Accounting for investor sentiment in news and disclosures

Purpose This study aims to develop two sentiment indices sourced from news stories and corporate disclosures of the firms in the National Stock Exchange NIFTY 50 Index by extracting sentiment polarity. Subsequently, the two indices would be compared for the predictive accuracy of the stock market and stock returns during the post-digitization period 2011–2018. Based on the findings this paper suggests various options for financial strategy. Design/methodology/approach The news- and disclosure-based sentiment indices are developed using sentiment polarity extracted from qualitative content from news and corporate disclosures, respectively, using qualitative analysis tool “N-Vivo.” The indices developed are compared for stock market predictability using quantitative regression techniques. Thus, the study is conducted using both qualitative data and tools and quantitative techniques. Findings This study shows that the investor is more magnetized to news than towards corporate disclosures though disclosures contain both qualitative as well as quantitative information on the fundamentals of a firm. This study is extended to sectoral indices, and the results show that specific sectoral news impacts sectoral indices intensely over market news. It is found that the market discounts information in disclosures prior to its release. As disclosures in quarterly statements are delayed information input, firms can use voluntary disclosures to reduce the communication gap with investors by using the internet. Managers would do so only when the stock price is undervalued and tend to ignore the market and the shareholder in other cases. Otherwise, disclosure sentiment attracts only long horizon traders. Practical implications Finance managers need to improve disclosure dependence on investors by innovative disclosure methodologies irrespective of the ruling market price. In this context, future studies on investor sentiment would be interesting as they need to capture man–machine interactions reflected in market sentiment showing the interplay of human biases with machine-driven decisions. The findings would be useful in developing the financial strategy for protecting firm value. Originality/value This study is unique in providing a comparative analysis of sentiment extracted from news and corporate disclosures for explaining the stock market direction and stock returns and contributes to the behavioral finance literature.

Corporate disclosures on curbing bribery and the UK Bribery Act 2010: evidence from UK companies

PurposeThis study aims to investigate whether United Kingdom (UK)-based companies have changed their voluntary disclosures on curbing the bribery of foreign officials in response to the UK Bribery Act 2010, and if so whether and how such disclosure changes substantively reflected allegations of bribery of foreign officials by news media.Design/methodology/approachBy using the notions of institutional pressure and decoupling and applying content and thematic analysis, the authors examined, in particular, disclosures on curbing bribery by the largest 100 companies listed on the London Stock Exchange in periods before and after the Bribery Act (2007–2012). News media reports covering incidents of bribery of foreign officials and related corporate disclosures before and after the Act were thoroughly examined to problematise corporate anti-bribery disclosure practices.FindingsThe study finds a significant change in disclosure on curbing bribery before and after the enactment of the UK Bribery Act, consistent with the notion of institutional coercive pressure. However, decoupling is also found: organisations' disclosures did not substantively reflect incidents of bribing foreign public officials, mostly from underprivileged developing nations.Research limitations/implicationsThis study acknowledges a limitation stemming from using media reports that focus on bribery incidents in identifying actual cases or incidents of bribery. As some of the incidents identified from news media reports appeared to be allegations, not convictions for bribery, companies could have defensible reasons for not disclosing some aspects of them.Practical implicationsRegulators should think why new or more regulations without substantive requirement are not helpful to curb corporate decoupling and injustice. The regulators should address the crisis that multinational companies (MNCs) being suppliers of bribery are much more harmful for the underprivileged communities in developing nations. Accordingly, this paper provides practical insights into how stakeholders ought to critically interpret MNCs' accounts of their involvement in bribery.Originality/valueThis study contributes to the accounting literature by problematising MNCs' operations in underprivileged countries. The findings suggest that not only public officials in developing countries as creators of bribery but also Western-based MNCs as the suppliers of bribery contribute to perpetuating unethical practices and injustices to the underprivileged communities in developing countries. This research is imperative as this is one of the first known studies that provides evidence of the actions including disclosure-related actions companies have taken in response to the UK Bribery Act.

Use of Corporate Disclosures to Identify the Stage of Blockchain Adoption

Several studies have pointed to the transformative effects of blockchain on a wide spectrum of firms, in-dustries, and professions. Despite the arguable consensus within the business community that blockchain will have a real impact on the way firms do business, views diverge when it comes to the timing of diffu-sion (i.e., when will blockchain achieve mass adoption). In this study, we propose that information gather-ing helps potential adopters form expectations regarding payoffs from blockchain adoption. Therefore, information gathering activities and the resulting information sources, such as web searches, news arti-cles, book titles, and corporate disclosures, can proxy the expectations of potential adopters. In particular, corporate disclosures directly reflect firms' expectations and interests in the new technology. We leverage the corporate disclosure data from the SEC Edgar database to identify the current stage of blockchain adoption. Our analysis shows that while blockchain adoption is still at its early stage, the focus has been shifting from cryptocurrencies to business applications.

