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.

This article investigates the role of mandatory interim financial reporting in financial analysts' annual earnings forecast errors. We provide large-scale evidence from 49 countries that a mandatory quarterly (as compared to semi-annual) reporting regime is associated with lower analysts' annual earnings forecast errors. This conjecture is further supported when we exploit an exogeneous change in the mandatory frequency regime from a semi-annual to a quarterly reporting mandate in Japan. Consistent with an improvement in the information environment, our findings are more pronounced for firms and analysts subject to higher information acquisition costs and in countries where the institutional setting is less able to meet analysts' information needs. We corroborate this conjecture by documenting that more frequent mandatory reporting decreases analysts' forecast dispersion and improves the profitability of their stock recommendations. Overall, our findings extend the research on the role of the institutional setting in analysts' output, suggesting that the mandate of more frequent reporting improves analysts' forecasting process.

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This paper examines the communication strategies employed by small cap firms listed on the Alternative Investment Market (AIM) of the London Stock Exchange. These small cap firms have great discretion in choosing their communication channels with investors and evolve in an environment with few information intermediaries. We investigate the use of three communication channels - press releases, conference calls, and social media - specifically surrounding earnings announcements. Our findings indicate that small cap firms utilize these three communication channels infrequently. However, when announcing positive earnings news, small cap firms are more likely to employ these channels, suggesting that firms communicate opportunistically. We find a positive association between the use of communication channels, particularly of social media, and measures of investor attention. Interestingly, while the use of communication channels is associated with positive stock returns surrounding earnings announcements, social media usage prior to earnings announcements is linked to subsequent stock price reversals. These findings provide insights into the communication practices of small cap firms and their implications for investor attention and market efficiency.

We investigate the relation between firms’ financial disclosures and analysts' information environment in a country-specific setting to deepen our understanding of financial analysts’ role as intermediaries for well-functioning capital markets. We leverage the Swiss regulatory context, which enables publicly traded firms to voluntarily switch to a less complex and costly to implement accounting standard to provide more direct insights into how changes in firms’ disclosures affect analyst following, forecast accuracy, and recommendation informativeness. Using difference-in-differences analysis, we find that firms voluntarily turning away from IFRS to Swiss GAAP experience a decrease in analysts’ following, a decrease in forecasts’ accuracy, and their upgrade recommendations are less informative. Additional analysis reveal that these effects are mainly driven by analysts without prior experience with Swiss GAAP and not by foreign analysts. Our results highlight the role of financial analysts’ accounting expertise in shaping firms’ information environment.

Prior literature suggests that cost stickiness increases the ex-ante volatility and reduces the predictability of earnings. We examine whether managers intentionally undo such consequences by dampening earnings volatility. Exploiting the staggered adoption of wrongful discharge laws as an exogenous instrument for cost stickiness, we document that cost stickiness increases managers' income-smoothing activities. This response is more pronounced in firms whose earnings are more sensitive to labour costs than their industry peers are and in firms with stronger information-provision incentives. Additional analyses indicate that income smoothing improves sticky-cost firms' earnings informativeness and that the identified impact of cost stickiness is primarily driven by labour costs. Our results suggest that labour regulations can influence managers' financial reporting incentives via cost behaviour.

The research problem We examine the association between financial reporting quality and trade credit capital for a large sample of European private firms. Furthermore, we explore how information asymmetry and credit rationing moderate the link between financial reporting quality and trade credit financing. Motivation Trade credit constitutes one of the most important sources of financing for private firms. Nevertheless, prior research has provided few and inconclusive evidence of the link between financial reporting quality and private firms' trade credit capital. Our study is further motivated by the recent calls for more research on the determinants of the relation between financial reporting quality and trade credit financing (e.g., Hope & Vyas (2017)). The test hypotheses H-1: There is a positive association between financial reporting quality and private firms' access to trade credit capital. H-2a: The relation between financial reporting quality and private firms' access to trade credit capital is more positive when information asymmetry and uncertainty about future cash flows are high. H-2b: The relation between financial reporting quality and private firms' access to trade credit capital is more positive when credit is rationed. Target population Policymakers who seek to improve accounting standards and customize them to the financial reporting needs of private firms and their stakeholders (e.g., international financial reporting standards for small and medium-sized enterprises), private firm managers, and private firm suppliers. Adopted methodology Ordinary Least Squares regression analyses. Analyses We examine the association between financial reporting quality and trade credit financing for a large sample of private firms from Europe's five largest economies, i.e., France, Germany, Italy, Spain, and the United Kingdom. Our sample period spans from 2010 to 2016. We use the Amadeus database as our source of data. We regress trade credit capital on three proxies for financial reporting quality. In cross-sectional analyses, we repeat our main estimations by interacting our proxies for financial reporting quality with proxies for information asymmetry and credit rationing. Findings We find strong evidence that high-quality financial reporting is associated with more trade credit financing in private firms. We further show that the positive relation between high-quality financial reporting and trade credit is stronger when information asymmetry and uncertainty about future cash flows is high as well as when credit is rationed. These findings suggest that suppliers complement insider communication channels and financial reporting quality and provide a more nuanced understanding of the interplay among information asymmetry, credit rationing, and trade credit financing.

