How Does Information Processing Efficiency Relate to Investment Efficiency? Evidence from XBRL Adoption

2020 ◽  
pp. 0000-0000
Author(s):  
Xin Cheng ◽  
Feiqi Huang ◽  
Dan Palmon ◽  
Cheng Yin
Keyword(s):  
Information Processing ◽  
Financial Reporting ◽  
Investment Efficiency ◽  
Uncertain Information ◽  
Processing Efficiency ◽  
Public Companies ◽  
Exogenous Shock ◽  
External Monitoring ◽  
Processing Cost ◽  
Over Time

This study investigates whether information processing efficiency has an impact on public companies' investment efficiency. Using the adoption of XBRL as an exogenous shock that decreases information processing cost, we find that companies improve their investment efficiency after the adoption of XBRL. The effect is more pronounced for: 1) firms that have inferior external monitoring; 2) firms that operate in more uncertain information environments; and 3) firms that have less readable financial reporting. In addition, we find a learning curve in investors' understanding of XBRL over time. After splitting firms into over-investment and under-investment groups, we conclude that the XBRL mandate is more likely to curb managers' opportunistic over-investments. Our study extends the XBRL literature by providing empirical evidence on the effects of XBRL adoption from the perspective of managers.

Developing a Government Reporting Taxonomy

2016 ◽  
Vol 30 (2) ◽  
pp. 49-81 ◽  
Author(s):  
Neal M. Snow ◽  
Jacqueline L. Reck
Keyword(s):  
Financial Reporting ◽  
Municipal Government ◽  
Financial Statements ◽  
Bond Market ◽  
Empirical Approach ◽  
Municipal Bond ◽  
Data Accessibility ◽  
Public Companies ◽  
Private Investors ◽  
Over Time

ABSTRACT The municipal bond market is a $3.7 trillion market with approximately 75 percent of the market held by private investors (SEC 2012). Municipal bondholders and potential buyers do not have the same level of information as those investors choosing to invest in public companies. This inequity is, in part, the result of poor data accessibility. Frequently the data provided are in a format that does not allow easy comparison across governments or over time. To increase comparability and consistency in government reporting we build a government financial reporting taxonomy using the empirical approach. The completed taxonomy has 194 terms that cover financial statements filed by municipalities. Expert analysts and preparers in government reporting reviewed the completed taxonomy. This study has implications for the municipal reporting market and those entities that regulate them by providing a validated municipal government financial reporting taxonomy.

Consolidation of off-balance sheet entities and investment efficiency

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Fang Zhao ◽  
Abhijit Barua ◽  
Jung Hoon Kim
Keyword(s):  
Financial Reporting ◽  
Balance Sheet ◽  
Control Sample ◽  
Investment Efficiency ◽  
Financial Accounting Standards Board ◽  
Firm Level ◽  
Exogenous Shock ◽  
Content Type ◽  
Variable Interest Entities ◽  
The Impact

Purpose The purpose of this study is to examine the effect of consolidating off-balance sheet entities on firm-level investment efficiency. Financial Accounting Standards Board Interpretation No. 46, consolidation of variable interest entities – an Interpretation of ARB No. 51 (FIN 46) is used as a quasi-exogenous shock to financial reporting in this study. Design/methodology/approach The authors empirically test the change of investment efficiency for a sample of firms affected by FIN 46 in the post-FIN 46 periods. In the regression, a group of matched pairs selected from unaffected firms is used as the control sample and firm characteristics are used as control variables. Findings The authors find that firms affected by FIN 46 experience improvement in investment efficiency after adopting the standard compared to unaffected firms. The authors also document that FIN 46 firms’ level of investment decreases after FIN 46 compared to unaffected firms. These empirical results suggest that the improvement in investment efficiency is likely to be achieved by the reduction in over-investment. Further analyses show that amongst the affected firms, firms consolidating off-balance sheet special purpose entities (SPEs) improve investment efficiency mainly by reducing over-investment, whereas firms avoiding the consolidation of SPEs do not display such tendency. Originality/value This study contributes to the literature on the relation between financial reporting and investment efficiency, as well as the literature on the impact of FIN 46. To the best of the authors’ knowledge, this study is the first to examine the relation between the consolidation of off-balance sheet entities and investment efficiency.

