Journal of International Financial Management & Accounting

Publisher:: Wiley
Publication date:: 2021-02-01

ISBN:: 0954-1314

Issue Number

No. 35-1, February 2024

Latest documents

Are co‐opted boards socially responsible?
Corporate resolution on environmental, social, and governance (ESG) communication informs firms' environmental commitment, a growing determinant of corporate risk profile perceived by the market. This study examines ESG reporting in the presence of board co‐option, a phenomenon that paralyzes the dependency of the board of directors and impairs corporate transparency. Using data from 643 US‐listed firms from 2007 to 2018, we investigate the relationship between board co‐option and ESG disclosure practices and show that firms with a higher proportion of co‐opted directors on board disclose less ESG information, though this relationship diminishes if firms are strong ESG reporters. Further analyses reveal that long‐tenure board chairs, high attendance rates at board and audit committee meetings, and independent chairs of audit committees mitigate this adverse effect. In addition, we document an increasing inverse relationship among firms located in more corrupt and Democratic‐leaning states and operating in heavy‐emitting industries. Our results support the premise that co‐opted directors insulate CEOs from ESG reporting pressure and highlight that corporate governance, environmental performance as well as state institutions play significant moderating roles in this relationship.
The asset‐pricing implications of carbon risk in Korea
This study examines the relationship between carbon risk and stock returns for listed firms in Korea, where firms are legally obligated to disclose their carbon emissions. While previous research mostly focuses on major markets like the United States and the European Union, demonstrating the impact of climate change on asset prices, there is a scarcity of studies examining emerging markets. Using data from Korean‐listed firms from 2011 to 2021, we investigate the association between a firm's exposure to carbon risk and cross‐sectional stock returns. We find that stocks with high exposure to carbon risk exhibit higher average returns and the abnormal returns associated with carbon risk are statistically significant and cannot be explained by the Fama‐French three‐ or five‐factor models. Furthermore, this phenomenon is more evident among stocks with high foreign ownership. Finally, the carbon factor commands a significantly positive risk premium, suggesting that carbon risk is an important risk factor even in emerging markets like Korea.
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Value relevance of IFRS 9: The influence of country factors and heterogeneous strengths in the European banking sector
This study focuses on investor reactions to financial instrument recognition and measurement in the banking sector under the new International Financial Reporting Standard (IFRS) 9, Financial Instruments. The research tests the combined value relevance of accounting numbers before and after the mandatory transition to IFRS 9 in Europe. Furthermore, we verify the influence of country factors and heterogeneous strengths on the value relevance of the aforementioned standard. To this end, we adopt a sample consisting of 215 banks listed in Europe, for the years 2015–2020. We find a significant change in the explanatory power of value‐relevance regressions in 2015–2017 compared to 2018–2020. In addition, we find that accounting numbers have incremental value relevance in countries characterized by “good” governance indicators and high heterogeneous strength, namely investors pay attention to the strength of the bank authority. This study makes three main contributions to the literature. First, it complements the IFRS 9 literature by providing new evidence. Second, its insights can be used to support investment decisions. Last, the findings help regulators and standard‐setters to verify the impact of the new measures delineated by the standard.
Audit evidence, technology, and judgement: A review of the literature in response to ED‐500
In October 2022, the International Auditing and Assurance Standards Board (IAASB) issued Exposure Draft 500 (ED‐500). This is focused on revising and integrating the standard auditors use when evaluating audit evidence during an external audit. This study contributes to the ongoing discourse as the IAASB evaluates feedback to ED‐500 and executes its standard‐setting agenda. We review academic literature published in the past 10 years to synthesize extant knowledge specifically on the use of technology and the application of professional skepticism during audit evidence evaluation. Our review offers factors the IAASB should consider when seeking to modernize and future‐proof its standards, suggesting improvements to the proposed ED‐500. We also identify fruitful avenues for future academic research.
Does SDG disclosure reflect corporate underlying sustainability performance? Evidence from UN Global Compact participants
