Developing trust through stewardship

2019 ◽  
Vol 20 (1) ◽  
pp. 11-39 ◽  
Author(s):  
John Dumay ◽  
Matteo La Torre ◽  
Federica Farneti

Purpose This paper examines the gap between reporting and managers’ behaviour to challenge the current theoretical underpinnings of intellectual capital (IC) disclosure practice and research. The authors explore how the key features from IC and integrated reporting can be combined to develop an extended model for companies to comply with EU Directive 2014/95/EU and increase trust in corporate disclosures and reports. Design/methodology/approach This essay relies on academic literature and examples from practice to critique the theories that explain corporate disclosure and reporting but do not change management behaviour. Based on this critique, the authors argue for a change in the fundamental theories of stewardship to frame a new concept for corporate disclosure incorporating using a multi-capitals framework. Findings We argue that, while the inconsistency between organisations’ reporting and behaviour persists, increasing, renewing or extending the information disclosed is not enough to instil trust in corporations. Stewardship over a company’s resources is necessary for increasing trust. The unanticipated consequences of dishonest behaviour by managers and shareholders compels a new application of stewardship theory that works as an overarching guide for managerial behaviour and disclosure. Emanating from this new model is a realisation that managers must abandon agency theory in practice, and specifically the bonus contract. Research limitations/implications We call for future empirical research to explore the role of stewardship theory within the dynamics of corporate disclosure using the approach. The research implications of those studies should incorporate the potential impacts on management behaviours within a stewardship framework and how those actions, and their outcomes, are disclosed for rebuilding public trust in business. Practical implications The implications for integrated reporting and reports complying with the new EU Directive are profound. Both instruments rely on agency theory to coax managers into reducing information asymmetry by disclosing more. However, agency theory only re-affirms the power managers have over corporate information. It does not change their behaviour, nor to act in the interest of all stakeholders as the stewards of an organisation’s resources. Social implications We advocate that, in business education, greater emphasis is needed on how stewardship has a more positive impact on management behaviour than agency, legitimacy and stakeholder theories. Originality/value We reflect on the current and compelling issues permeating the international landscape of corporate reporting and disclosure and explain why current theories which explain corporate disclosures do not change behaviour or engender trust in business and offer an alternative disclosure model based on stewardship theory.

2017 ◽  
Vol 59 (6) ◽  
pp. 1292-1314 ◽  
Author(s):  
Andrew Keay

Purpose The purpose of the paper is to demonstrate that notwithstanding the fact that stewardship theory embraces things like trust of directors, their professionalism, loyalty and willingness to be concerned for the interests of others, as well as rejecting the foundations of classic agency problems that are asserted by agency theory, board accountability is as relevant to stewardship theory as it is to agency theory. Design/methodology/approach The paper applies the theory underlying board accountability in corporate governance, which is so often applied both in the corporate governance literature and in practice with agency theory in mind, to stewardship theory. Findings While the idea of accountability of boards is generally associated with an explanation and conceptualisation of the role and behaviour of directors as agents within classic agency theory, the paper demonstrates that board accountability is a necessary part of board life even if the role of directors is explained and conceptualised in terms of stewardship theory. Practical implications The paper suggests some accountability mechanisms that might be employed in a stewardship approach. Originality/value While many authors have talked in general terms about board accountability and its importance, this is the first paper that has engaged in a substantial study that links board accountability directly with stewardship theory, and to establish that accountability is necessary.


2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Antonio Salvi ◽  
Nicola Raimo ◽  
Felice Petruzzella ◽  
Filippo Vitolla

PurposeThe purpose of this paper is to analyse the financial consequences of the level of human capital (HC) information disclosed by firms through integrated reports. Specifically, this work examines the effect of HC information on the cost of capital and firm value.Design/methodology/approachA manual content analysis is used to measure the level of HC information contained in integrated reports. A fixed-effects regression model is used to analyse 375 observations (a balanced panel of 125 firms for the period 2017–2019) and test the financial consequences of HC disclosure.FindingsThe empirical outcomes indicate that HC disclosure has a significant and negative effect on the cost of capital and a positive impact on firm value. Our results show that companies can reduce investors' perceived firm risk by improving HC disclosure, leading to a lower cost of capital. Moreover, our findings support the notion that increased levels of HC disclosure are linked to firms' improved access to external financial resources, consequently enhancing firm value.Originality/valueThis study is the first contribution to examine the financial consequences of HC disclosure and is one of the first to examine the level of HC information within integrated reports.


