Disclaimer language in US banks’ audit committee reports: determinants and consequences

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Christine Naaman ◽  
Karen Naaman ◽  
Najib Sahyoun
Keyword(s):  
Financial Reporting ◽  
Voluntary Disclosure ◽  
Audit Committee ◽  
Reporting Quality ◽  
Multivariate Regression Analysis ◽  
Cost Of Equity ◽  
Content Type ◽  
Holding Companies ◽  
High Level ◽  
The Cost

Purpose This paper aims to investigate the determinants and consequences of using disclaimer language in the banks’ audit committee (AC) reports. This study aims to analyze the factors tempting AC members of banks to disclose disclaimer language in the AC reports and the effect of such language on the cost of equity. Design/methodology/approach The data cover the period from 2006 to 2015 and considers the top US bank holding companies. Voluntary disclosure in the AC report is manually coded by using a scoring grid. Multivariate regression analysis is mainly used in the study. Findings The findings suggest that the ACs are using the disclaimer language to protect themselves when disclosing a high level of voluntary information that describes their oversight activities or to reduce their liability exposure due to lower financial reporting quality. The findings also reveal that investors are requiring a higher return on their investments whenever ACs use disclaimer language in their reports. Originality/value The AC report provides useful information to shareholders who evaluate the AC’s performance and accordingly vote for or against AC members on annual basis. The paper sheds lights on the motives and consequences of disclaimer language in the ACs report. Thus, the study benefits shareholders by providing empirical evidence in regard to the usage of disclaimer language. Also, the findings benefit industry, corporate governance organizations, standard setters and regulators that analyze AC disclosures and issue recommendations or new standards for improving those disclosures.

Audit committee ownership and the cost of equity capital

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ahsan Habib ◽  
Md. Borhan Uddin Bhuiyan ◽  
Julia Y.H. Wu
Keyword(s):  
Firm Performance ◽  
Financial Reporting ◽  
Audit Committee ◽  
Reporting Quality ◽  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Data Set ◽  
Content Type ◽  
The Cost

Purpose This paper aims to investigate whether audit committee ownership (consisting of both equity holdings and option holdings) is associated with the cost of equity capital. Design/methodology/approach This paper uses regression analysis to examine the association between audit committee ownership and the cost of equity capital. The data set consists of 2,825 firm-year observations for companies listed on the ASX between 2001 and 2015. This paper also conducts tests to explore the mediating effects of financial reporting quality, firm performance and the risk of reporting problems, on the relation between audit committee ownership and cost of equity capital. Findings The analyses reveal that audit committee ownership reduces the firm’s cost of equity and, thereby, support the incentive alignment view. However, the association is driven primarily by audit committee equity ownership, with option holdings having an insignificant effect. This paper also finds that firm performance mediates the association between audit committee ownership and the cost of equity capital. Practical implications Findings of the existing corporate governance research relating to the cost of equity capital and audit committee ownership remain sparse in the context of “comply-or-explain” types of regulatory environment, like that of Australia. The findings indicate that principle-based discretionary governance arrangements, e.g. compensating audit committee members with company equity, may bring benefits to firms in terms of cheaper financing. Regulators, scholars and practitioners are invited to consider further the comprehensive implications of the structure and transparency of audit committee incentives on the effective functioning of security markets. Originality/value The effects of audit committee ownership on the cost of equity capital are an issue of direct economic consequence for equity investors. The main finding of this study, namely, that a firm with higher audit committee share ownership is likely to benefit from a lower cost of equity capital, therefore adds value to the limited extant literature.

How Does XBRL Affect the Cost of Equity Capital? Evidence from an Emerging Market

2015 ◽  
Vol 14 (2) ◽  
pp. 123-145 ◽  
Author(s):  
Songsheng Chen ◽  
Ling Harris ◽  
Wenying Li ◽  
Donglin Wu
Keyword(s):  
Financial Reporting ◽  
Emerging Market ◽  
Reporting Quality ◽  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Post Test ◽  
Direct Linkage ◽  
High Level ◽  
The Cost

ABSTRACT Applying path analysis, we examine how eXtensible Business Reporting Language (XBRL) in China affects the cost of equity capital. Using a one-group pre- and post-test design, we find that XBRL reduces the cost of equity capital and that XBRL strengthens the direct linkage of the inverse relationship between financial reporting quality and the cost of equity capital but not the indirect linkage via the mediation of information asymmetry. Our findings also show that XBRL adoption leads to a greater reduction in the cost of equity capital, when there is a high level of corporate governance. Our study contributes to research on XBRL and to practice by documenting how XBRL affects the cost of equity capital.

