In this paper, I analyse the evolution of corporate reporting regulation in Europe in the last two decades and reflect on the possibility that the traditional usefulness approach is insufficient to solve new issues arising from the current regulatory landscape. The evolvement that the concept of "public interest" has undergone within the European Commission implies a change in the objective of corporate reporting from the main aim of targeting investors for decision-making through a change brought about by the financial crisis to the aim of financial stability and economic growth, and finally to the goal of getting of social and environmental objectives. This evolvement implies a revolution, raises non-previous existing conflicts of interest among stakeholders, and brings a motivating challenge for researchers. However, in many cases, the existence of a potential crisis of incentives to publish in journals with a "real" impact on academia and to transfer research output to society requires a profound debate for progress.

•Investors’ cost–benefit concerns decide the effects of CSR performance on M&As.•Investors’ CSR cost concerns arise mainly from acquirers’ agency problems that could be eased by country-level legal institutions.•Acquirers’ pre-merger CSR performance is beneficial to the cross-border deal-setting.•Market reactions to the CSR effects on the cross-border deal-setting depend on the CSR cost concerns not on the CSR interests for deal efficiency.•Acquirers create post-merger synergies but their pre-merger CSR performance is negative related to the operating improvements.

We examine the role of interlocking connections among board directors and external auditors on financial reporting quality. Following agency, social network, and resource dependence theoretical perspectives, we form different expectations according to directors' role on the board and in the financial reporting process. When such interlocks involve executive directors, we expect that they reduce auditors’ independence and decrease financial reporting quality. On the contrary, when audit committee non-executive directors are involved, such interlocks represent an effective channel to reinforce their co-operation and information sharing with auditors towards ensuring higher financial reporting quality. Investigating a sample of 794 companies listed in France, Germany, and the UK throughout 2009-2017, we find support for both our expectations. On the one hand, firms with executive-auditor interlocks have less reliable accruals and lower reporting conservatism. On the other hand, when experienced but not too busy, audit committee directors interlocked with auditors are associated with more reliable accruals and a lower likelihood of beating earnings benchmarks. We also show that these findings vary by country according to the strength of legal and governance traditions.

This paper offers a solution for the automatic retrieval of topic-specific discussions from .pdf documents. The suggested algorithm's main contribution consists of isolating topical discussions independently of the document's structure and disclosure location within the .pdf. We demonstrate this property by exploring corporate social responsibility (CSR) reporting that varies considerably across companies and countries. Our final successful extraction rate is calculated based on a randomly selected 50 annual reports where human readers identified CSR discussions. The final percentage of retrieval exceeds 90 %. Statistical validation of this approach also confirms capturing the underlying CSR construct by its high correlation with a CSR performance rating.

This paper provides an overview of rules for taxation and dividend distributions for EU and UK listed entities in EU regulated markets. Empirical research on IFRS application typically considers IFRS as informative about future cash flows. However, taxes and distributable dividends are based on national rules different from IFRS in all EU countries prior to Brexit. To analyze these differences, researchers need to know about 1) how taxable and distributable income are determined in different EU countries mandating IFRS for most listed firms; 2) the differences between IFRS and the national rules on taxable and distributable income. Regarding Question 1), we analyze and classify the EU countries’ regulations about tax and income distributions and whether and how the are legally linked to IFRS. To address Question 2), we develop an ordinal measure of the de jure differences between IFRS income and taxable income on the one hand and IFRS income and distributable income on the other. Our study contributes to empirical research on the informativeness of IFRS by providing measures of book-tax and book-dividend conformity within the EU and the UK. By comparing the national rules to IFRS, we enhance the understanding of the relevance of IFRS reporting.

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We examine the transition to mandatory corporate social responsibility (CSR) reporting by large European listed companies around Directive 2014/95/EU. The new Directive defines quality reporting principles establishing minimum topic coverage and setting the same rules for all member states. However, the Directive’s framework leaves much room for managerial discretion. We conduct our study in two stages. We start with evaluating the effect of the first mandatory CSR regulation in Europe on firms’ disclosure strategies, followed by the analysis of the Directive’s impact on the financial market. We resort to automated textual analysis as our primary tool which allows us to capture quality dimensions explicitly targeted by the Directive. Using a difference-in-difference model where countries already having mandatory reporting rules serve as controls, we show that the Directive increased the number of reporters, the volume of disclosures and led to significant changes in various qualitative dimensions for those that did not. Some qualitative changes are positive (less biased, broader coverage of CSR-specific topics, and more long-term oriented discussions). Others are difficult to interpret before analyzing the impact on financial users. We next analyze the market’s perception by combining textual attributes into an index. Overall, bid-ask spreads are negatively related to the index over the entire pre- and post-periods. The change in our index indicates a decrease in the bid-ask spread, greater transparency, but only as of 2017 the year of adoption.