2019 ◽  
Vol 20 (2) ◽  
pp. 264-281 ◽  
Author(s):  
Viktoria Goebel

PurposeThe purpose of this paper is to investigate the drivers for voluntary intellectual capital (IC) reporting based on agency theory. This study responds to calls for critical investigations of IC reporting utilising Goebel’s (2015a) IC measuring approach to investigate the role of IC value and mispricing for IC reporting.Design/methodology/approachA mandatory management report offers a unique research setting in Germany. The content analysis results of 428 German management reports are used in a regression analysis with leverage, ownership diffusion, IC value and mispricing. Additionally, a propensity score matching approach examines the relationship between IC reporting and IC value.FindingsThe regression results show that companies use voluntary IC reporting to encounter mispricing. IC reporting is negatively associated with leverage, whereas ownership diffusion and IC value show no significant results. The propensity score matching approach is also not significant.Research limitations/implicationsThis study contributes to strengthening and testing agency theory for IC reporting. As mispricing is identified to play an important role for IC reporting, IC research should account for mispricing.Practical implicationsThe findings suggest to reopen a discussion on the declared aims of the German management report and the international integrated reporting model to provide information on value creation, as IC value shows no link to IC reporting.Originality/valueThis study innovatively links IC reporting to IC value and mispricing to investigate drivers for voluntary IC reporting.


2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Francesca Rossignoli ◽  
Riccardo Stacchezzini ◽  
Alessandro Lai

PurposeEuropean countries are likely to increasingly adopt integrated reporting (IR) voluntarily, after the 2014/95/EU Directive is revised and other initiatives are implemented. Therefore, the present study provides insights on the relevance of IR in voluntary contexts by exploring analysts' reactions to the release of integrated reports in diverse institutional settings.Design/methodology/approachDrawing on voluntary disclosure theory, a quantitative empirical research method is used to explore the moderating role of country-level institutional characteristics on the associations between voluntary IR release and analyst forecast accuracy and dispersion.FindingsIR informativeness is not uniform in the voluntary context and institutional settings play a moderating role. IR release is associated with increased consensus among analyst forecasts. However, in countries with weak institutional enforcement, a reverse association is detected, indicating that analysts rely largely on IR where the institutional setting strongly protects investors. Although a strong institutional setting boosts the IR release usefulness in terms of accuracy, it creates noise in analyst consensus.Research limitations/implicationsAcademics can appreciate the usefulness of voluntary IR across the institutional enforcement contexts.Practical implicationsManagers can use these findings to understand opportunities offered by IR voluntary release. The study recommends that policymakers, standard setters and regulators strengthen the institutional enforcement of sustainability disclosure.Originality/valueThis study is a unique contribution to recent calls for research on the effects of nonfinancial disclosure regulation and on IR “impacts”. It shows on the international scale that IR usefulness for analysts is moderated by institutional patterns, not country-level institutional characteristics.


2020 ◽  
Vol 21 (6) ◽  
pp. 985-1007 ◽  
Author(s):  
Antonio Salvi ◽  
Filippo Vitolla ◽  
Nicola Raimo ◽  
Michele Rubino ◽  
Felice Petruzzella

PurposeThe purpose of this study is to examine the impact of intellectual capital disclosure on the cost of equity capital in the context of integrated reporting, which represents the ultimate frontier in the field of corporate disclosure.Design/methodology/approachThe authors employ content analysis to measure intellectual capital disclosure levels along with a panel analysis on a sample of 164 integrated reports.FindingsEmpirical outcomes indicate that intellectual capital disclosure levels have a significantly negative association with the cost of equity capital.Originality/valueThis study's major contribution lies in its originality in terms of empirical examination of the relationship between intellectual capital disclosure in integrated reports and the cost of equity capital.


2020 ◽  
Vol 28 (5) ◽  
pp. 889-914 ◽  
Author(s):  
Lucia Biondi ◽  
John Dumay ◽  
David Monciardini

Purpose Motivated by claims that the International Integrated Reporting Framework (IRF) can be used to comply with Directive 2014/95/EU (the EU Directive) on non-financial and diversity disclosure, the purpose of this study is to examine whether companies can comply with corporate reporting laws using de facto standards or frameworks. Design/methodology/approach The authors adopted an interpretivist approach to research along with current regulatory studies that aim to investigate business compliance with the law using private sector standards. To support the authors’ arguments, publicly available secondary data sources were used, including newsletters, press releases and websites, reports from key players within the accounting profession, public documents issued by the European Commission and data from corporatergister.com. Findings To become a de facto standard or framework, a private standard-setter requires the support of corporate regulators to mandate it in a specific national jurisdiction. The de facto standard-setter requires a powerful coalition of actors who can influence the policymakers to allow its adoption and diffusion at a national level to become mandated. Without regulatory support, it is difficult for a private and voluntary reporting standard or framework to be adopted and diffused. Moreover, the authors report that the <IRF> preferences stock market capitalism over sustainability because it privileges organisational sustainability over social and environmental sustainability, emphasises value creation over holding organisations accountable for their impact on society and the environment and privileges the entitlements of providers of financial capital over other stakeholders. Research limitations/implications The authors question the suitability of the goals of both the <IRF> and the EU Directive during and after the COVID-19 crisis. The planned changes to both need rethinking as we head into uncharted waters. Moreover, the authors believe that the people cannot afford any more reporting façades. Originality/value The authors offer a critical analysis of the link between the <IRF> and the EU Directive and how the <IRF> can be used to comply with the EU Directive. By questioning the relevance of the compliance question, the authors advance a critique about the relevance of these and other legal and de facto frameworks, particularly considering the more pressing needs that must be met to address the economic, social and environmental implications of the COVID-19 crisis.


