many of its underlying causes. Managers are well-placed to provide this transparency because they possess the most direct knowledge of their firms' ESG activities. Therefore, in this study, we review prior literature on the effect of management-provided ESG disclosure in resolving ESG disagreement.Adopted methodologyWe provide a structured literature review. Specifically, we review prior literature regarding ESG disagreement and ESG disclosure and highlight potential future research directions in this context.AnalysesWe analyzed 21 working papers and 30 papers published in peer-reviewed high-quality journals that are related to ESG disagreement in the English language over a 23-year period (2002-2024).FindingsManagement-provided ESG disclosure can reduce ESG-related disagreement. However, whether it achieves this outcome depends on various factors, including the characteristics of the disclosure itself and the broader institutional environment. Ongoing developments offer many avenues for researchers to explore to better understand the impact of ESG disclosure on ESG disagreement. We highlight some potential future research directions in this context.
The research problem This study leverages the Swiss context, where listed firms can voluntarily turn away from International Financial Reporting Standards (IFRS) to Swiss Generally Accepted Accounting Principles (GAAP). The aim is to provide a better understanding of the relationship between firms' financial disclosures and analysts' information environment. Motivation or theoretical reasoning The study seeks to deepen our understanding of financial analysts' roles as information intermediaries in capital markets and how changes in reporting standards impact their ability to provide accurate forecasts, recommendations, and market insights. The test hypotheses We tested the following main hypothesis: Analysts following firms that voluntarily turn away from IFRS to Swiss GAAP experience a decrease in their information environment. We further investigated whether this negative association is driven by analysts without prior experience with Swiss GAAP and by foreign analysts. Target population The study targets financial analysts covering Swiss-listed firms, especially those following companies that voluntarily change their financial reporting standards from IFRS to Swiss GAAP. Adopted methodology We adopted a staggered difference-in-differences analysis to test our hypotheses. Analyses At the analyst level, we tracked the forecast accuracy as the absolute difference between the analyst's forecast and the firm's earnings per share, scaled by the last available closing price. We also analyzed the informativeness of analyst recommendations by measuring market reactions to recommendation changes. Additionally, we differentiated between analysts with prior Swiss GAAP experience and those without, as well as foreign versus local analysts. Findings Our findings show that firms voluntarily turning away from IFRS to Swiss GAAP experience a decrease in analyst following, a decrease in forecast accuracy, and analyst upgrade recommendations are less informative. Further analysis reveals that these effects are primarily driven by analysts who lack prior experience with Swiss GAAP, rather than foreign analysts. Our findings highlight that accounting expertise, rather than geographic location, plays a critical role in maintaining analysts' effectiveness in navigating reduced disclosures.