We investigate the role of board directors from financial institutions (financial interlocks) on the relationship between ownership structure and the cost of debt. In Italy, ownership is largely concentrated often in families, and financial institutions are the primary source of funding for firms. These characteristics offer a context to examine debt-equity agency conflicts and whether having direct internal monitoring channels such as financial interlocks reduces a firm’s cost of debt. We show that while concentrated ownership has an increasing effect on the cost of debt, financial interlocks moderate this relationship. Further, we find that financial interlocks act as an even more important tool in mitigating the agency cost of debt in cases of family ownership. Our results are robust to a set of firm-specific characteristics and support the idea that financial interlocks provide firms with a monitoring device that could resolve some of the debt-equity agency conflicts.

We examine the subsidiary- and group-level determinants of IFRS adoption by unlisted UK firms. Many unlisted firms are part of large conglomerate groups. For these firms, decisions about reporting practices are expected to be made at the group-level. Consistent with this hypothesis, we find that subsidiaries adopt IFRS as part of their group’s strategy to improve within group monitoring and raise external debt capital. ROC curve analysis indicates that these incentives are more important than traditional subsidiary-level incentives studied before. Further, we find that adopting subsidiaries benefit from better accounting quality and higher investment efficiency.

This cross-country study examines a large sample of 1986 merger and acquisition (M&A) deals in 23 emerging market (EM) countries between 2008 and 2014 to investigate market reactions to deal announcements regarding the acquiring firms with different levels of pre-merger corporate social responsibility (CSR) performance and under different degrees of agency cost concerns. We find that, neither positive stakeholder nor negative shareholder view alone can explain the CSR effects. The effects of CSR performance on market reactions to M&As depend mainly on the cost–benefit concerns of investors. While a higher level of acquirers’ pre-merger CSR performance could be helpful in conducting crossborder deals, market reactions to the CSR effects on such overseas deals still depend directly on the CSR cost concerns rather than indirectly on the CSR interests for deal efficiency. Evidence also shows that investors’ CSR cost concerns arise mainly from EM acquirers’ agency problems that could be effectively eased by country-level legal institutions rather than by firm-level governance mechanisms. Market investors with CSR agency concerns would not consider acquirers’ pre-merger CSR performance as a signal for investment during the deal announcement period, and that related CSR agency costs do impair gency cost orporate governance egal system merging market the financial performance after the merger. Additionally, we confirm that the better governance quality of targets’ nations compared with that of acquirers’ nation is not valued by the market investors but significantly leads to the better long-term operating performance. Furthermore, we propose an argument disputing the conclusions of previous research that consider emerging countries collectively as examples of weak governance quality. © 2018 Board of Trustees of the University of Illinois. Published by Elsevier Inc. All rights reserved.

One of the most critical decisions top management in corporate groups has to make is the allocation of resources among competing investment opportunities across the group. Information asymmetry between the parent and subsidiaries, however, creates agency conflicts that complicate such allocation. Exploiting the adoption of more rigorous, international accounting standards by UK subsidiaries, we examine whether accounting information can mitigate these agency costs. We find that adopting subsidiaries have greater cash holdings, receive more group borrowings and pay less dividends. These findings are consistent with accounting effecting agency costs of excess cash. Further, we find that adopting subsidiaries have greater (lower) capital expenditures when in growing (declining) industries and invest more in innovation.

We investigate organisational and environmental factors that influence firms' incentives to develop high-quality internal audit functions (IAFs) by using a unique international sample formed by matching proprietary data from a global internal auditor survey with public data obtained from Worldscope. Concerning organisational factors, we find that a positive relationship exists between IAF quality and firm complexity and confirm that complex firms have a higher demand for monitoring and advising and, therefore, a greater need for formal controls. In addition, IAF quality is positively related to board monitoring and audit committee diligence but negatively associated with CEO power, which suggests that IAF quality is influenced by other key players in corporate governance. Regarding environmental factors, we document that IAF quality is positively associated with industry competition, which implies that a firm's incentive for a high-quality IAF is enhanced when confronted with greater environmental uncertainty. Furthermore, IAF quality has a significantly positive relationship with our self-constructed index of IAF requirements included in national corporate governance codes, which indicates that strong home-country corporate governance codes play a role in fostering IAF development.