The 2030 United Nations (UN) Agenda for Sustainable Development has posed unprecedented challenges to businesses to integrate Sustainable Development Goals (SDGs) concerns into their core operations and strategies and improve their transparency on SDG commitment toward investors and other stakeholders. However, prior studies have questioned the significance of firms' SDG disclosure practices, evidencing their inadequacy. Nevertheless, despite the burgeoning SDG disclosure literature, the extent to which SDG disclosure effectively reflects corporate sustainability performance is still unclear. Accordingly, using data from a large panel data set comprising 635 companies from 45 world countries and 8 industry sectors over the period 2016–2020, this study investigates the relationship between corporate environmental, social and governance (ESG) performance and sustainable development goals (SDGs) disclosure. Voluntary SDG disclosure has been measured using a disclosure index based on each company's response to the uniform and well‐designed communication on progress (CoP) questionnaire drafted annually by business participants in the United Nations Global Compact (UNGC). Several panel Tobit regressions have been estimated to examine whether the level of SDG disclosure retrieved from the CoPs reflects underlying corporate sustainability performance measured by total and individual ESG scores provided by the Refinitiv Eikon database. The study's findings provide robust empirical evidence that sustainability performance positively affects SDG disclosure, especially through environmental and social channels. Therefore, in line with the voluntary disclosure theory's arguments, this study highlights that superior sustainability performers provide more SDG disclosure to prove their high performance and distinguish themselves in the eyes of investors and other stakeholders.
Disclosure of strategic collaborative agreements and the cost of equity capital
How corporate strategic disclosure affects investor evaluations is a crucial and widely discussed question. Although prior literature has spent efforts analyzing the information effect of strategic alliances on investor reactions, whether this effect can extend to the cost of equity capital still needs to be explored. Using data from China's A‐share listed firms from 2007 to 2021, we examine the impact of disclosing strategic collaborative agreements on equity capital costs. We find that disclosing strategic collaborative agreements relates to lower equity capital costs. These results hold after several robustness checks. The mechanism test reveals that announcing strategic collaborative agreements alleviates equity capital costs mainly through the information effect. Moreover, this effect is more salient in firms with lower agency costs, lower media coverage, positive media sentiment, and higher media quality. These findings suggest that strategic collaborative agreements provide investors with valuable information.
Corporate risk disclosures in turbulent times: An international analysis in the global financial crisis
Focusing on the global financial crisis period, this paper examines risk disclosure patterns and outcomes in a cross‐country setting. We build on prior risk disclosure literature and draw upon institutional and agency‐based theoretical lenses to investigate the nature, comprehensiveness, evolution, and quality of disclosed risk information for matched samples of manufacturing firms in the United States, Canada, Germany, and China (Chinese Hong Kong‐listed firms). The results show a high degree of heterogeneity in risk disclosure behavior and volume among the sample firms attributed to both institutional differences and corporate reporting incentives in the study period. Furthermore, we document significant associations between risk proxies, risk disclosures, and firm market performance suggesting that corporate risk disclosures are potentially informative and useful to investors and other stakeholders. The paper highlights the important joint role of corporate incentives and legal institutions in interpreting and implementing accounting standards and stock exchange listing regulations around the world and during turbulent times.
The role of financial affiliates in tax avoidance by business groups: Evidence from Korea
This study examines whether financial affiliates within a nonfinancial business group perform certain roles and functions in tax avoidance by other nonfinancial affiliates or the group as a whole. Financial institutions have tax‐planning expertise and knowledge and thus may assist other affiliates of the same group in avoiding taxes. In addition, regulatory loopholes leave scope for tax avoidance involving financial affiliates. Using 10,659 firm‐year observations from 866 nonfinancial listed firms affiliated with business groups in Korea over the period 2001–2019, I find that firms belonging to nonfinancial groups with financial affiliates exhibit higher levels of tax avoidance than those belonging to nonfinancial groups without financial affiliates. The same result is observed at the group‐level tax avoidance as well as the firm‐level tax avoidance. In addition, I provide evidence that KFTC‐designated business groups subject to tighter regulation engage more in tax avoidance by utilizing financial affiliates in the blind spots of regulation and oversight, and that related‐party transactions (i.e., intragroup transactions) are used as avenues for financial affiliates to help other affiliates in tax avoidance. This study is one of the first empirical studies to shed light on the role of financial affiliates of nonfinancial groups in tax planning.
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