Does managerial ability affect disclosure? Evidence from earnings press releases

PurposePrior research shows that managers with lower ability release less accurate management earnings forecasts and have more earnings restatements, lower earnings persistence and lower quality accruals estimations. Yet, whether the impact of managerial ability (MA) on financial reporting can be extended to the narrative section of firms' financial disclosures needs to be theoretically and empirically examined. The authors theorize in this paper that managers with low ability opportunistically inflate the tone to increase outsiders' perceptions of their ability. The authors also examine the relation between MA and the informativeness of tone to predict future firm performance and explain investors' reaction at earnings announcement.Design/methodology/approachThe authors collect 24,000 earnings press releases of 1,149 distinct firms between 2004 and 2013. Content analysis is used to proxy the tone of the disclosures. The authors use the score developed by Demerjian et al. (2012) to measure MA. The authors then employ panel data regressions to examine the impact of MA on disclosure tone.FindingsThe authors find that low-ability managers inflate the disclosure tone to positively influence labor market's perceptions about their ability. This effect is magnified for younger and shorter-tenured managers, for firms with more intense monitoring and during bear markets. The authors also find that the tone of earnings press releases of low-ability managers results in a lower stock price reaction. Supplementary analyses show that the results do not only hold for the tone, but also can be extended to other linguistic features such as the numerical intensity and the readability of earnings press releases. The results are robust to alternative library specifications and other corporate disclosures such as CEO letters to shareholders or 10-K filings.Research limitations/implicationsThe paper shows that managers worry about how firm performance influences the labor market assessment of their ability. In particular, the authors find that managers of low ability are willing to opportunistically manipulate the content of corporate disclosures to improve this perception and build their reputation.Originality/valueThe authors contribute by providing theoretical and empirical evidence on how managers attempt to steer assessments of their ability by manipulating corporate disclosures. Consistent with prior business research suggesting that one's ability is a key feature that affects managers' propensity to engage in ethical practices, such as tax avoidance or manipulation of financial information, this study shows that less able managers tend to inflate the tone of the earnings announcements and that this ability-driven bias is likely to be magnified by career concerns.

Corporate Governance and Transparency in Japan

Corporate governance (CG) reformists typically presume better-governed companies are more transparent to investors. We focus on CG and transparency in Japan, where CG has been an ongoing issue. Using local ratings of Japanese companies’ CG and data on corporate disclosures and their associated stock returns, we do find better-governed Japanese companies have made more frequent and timelier disclosures, and their share prices have reflected value-relevant information earlier. While these results hold for good news, they do not hold for bad. Consequently, governance guidance in Japan may not have resulted in both timelier and more balanced release of newsworthy information.

Corporate disclosures and firm characteristics: A study of the emerging market listed companies

The objective of this study is to understand whether firm characteristics explain the extent of corporate disclosures in the annual reports of listed Indian companies. In the field of accounting, voluntary information disclosures have been receiving a lot of attention as they bridge the gap between what is mandatory and what is sought by the stakeholders. Due to the prime focus of corporate disclosure literature on the linkage of company characteristics with the extent of disclosures, it becomes pertinent to study this aspect before studying the policy and regulatory impact. Hence, it is examined what prompts listed corporate entities in an emerging market like India to disclose more. The disclosure scores of Indian CNX 100 companies over a period of five years (2011–2015) related to firm characteristics such as age, size, and listing status were arrived at through content analysis and subsequent coding of the data. The study applied correlation, regression, and t-test to analyze respective scores and firm-specific data accessed from CMIE Prowess and Ace Equity industry databases. The study found firm characteristics such as age and listing status to be non-significant in leading corporations to enhanced disclosures. However, regression results improving with respect to the firm size and almost becoming significant in later years especially in the post-policy period (i.e., post-2013) remains an important takeaway from this study. The study stands on a formidable ground that it is the policy initiatives that are pushing firms to reveal more about their businesses keeping in mind the diverse perspectives of accounting information users

Corporate Internet disclosures during the coronavirus pandemic

Corporate disclosures constitute the main means of communication between companies and their related parties, with the Internet being one of the most important. Although several studies have been conducted on the extent of disclosures on the Internet and the factors that affect it (Elsayed, Masry, & Elbeltagi, 2010; Botti, Boubaker, Hamrouni, & Solonandrasana, 2014; etc.), research during the crisis of the pandemic is limited. The purpose of this paper is twofold. On the one hand, it aims to examine the extent and quality of disclosures that companies provided on corporate websites during the COVID-19 pandemic. On the other hand, an effort is made to assess which factors affected the extent of disclosure. These factors focus on firm-specific characteristics (company size, leverage, profitability, auditing firm size) and core corporate governance attributes (board size, ownership concentration and chief executive officer duality). Results indicate that average disclosure was relatively high. Regression analysis shows that the level of disclosure was significantly positively associated with company size, profitability and board size. This indicates that during the pandemic, larger companies, more profitable and with more board members, disclosed more information on their websites. The results of the study may be of interest for clients, financial and credit analysts, investors, supervisory authorities as well as management, in their effort to improve corporate disclosures and the level of social responsibility.