We investigate the association between disclosures about key value drivers (i.e., growth, synergies, human capital, brands, customers, and technology) in press releases announcing mergers and acquisitions (M&A) deals and acquirer stock returns upon the announcement. We find that, after controlling for the main characteristics of the deal, acquirers that use more terms about these value drivers in press releases exhibit more negative market returns around the M&A announcement. An increase of 10% in the number of terms used about generic value drivers is associated with a decrease in announcement market-adjusted returns of approximately 43 basis points. The negative association between terms about value drivers and acquirer stock returns is stronger for larger deals. We also find that disclosures about these value drivers in M&A announcement press releases are consistent with the subsequent subjective valuation of intangible assets recognized in acquirers' financial statements through the purchase price allocation. Our findings are relevant for investors attempting to interpret early signals about the performance of M&A and for managers communicating about these strategic investment decisions.

We posit that investors and social media users place more weight on cash flows than on earnings for innovative small cap firms and that, in turn, innovative small cap firms (i) manage cash flows more than earnings, and (ii) disclose more cash flow than earnings information on social media. Using a matched sample of innovative and non-innovative small cap firms listed on the London's Alternative Investment Market (AIM), we document that the value relevance of cash flows (earnings) is higher (lower) for innovative compared to non-innovative small cap firms. Using Twitter to examine the demand of accounting performance measures, we find that Twitter users more frequently retweet and include as 'Favorite' information about cash flows, than information about earnings for innovative small cap firms. We then show that innovative small cap firms engage less intensively in earnings management and exhibit higher abnormal cash flows compared to non-innovative small cap firms. Innovative small cap firms emphasise more information in their tweets about cash flows and less about earnings compared to non-innovative small cap firms. Cross-sectional tests demonstrate that seasoned equity offerings provide additional incentives to engage in increasing abnormal cash flow management activities.

The IASB’s post-implementation review of IFRS 13 Fair Value Measurement motivates our analysis of the evolution of the value relevance of fair value (FV) levels over time on banks that report under IFRS and U.S. GAAP. For both sets of standards, results provide evidence that is consistent with (1) an increase in value relevance across all three FV levels over time, and (2) a convergence of the value relevance of the three FV levels over time. However, FV levels exhibit systematically higher value relevance under U.S. GAAP compared to IFRS. Such gap has closed to some extent since the enactment of IFRS 13. This evolution is likely due to learning about FV accounting and changes in financial reporting regulations that increased disclosure requirements. These findings confirm the IASB’s conclusions that FV levels’ disclosure is useful to users of financial statements, but also emphasizes preparers and investors’ learning over time.

ABSTRACT The IFRS 13 post-implementation review by the IASB motivates our investigation on the value relevance of fair value (FV) measurement hierarchy (i.e. level 1, level 2, and level 3). First, using a meta-analysis, which allows us to summarize inconsistent empirical findings, we synthesize studies on the value relevance of the FV hierarchy. Overall, value relevance is lower for level 3 than for levels 1 and 2, but it increases over time. In non-U.S. studies, we note lower value relevance across all levels of FV assets. Underlying asset fundamentals, model risk, and measurement process complexity may contribute to this value relevance gap. Second, from interviews with professionals from financial institutions, we note that, in practice, there has been extensive learning about FV accounting since the 2007–9 Financial Crisis and a formalization of the valuation process that the academic literature has yet to fully recognize. We thus highlight conceptual and methodological issues and areas for research with practical implications.

Under IFRS, managers can use two approaches to increase the estimated fair value of goodwill in order to justify not recognizing impairment: (1) make overly optimistic valuation assumptions, and (2) increase future cash flow forecasts by inflating current cash flows. Because enforcement constrains the use of optimistic valuation assumptions, we hypothesize that enforcement influences the relative use of these two choices. We test this hypothesis by comparing a sample of 1,958 firms from 36 countries that are likely to delay recognizing goodwill impairment (suspect firms) to a sample of control firms. First, we find that firms in high enforcement countries use a higher discount rate to test goodwill for impairment than firms in low enforcement countries. We also find a more positive association between discount rate and upward cash flow management for suspect firms than for control firms. This result is consistent with suspect firms substituting optimistic valuation assumptions with inflated current cash flows. Second, we find that, relative to control firms, suspect firms exhibit higher upward cash flow management in high enforcement countries than in low enforcement countries. Third, we show that suspect firms in high enforcement countries are more likely to eventually impair goodwill.

The IFRS 13 post-implementation review by the IASB motivates our investigation on the value relevance of fair value (FV) measurement hierarchy (i.e. level 1, level 2, and level 3). First, using a meta-analysis, which allows us to summarize inconsistent empirical findings, we synthesize studies on the value relevance of the FV hierarchy. Overall, value relevance is lower for level 3 than for levels 1 and 2, but it increases over time. In non-U.S. studies, we note lower value relevance across all levels of FV assets. Underlying asset fundamentals, model risk, and measurement process complexity may contribute to this value relevance gap. Second, from interviews with professionals from financial institutions, we note that, in practice, there has been extensive learning about FV accounting since the 2007‒9 Financial Crisis and a formalization of the valuation process that the academic literature has yet to fully recognize. We thus highlight conceptual and methodological issues and areas for research with practical implications.