Drawing on a large sample of European firms, we examine whether variant compliance levels with mandated disclosures under IAS 36 Impairment of Assets and IAS 38 Intangible Assets are value relevant and affect analysts' forecasts. Our results indicate a mean (median) compliance level of about 84% (86%) but high variation among firms and disclosure levels regarding IAS 36 being much lower than those regarding IAS 38. In depth, analysis reveals that non-compliance relates mostly to proprietary information and information that reveals managers' judgment and expectations. Furthermore, we find a positive (negative) relationship between average disclosure levels and market values (analysts' forecast dispersion). Results, however, hold more specifically for disclosures related to IAS 36, and these also improve analysts' forecast accuracy. Our findings add knowledge regarding the economic consequences of mandatory disclosures, have an appeal to regulators and financial statement preparers and reflect on the IASB's concerns to increase the guidance and principles on presentation and disclosure.

We examine how the presence of women involved in the financial reporting process of public companies, and especially the interactions between them (i.e. the simultaneous presence of a woman CFO, women sitting on the audit committee, and women auditors), impacts financial reporting quality. For our sample of large French companies, we find that women do not affect financial reporting quality when interactions are not considered. However, the interactions between women involved in the financial reporting are associated with lower discretionary accruals and higher C-scores (our measure of conservatism), as expected because women are generally more risk averse and have greater ethical sensitivity. Furthermore, our result holds only for non-family firms, which is also expected because there is a greater demand for earnings quality in such firms. In addition, it appears that woman CFOs play a key role in these interactions. Overall, our results support the idea that women affect positively financial reporting quality only if several women are involved at various stages of the financial reporting process and only in specific contexts (i.e. non-family firms). These new results should be of great interest for researchers, investors and regulators.

Many unlisted firms are part of large conglomerate groups. For these firms, decisions about reporting practices are expected to be made at the group level (Beuselinck et al. 2014). Consistent with this hypothesis, our results indicate that group membership increases the likelihood of IFRS adoption by UK unlisted firms. Further, the identity and incentives of the parent firm are important determinants of the adoption decision. More specifically, our results suggest that subsidiaries adopt IFRS as part of their group’s strategy to improve the monitoring and optimise the financing and investing activities across the group, as portrayed by a subsequent increase in the investment efficiency at the subsidiary level and an increase in the probability of future debt issuance at the group level.

Theory suggests that increased levels of corporate disclosure lead to a decrease in cost of equity via the reduction of estimation risk. We examine compliance levels with International Financial Reporting Standard 3 Business Combinations and International Accounting Standard 36 Impairments of Assets mandated goodwill-related disclosure and their association with firms' implied cost of equity capital (ICC). Using a sample of European firms for the period 2008–2011, we find a median compliance level of about 83% and significant differences in compliance levels across firms and time. Non-compliance relates mostly to proprietary information and information that reveals managers' judgement and expectations. Overall, we find a statistically significant negative relationship between the ICC and compliance with mandated goodwill-related disclosure. Further, we split the sample between firms meeting (or not) market expectations about the recognition of a goodwill impairment loss in a given year to study whether variation in compliance levels mainly plays a confirmatory or a mediatory role. We find the latter: higher compliance levels matter only for the sub-sample of firms that do not meet market expectations regarding goodwill impairment. Finally, our results hold only in countries where enforcement is strong.

We examine the patterns of goodwill impairments in Europe and in the US over the period from 2006 to 2015, for a sample of more than 35,000 firm-year observations. We define the timeliness of goodwill impairments as the frequency of accounting impairments conditional to indications of economic impairments. We measure indications of economic impairment with three metrics: equity market value minus equity book value less than goodwill, market-to-book smaller than one and negative earnings before interest, tax, depreciation and amortisation (EBITDA). Our research strategy leads us to draw very different conclusions than those in the recent EFRAG (2016) study. While median levels of goodwill on the books between US and European firms are relatively similar, we find several indications that US firms recognise timelier impairments, at least during 2008 and 2009, that is, the early years of the financial crisis. We further document that US impairers write down a much greater percentage of their beginning balance of goodwill than European impairers. During the financial crisis, the median level of impairment by US firms was 63% of opening goodwill in 2008 and 40% in 2009, whereas median European write-downs were only 6% and 7% of opening goodwill, respectively. Even though European firms are more likely to impair over multiple years, the cumulative impairments never come close to the level of US firms, be it in a single year or cumulative over multiple years. We also find that the frequency of accounting impairment is small compared to the number of firms presenting evidence of economic impairment: only 20-25% of firms recognise impairments depending on the measure of economic impairment. This has often been interpreted by academics as a sign of untimely write-offs. Accounting differences between US Generally Accepted Accounting Principles and International Financial Reporting Standards are unlikely to explain our results. One caveat of our analysis is that it does not allow us to draw conclusions on whether the observed differences between US and European firms are driven by differences in conditional conservatism and/or big bath accounting practices.