2015 ◽  
Vol 57 (5) ◽  
pp. 417-444
Author(s):  
Godfred A. Bokpin ◽  
Zangina Isshaq ◽  
Eunice Stella Nyarko

Purpose – The study aims to seeks to ascertain the impact of corporate disclosure on foreign equity ownership. Corporate disclosures are important to for stock markets because it is an activity that mitigates information differences between company insiders and outsiders. Design/methodology/approach – Corporate disclosures assume an even greater important when company outsiders are not domiciled in the same country as the company and the company insiders. In this study, the relation between foreign share ownership and corporate disclosures using data on Ghana, Kenya and Nigeria is examined. Findings – The consistent results in this study are that foreign share ownership is positively related to firm size. A negative relation, however, between foreign share ownership and corporate disclosure is found, but this turns out to be related to disclosures about ownership, while disclosures on financial reporting and board management have a positive and insignificant statistical relation taking into account unobserved country, time and firm effects. Further analysis shows that corporate disclosures are very persistent and negatively related to lag foreign share ownership. No consistent statistical relation is found between disclosure and market-to-book values as a proxy for investment opportunities. It is recommended to African-listed firms to pursue adoption of high-quality financial reporting standards and to increase their reporting on board management. The study also recommends that the African Government weighs the benefits of detailed ownership disclosures. Originality/value – The study utilises frontier market data to complement existing literature on how corporate disclosure and transparency influences foreign investors decision to invest in Africa.


2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Muhammad Arif ◽  
Christohper Gan ◽  
Muhammad Nadeem

Purpose Motivated by the enactment of non-financial reporting regulations by the European Parliament, this paper aims to investigate the impact of European Union (EU) directive 2014/95/EU on the quantity of environmental, social and governance (ESG) disclosures by the S&P Europe 350 index firms. This study also investigates whether the implementation of the non-financial information (NFI) reporting regulations influences the association between ESG disclosures and firms’ earnings risk. Design/methodology/approach To measure the impact of mandatory regulations on the quantity of ESG disclosures, this study estimates the average treatment effects using a propensity weighted sample. Then this study uses the difference-in-differences method to estimate the differences in the association between ESG disclosures and earning risk before and after implementation of the EU directive. Findings The results show a significant positive impact of the EU directive on the quantity of ESG disclosures for the sample European public-interest entities, which indicates that the mandatory NFI reporting requirements could boost the availability of increasingly demanded ESG related information. The enhanced association between the ESG disclosures and firms’ earnings risk during the post-directive period reveals that mandating NFI reporting also increases the quality of ESG disclosures. Originality/value Using the legitimacy and decision-usefulness theories, this study provides novel evidence concerning the impact of the EU directive on the quantity and quality of ESG disclosures.


2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Giuseppe Nicolò ◽  
Alessandra Ricciardelli ◽  
Nicola Raimo ◽  
Filippo Vitolla

PurposeThis study, based on stakeholder theory, aims to analyse the factors that can affect the level of visual disclosure in the context of integrated reporting (IR), which represents the last frontier of corporate disclosure.Design/methodology/approachThis study develops an innovative measure to measure the level of visual disclosure of integrated reports that takes into account the use and degree of integration of images and graphs. Furthermore, to test the hypotheses, this study uses a regression model on a sample of 134 international companies that published an integrated report in 2018.FindingsThe results show that firm size, firm profitability and industry environmental sensitivity positively affect the level of visual disclosure of the integrated reports.Originality/valueTo our knowledge, this is the first study that examines visual disclosure in the IR context. It also extends the field of application of the stakeholder theory, still little used to explain visual disclosure strategies, and increases knowledge on the determinants of IR.


2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Chijioke Nwachukwu

Purpose Integrated reporting (<IR>) promotes transparency in corporate reporting and communicate detailed information on how a firm creates value in the short, medium and long-term. The purpose of this paper is to systematically review <IR> to provide insights into theories, determinants, consequences, contingent variables and methods that have been used in previous studies. Design/methodology/approach The study was based on a systematic review of 17 articles published between 2017 and 2020. Findings Nine theories were used in prior studies. Board size, diversity, independence, level of activity of the board, the establishment of Higher Education Institutions (before or after 1992), adoption of IR framework, size, institutional ownership, sustainability committee and the use of non-financial performance measures in executives’ compensation contracts and separate risk management committees are determinants of <IR>. Further, the positive impact of <IR> on information asymmetry, market valuation of environmental, social and governance performance, financial performance, intellectual capital, sustainability embeddedness and organisational change, external sense of legitimacy and reputation, revenue growth, corporate environmental performance and circular economy-related information, with mixed findings for analyst earnings forecast accuracy, company value and market value. Only three studies used moderating and mediating variables to examine <IR>. Quantitative research approach and secondary data are most preferred by <IR> scholars. Research limitations/implications Some papers may have been omitted unintentionally, although the author did his best to include most of the prior published articles using a rigorous methodology. Practical implications This paper set out future research agenda on how <IR> research could be enhanced. Originality/value Contrary to prior systematic reviews that consider individual constructs/concept, the review herein adopts a comprehensive approach and considers moderating and mediating variables aside from theories, effects and determinants of integrated reporting.


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