Influence of internal audit reporting line and implementing internal audit recommendations on financial reporting quality

2019 ◽  
Vol 28 (1) ◽  
pp. 26-50 ◽  
Author(s):  
Abdulaziz Alzeban
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Negative Impact ◽  
Empirical Work ◽  
Internal Audit ◽  
Reporting Quality ◽  
Positive Influence ◽  
Financial Reporting Quality ◽  
Annual Reports ◽  
Content Type

Purpose This study aims to explore the influence of internal audit (IA) reporting lines and the implementation of IA recommendations (IMPLEMENT) on financial reporting quality (FRQ). Design/methodology/approach Data were obtained from the annual reports of 201 UK listed companies, and also from survey questionnaires completed by the chief audit executives working within those companies. Two measures are used as proxies of FRQ: abnormal accruals and accrual quality. Findings Findings indicate that when IA reports directly to the audit committee (AC), there is a significant positive influence upon FRQ. Conversely, when IA reports to the chief executive officer (CEO) or chief financial officer (CFO), there is a negative impact on FRQ. It is further shown by the results that lower income-increasing accruals are evident when there is greater IMPLEMENT, thereby showing an accompanying positive influence on FRQ. Moreover, the results indicate that greater adoption of such recommendations is also associated with internal reporting lines, i.e. when IA reports directly to the AC, FRQ results improved. Originality/value These findings contribute to the literature in the field of IA reporting, by introducing new insights regarding reporting lines and IMPLEMENT, and the influence of these on FRQ, and by establishing those insights through empirical work undertaken in the UK where little research on this issue has been reported.

IFRS adoption, financial reporting quality and cost of capital: a life cycle perspective

2019 ◽  
Vol 31 (3) ◽  
pp. 497-522 ◽  
Author(s):  
Ahsan Habib ◽  
Md. Borhan Uddin Bhuiyan ◽  
Mostafa Monzur Hasan
Keyword(s):  
Life Cycle ◽  
Financial Reporting ◽  
Cost Of Capital ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Cost Of Equity ◽  
Content Type ◽  
Ifrs Adoption ◽  
Life Cycle Stages ◽  
The Impact

Purpose This paper aims to investigate the impact of International Financial Reporting Standards (IFRS) adoption on financial reporting quality and cost of equity. The paper further investigates whether such association varies at different life cycle stages. Design/methodology/approach This paper follows the methodologies of DeAngelo et al. (2006) and Dickinson (2011) to develop proxies for the firms’ stages in the life cycle. Findings Using both pre- and post-IFRS adoption period for Australian listed companies, the paper finds that financial reporting quality reduced and cost of equity increased because of the adoption of IFRS. The paper further evidences that financial reporting quality in the post-IFRS period increased cost of equity. Finally, the paper finds that mature firms produce a better quality of earnings, which result in lower cost of capital. The results indicate that a mature firm was benefited because of the adoption of IFRS. Originality/value The finding of this research is useful to the regulators and practitioners to understand the widespread benefit of IFRS adoption.

Audit committee ownership and audit report lag: evidence from Australia

2020 ◽  
Vol 28 (1) ◽  
pp. 96-125
Author(s):  
Md. Borhan Uddin Bhuiyan ◽  
Mabel D’Costa
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Reporting Quality ◽  
Financial Statements ◽  
Audit Committees ◽  
Financial Reporting Quality ◽  
Audit Report ◽  
Content Type ◽  
External Auditors ◽  
Using Data

Purpose This paper aims to examine whether audit committee ownership affects audit report lag. Independent audit committees are responsible for overseeing the financial reporting process, to ensure that financial statements are both credible and released to external stakeholders in a timely manner. To date, however, the extent to which audit committee ownership strengthens or compromises member independence, and hence, influences audit report lag, has remained unexplored. Design/methodology/approach This paper hypothesizes that audit committee ownership is associated with audit report lag. Further, the author hypothesize that both the financial reporting quality and the going concern opinions of a firm mediate the effect of audit committee ownership on audit report lag. Findings Using data from Australian listed companies, the author find that audit committee ownership increases audit report lag. The author further document that financial reporting quality and modified audit opinions rendered by external auditors mediate this positive relationship. The results are robust to endogeneity concerns emanating from firms’ deliberate decisions to grant shares to the audit committee members. Originality/value The study contributes to both the audit report timeliness and the corporate governance literatures, by documenting an adverse effect of audit committee ownership.