Interim Reporting Frequency and the Mispricing of Accruals

2018 ◽  
Vol 32 (3) ◽  
pp. 29-47
Author(s):  
Shou-Min Tsao ◽  
Hsueh-Tien Lu ◽  
Edmund C. Keung
Keyword(s):  
Financial Reporting ◽  
Stock Prices ◽  
Data Availability ◽  
Financial Reports ◽  
Regulatory Changes ◽  
Sample Composition ◽  
Reporting Frequency ◽  
Over Time ◽  
Jel Classifications ◽  
Accrual Mispricing

SYNOPSIS This study examines the association between mandatory financial reporting frequency and the accrual anomaly. Based on regulatory changes in reporting frequency requirements in Taiwan, we divide our sample period into three reporting regimes: a semiannual reporting regime from 1982 to 1985, a quarterly reporting regime from 1986 to 1987, and a monthly reporting regime (both quarterly financial reports and monthly revenue disclosure) from 1988 to 1993. We find that although both switches (from the semiannual reporting regime to the quarterly reporting regime and from the quarterly reporting regime to the monthly reporting regime) hasten the dissemination of the information contained in annual accruals into stock prices and reduce annual accrual mispricing, the switch to monthly reporting has a lesser effect. Our results are robust to controlling for risk factors, transaction costs, and potential changes in accrual, cash flow persistence, and sample composition over time. These results imply that more frequent reporting is one possible mechanism to reduce accrual mispricing. JEL Classifications: G14; L51; M41; M48. Data Availability: Data are available from sources identified in the paper.

scholarly journals Rethinking Non-Financial Reporting: A Blueprint for Structural Regulatory Changes

2020 ◽  
Vol 10 (2) ◽  
Author(s):  
David Monciardini ◽  
Jukka Tapio Mähönen ◽  
Georgina Tsagas
Keyword(s):  
Financial Reporting ◽  
Final Section ◽  
Thematic Issue ◽  
Revision Process ◽  
The Past ◽  
Regulatory Changes ◽  
Collective Effort ◽  
Key Points ◽  
Structural Failures ◽  
Over Time

AbstractThe article introduces the thematic issue of Accounting, Economics, and Law: A Convivium dedicated to the regulation of non-financial reporting. It provides the reader with an overview of the varying approaches and frameworks that have emerged over time in relation to the reporting of non-financial information. In particular, the article focuses on the European Non-Financial Reporting Directive. We maintain that to date this latter initiative has failed to deliver on its intended objectives. In the context of the ongoing revision process of this initiative, the present paper outlines five key areas to be improved drawing on the lessons learnt from the past as well as from key points raised by the papers in the present thematic issue. What emerges from this collective effort is a renewed agenda that highlights some of the structural failures of the current reporting regime and a blueprint for future reforms. The final section summarises the various contributions of articles included in this thematic issue.

Financial Reporting, Auditing, Analyst Scrutiny, and Investment Efficiency

2021 ◽  
Author(s):  
Derek Chan ◽  
Nanqin Liu
Keyword(s):  
Financial Reporting ◽  
Audit Quality ◽  
Financial Statement ◽  
Investment Efficiency ◽  
Strategic Interactions ◽  
Financial Reports ◽  
Audit Failure ◽  
Economic Framework ◽  
Ex Post ◽  
Ex Ante