Fair Value Measurement accounting standards, i.e., IFRS 13 and SFAS 157, have been widely discussed and challenged by both academic literature and practitioners. In an attempt to provide a comprehensive understanding of the consequences of IFRS 13 and SFAS 157 implementation, we provide a critical analysis of the related academic literature. We identify and discuss five topics, i.e., value relevance, information content, managerial judgement, economic consequences, and common critiques to fair value estimates. We document that assets and liabilities estimated at fair value are usually value relevant and investors value additional firms’ disclosure about fair value estimates. Past research supports the conjecture that fair value estimates may trigger opportunistic managers’ behaviours, especially in the presence of significant managerial discretion. Fair value estimates are often associated with an increase in the cost of financing and audit effort. Empirical evidence also shows that bank regulation, and not fair value accounting, mostly stimulated the pro-cyclical leverage contributing to the financial crisis. The aforementioned results vary across Level’s inputs, and they do not always follow the fair value hierarchy, i.e. the relative ordering of the three Level’s inputs. In fact, multiple factors influence the impact of fair value estimates, such as type of underlying assets, managerial intent, market conditions, and institutional environment. Our results represent a support to researchers and regulators by providing an up-to-date state of knowledge of the implementation of fair value measurement accounting standards. Our comprehensive analysis provides evidence to foster changes aiming to improve financial reporting quality.

Under IFRS, managers can use two approaches to increase the estimated recoverable value of a cash generating unit (CGU) to which goodwill has been allocated in order to justify not recognizing impairment: (1) make overly optimistic valuation assumptions (e.g., about discount rate, revenue growth, terminal growth rate), and (2) increase future cash flow estimates by increasing current cash flows. Because enforcement constrains the use of optimistic valuation assumptions we propose that the strength of enforcement influences the relative use of these two choices. Using an international sample of listed firms that report under IFRS, we document that the use of cash flow increasing management for firms that delay goodwill impairment is more positively associated with enforcement relative to a control sample that recognizes impairments. We also find that as enforcement increases, firms that delay goodwill impairment shorten the cash conversion cycle in the current year by delaying cash payments to suppliers, and that these transactions reverse in the next year. Finally, we show that cash flow management to delay goodwill impairment is detrimental to future performance.

The rapid growth of the private sector in China in recent decades has resulted in a large number of capital-hungry private sector firms. An increasing number of these firms choose to raise equity capital on international exchanges, which typically have stronger disclosure, corporate governance, and investor protection regulations. In light of international investors' and regulators' concerns about the corporate finance practice of China's private sector firms, particularly regarding the integrity of their reported earnings, we investigate whether these firms aggressively manipulate their accounts by examining those listed in Hong Kong, commonly known as P-chips. We find systematic evidence that P-chips engage in more earnings management and other corporate misbehaviors than their counterparts in Hong Kong. We posit and provide evidence consistent with cross-jurisdictional enforcement difficulty as a possible explanation for P-chips' questionable practices, and discuss its implications.

We investigate the relation between disclosures provided by acquirers about growth, synergies and intangible resources in mergers and acquisitions (M&A) press releases and the characteristics of M&A deals. Whereas on the one hand, managers may objectively explain the key value drivers associated with a transaction when they announce it to market participants, they may, on the other hand, attempt to justify lower quality M&A deals by using terms about synergies, growth, and other intangible resources acquired more frequently in an attempt to convey a better impression about the deal. First, we examine whether the frequency of use of intangible-related terms in press releases is positively related to the size of the deal relative to the size of the acquirer. Second, we study whether soft disclosures about intangible resources provided in press releases are consistent with assets recognized in acquirers’ financial statements. Third, we investigate whether the disclosures in M&A press releases are systematically associated with the quality of the M&A deal, measured using stock returns, Tobin’s Q and operating cash flows. Overall, we find evidence consistent with impression management. Deals that are relatively larger are associated with more frequent use of intangible-related terms in M&A press releases. We also find consistency between soft disclosures and assets recognized by acquirers. Finally, we find that managers justify weaker deals with several generic terms related to synergies and growth. Our study contributes to the M&A literature and is relevant for investors attempting to assess the performance of M&As.

The purpose of this paper, building upon the papers included in this special section of Accounting in Europe on Corporate reporting in CEE countries and on our knowledge of the region, is to broaden out and open up dialogue and debate about how local institutions are evolving and impact the corporate reporting practices in this under-researched region. We begin by discussing the institutional context for conducting research on corporate reporting by entities in Central and Eastern Europe (CEE), within the broader context of emerging, transitional economies. We also reflect on how research conducted on CEE countries can make a relevant contribution to the international literature, and exemplify by summarizing the research questions and findings of the papers included in the special section. A future research agenda emerges, given the gaps in the international literature and the future research implications suggested in the papers constituting the special section.