The impact of demographic characteristics of CEOs and directors on audit fees and audit delay

2015 ◽  
Vol 30 (8/9) ◽  
pp. 963-997 ◽  
Author(s):  
Maretno Agus Harjoto ◽  
Indrarini Laksmana ◽  
Robert Lee
Keyword(s):  
Ethnic Minority ◽  
Financial Reporting ◽  
Audit Committee ◽  
Reporting Quality ◽  
Audit Fees ◽  
Content Type ◽  
Top Executives ◽  
The Us ◽  
Female Ceos ◽  
The Impact

Purpose – The purpose of this study is to examine the impact of gender and ethnicity of CEO and audit committee members (directors) on audit fees and audit delay in the US firms. Design/methodology/approach – Audit-related corporate governance literature has extensively examined the determinants of audit fees and audit delay by focusing on board characteristics, specifically board independence, diligence and expertise. The authors provide empirical evidence that gender and ethnicity diversity in corporate leadership and boardrooms influence a firm’s audit fees and audit delay. Findings – This study finds that firms with female and ethnic minority CEOs pay significantly higher audit fees than those with male Caucasian CEOs. The authors also find that firms with a higher percentage of ethnic minority directors on their audit committee pay significantly higher audit fees. Further, the authors find that firms with female CEOs have shorter audit delay than firms with male CEOs and firms with a higher percentage of female and ethnic minority directors on their audit committee are associated with shorter audit delay. Results indicate that female CEOs and both female and ethnic minority directors are sensitive to the market pressure to avoid audit delay. Research limitations/implications – The results suggest that gender and ethnic diversity could improve audit quality and the firms’ overall financial reporting quality. Practical implications – This study provides insights to regulators and policy-makers interested in increasing diversity within a firm’s board and top executives. Recently, the US Securities and Exchange Commission (SEC) and the European Commission have been pressing publicly traded companies to improve diversity among their directors. This study provides evidence and perspective on how diversity can enhance financial reporting quality measured by audit fees and audit delay. Originality/value – Previous studies have not given much attention on the impact of racial ethnicity in addition to gender characteristics of top executives and audit committee directors on audit fees and audit delay.

Audit committee impact on the quality of financial reporting and disclosure

2016 ◽  
Vol 39 (12) ◽  
pp. 1639-1662 ◽  
Author(s):  
Mahdi Salehi ◽  
Mohammadamin Shirazi
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
Stock Exchange ◽  
Panel Data Analysis ◽  
Reporting Quality ◽  
Financial Reporting Quality ◽  
Fiscal Year ◽  
Corporate Disclosure ◽  
Content Type

Purpose The purpose of this study is to shed further light on the characteristics of an audit committee (AC) and its probable relationship with the quality of financial reporting and disclosure. Based on the findings of extant research that there are different factors that may have implications for the AC’ effectiveness, the authors posit an association between the aforementioned financial aspects and AC presence. Design/methodology/approach The authors test their hypotheses by performing panel data analysis on a sample of 100 companies listed on the Tehran Stock Exchange (TSE) during 2013-2014. The tests were conducted by using Eviews software. Findings Examining previously tested characteristics of an AC, the authors indicate that the number of AC meetings held during fiscal year is negatively associated with the quality of corporate disclosure, whereas AC expertise and size are positively associated with the quality firm’s financial disclosure. Their findings are also indicative of a non-significant relationship between other AC attributes and financial reporting quality (FRQ) except for AC independence, which is positively associated with FRQ. Finally, they provide some evidence that the size of a firm positively affects the quality of its financial reporting and disclosure. Research limitations/implications Although the study has been thoroughly considered and cautiously planned, some limitations have yet arisen. Initially, this research was conducted in an Iranian setting where the formation of ACs is on the verge of regulation; therefore, the data utilized for the study only contains the two-year period of ACs’ statutory activity. In addition, a lack of consensus on the precise measures of an AC’s effectiveness could be considered as a restrictive factor. Originality/value The authors’ study contributes to the AC literature by providing empirical evidence of an association between ACs’ different attributes and financial aspects in a newly regulated environment like the TSE. The results provided in this paper could be fruitful for auditors, regulators, institutional investors and policymakers.