This paper presents an economic framework to study strategic interactions along the analyst-auditor-owner disciplinary chain, in which the auditor examines the financial reports prepared by the owner, and the analyst uncovers financial misreporting as well as audit failure. We find that although analyst scrutiny ex post detects misreporting, it ex ante aggravates the owner's misreporting behavior and further impairs financial statement reliability if the legal penalties for the auditor and the owner are small. We also show how the effects of a regulation depend on its target's disciplinarian(s). Specifically, (i) although enhancing the auditor's legal liability always increases audit quality and financial statement reliability, it decreases investment efficiency if and only if the analyst is highly independent; and (ii) increasing the owner's misreporting penalty decreases investment efficiency if and only if either of (but not both) the regulations on the auditor and the analyst is strict.

scholarly journals Unconditional conservatism in Brazilian public companies and tax neutrality

2017 ◽  
Vol 28 (74) ◽  
pp. 197-212 ◽  
Author(s):  
Juliana Pinhata Sanches do Vale ◽  
Sílvio Hiroshi Nakao
Keyword(s):  
Financial Reporting ◽  
Institutional Environment ◽  
Adoption Process ◽  
Accounting System ◽  
Public Companies ◽  
Publicly Traded Companies ◽  
Tax Neutrality ◽  
Financial Reporting Standards ◽  
Tax Legislation ◽  
Reported Earnings

ABSTRACT Law n. 11,638/2007 legitimized the International Financial Reporting Standards (IFRS) adoption process in Brazil and introduced an accounting system detached from tax purposes in the country. This law aims to reduce the influence of tax law on accounting standards and improve the quality of financial reporting, as IFRS are considered to be higher quality standards. International literature shows a reduction in earnings quality in environments where accounting and tax rules are strongly linked. Moreover, the influence of tax legislation on financial accounting is seen to encourage unconditional conservatism, a bias with no advantages for financial market efficiency. Thus, tax neutrality is expected to provide a more favorable institutional environment for quality financial reporting by detaching corporate accounting from tax accounting. In light of the above, this study aims to verify whether the advent of tax neutrality influences unconditional conservatism in Brazilian public companies. The methodology used involves panel data regressions. The sample consists of non-financial publicly-traded companies with information published in Economática® covering 2002 to 2014. The results show differences in the relationship between taxation and financial reporting between firms that are subject to different levels of monitoring in the Brazilian stock market. Evidence of unconditional conservatism is only found in companies that are subject to greater market monitoring. In this group, it is observed that taxation does not induce unconditional conservatism in reported earnings, which is expected in a tax neutrality context.

scholarly journals Western-style capital market reforms in Russia: Implications for market efficiency and firms’ financing decisions

2020 ◽  
Vol 10 (3) ◽  
pp. 62-74
Author(s):  
Oksana Kim
Keyword(s):  
Financial Reporting ◽  
Capital Market ◽  
Weak Form ◽  
Foreign Direct Investments ◽  
Informational Efficiency ◽  
Russian Government ◽  
Public Firms ◽  
Financing Decisions ◽  
Russian Stock Market ◽  
Over Time

Over the past decade, the Russian government implemented numerous reforms aimed at attracting investor capital and improving the capital market conditions. These reforms included adoption of stringent listing regulations and governance norms, revisions in the tax and ownership laws, restructuring of the major stock exchanges, and more importantly, adoption of International Financial Reporting Standards (IFRS) in 2011. We employ an adaptive market hypothesis (AMH) perspective formulated by Lo (2004, 2005) to examine whether the informational efficiency of the market changed over time as a result of these reforms. While we report that the Russian stock market is still not weak-form efficient, as it was before the reforms, we find the evidence of improvement in efficiency over time. Next, we find that financing decisions of Russian public firms changed following adoption of IFRS when financial statements became more transparent and better aligned with informational needs of local and foreign investors. Particularly, Russian companies that adopted IFRS were more likely to raise finance via issuance of equity rather than debt instruments, whereas for non-adopters there was no change in the firm capital structure. Finally, we report that there was an increase in the inflow of foreign direct investments (FDI) in the post-reform period, suggesting that the above noted reforms conferred significant benefits to the entire Russian economy.

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