Audit committee and financial reporting quality: the moderating effect of audit quality

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Sana Mardessi
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Audit Committee ◽  
Audit Quality ◽  
Reporting Quality ◽  
Moderating Effect ◽  
Real Earnings Management ◽  
Financial Reporting Quality ◽  
Content Type ◽  
The Relationship

Purpose The purpose of this study is to address the impact of audit quality on financial reporting quality proxied by real earnings management. To further clarify the mentioned links, this study empirically assesses the moderating effect of audit quality. Design/methodology/approach The study is based on a sample consisting of 90 non-financial companies that are listed in the Amsterdam stock exchange in AEX all share index over the 2010–2017 period. This study applies a quantitative approach and secondary data as the main source of information for analysis. This paper performs an ordinary least squares regression to examine the moderating effect of audit quality on the relationship between financial reporting quality. Findings Empirical findings demonstrate that corporate governance mechanism, mainly independence members, financial expert and audit committee size has a statistically significant relationship with real earnings management. However, the effect of audit committee meetings on real earnings management is not significant. There is also evidence that audit quality moderates the audit committee – real earnings management links. Originality/value This study extends the existing literature by examining the moderating effect of audit quality on the relationship between financial reporting quality proxied by real earnings management in the Dutch context.

The impact of mandatory IFRS adoption on capital markets: evidence from Korea

2018 ◽  
Vol 26 (1) ◽  
pp. 38-58 ◽  
Author(s):  
Saerona Kim ◽  
Haeyoung Ryu
Keyword(s):  
Financial Reporting ◽  
Financial Statements ◽  
Joint Effect ◽  
Equity Capital ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Content Type ◽  
Ifrs Adoption ◽  
The Cost ◽  
The Impact

Purpose The purpose of this paper is to examine the effects of adoption of the mandatory International Financial Reporting Standards (IFRS) on the cost of equity capital in a unique Korean setting. In Korea, individual financial statements were taken as primary financial statements. Before the adoption of IFRS, consolidated financial statements were taken as supplementary financial statements. Design/methodology/approach The authors measure the cost of equity using the average estimates from the implied cost of capital models proposed by Claus and Thomas (2001), Gebhardt et al. (2001), Easton (2004) and Ohlson and Juettner-Nauroth (2005), using it as the primary dependent variable. Mandatory IFRS adoption, the independent variable in this study, is assigned a value of 1 for the post-adoption period and 0 otherwise. Findings Using a sample of listed Korean companies during the period from 2000 to 2013, the authors find evidence of a significant reduction in the cost of equity capital in Korean listed companies after mandatory adoption of the IFRS in 2011, after controlling for a set of market variables. Originality/value This study is one of a growing body of literature on the relations between mandatory IFRS adoption and the cost of equity capital (Easley and O’Hara 2004; Covrig et al. 2007; Lambert et al. 2007; Daske et al. 2008). According to the results of this study, increased financial disclosure and enhanced information comparability, along with changes in legal and institutional enforcement, seem to have had a joint effect on the cost of equity capital, leading to a large decrease in expected equity returns.

Disclosure, ownership structure, earnings announcement lag and cost of equity capital in emerging markets

2015 ◽  
Vol 16 (1) ◽  
pp. 28-57 ◽  
Author(s):  
Hichem Khlif ◽  
Khaled Samaha ◽  
Islam Azzam
Keyword(s):  
Ownership Structure ◽  
Voluntary Disclosure ◽  
Equity Capital ◽  
Annual Reports ◽  
Cost Of Equity Capital ◽  
Cost Of Equity ◽  
Government Ownership ◽  
Earnings Announcement ◽  
Content Type ◽  
The Cost

Purpose – The purpose of this paper is to examine the effect of voluntary disclosure, ownership structure attributes and timely disclosure on cost of equity capital in the emerging Egyptian capital market. Design/methodology/approach – A content analysis of annual reports is used to measure the extent of voluntary disclosure. Earnings announcement lag (EAL) is used to measure the quality of voluntary disclosure (i.e. timely disclosure). Finally, the Capital Asset Pricing Model (CAPM) framework is used to estimate cost of equity capital. Findings – The authors find a negative relationship between the level of voluntary disclosure and cost of equity capital. More specifically, the authors document that this association is strongly significant under high ownership dispersion, low government ownership and shorter EAL. Finally, EAL is positively associated with cost of equity capital. Research limitations/implications – The authors use the CAPM framework as a proxy for the cost of equity since forecasted earnings per share are not communicated by financial analysts in the Egyptian Stock Exchange. Practical implications – The findings demonstrate for managers that the increased levels of voluntary and timely disclosure reduce the cost of external finance and improve the marketability of firms’ equities, which may directly impact growth opportunities especially when information is communicated to investors in a timely fashion. For regulators, it provides evidence that high government ownership reduces the value relevance of voluntary disclosure among investors, while free float as a proxy for high ownership dispersion improves it. Originality/value – The findings show that corporate disclosure policy depends more on the managers’ incentives to provide informative annual reports than on standards and regulations. The study also represents a first attempt that demonstrates how ownership structure and timely disclosure influence the relationship between disclosure and cost of equity capital.

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