The Information Asymmetry Effects of Expanded Disclosures About Derivative and Hedging Activities

I study the information asymmetry effects of Statement of Financial Accounting Standards Number 161 (SFAS 161), which requires changes to the content and format of derivative and hedging footnote disclosures. Using a difference-in-differences design, I investigate whether these mandatory disclosure changes affected bid-ask spreads. To capture the extent to which firms were likely impacted by SFAS 161, I employ two complementary measures: (1) actual changes in firms’ derivative and hedging disclosures, and (2) pre-SFAS 161 levels of firms’ derivative and hedging activities. Both measures provide consistent evidence that bid-ask spreads decreased more for firms whose disclosures were more likely affected by SFAS 161. I also find that increased qualitative information and more disaggregated quantitative data (i.e., disclosure content) matter more than disclosure grouping and tabular display (i.e., disclosure format) for the observed decrease in bid-ask spreads. Overall, my findings suggest that the disclosure changes required by SFAS 161 reduced information asymmetry among investors regarding the firm value effects of derivative and hedging activities. These results may prove useful to regulators and standard setters as they consider disclosure requirements in other contexts. This paper was accepted by Brian Bushee, accounting.

An Overview of the European Policies on ESG in the Banking Sector

In recent years, European policy makers have ramped up their efforts to create a regulatory framework for improving sustainability in the financial system. We contribute to the on-going debate on Environmental, Social and Governance in the banking sector by providing an organic overview of the European policies put in place. The legislative framework is currently being enriched by policy makers and regulators that are carefully pursuing the objective of a more sustainable economic system, where financial institutions may act as catalysts. We also offer a comparison of the national level regulations for ESG practices in banking institutions and the related disclosure requirements.

ESG push will help improve diversity in US companies

Significance Policy, disclosure requirements and stakeholder pressures, particularly from investors, push them in that direction. The exception is diversity and inclusion, which form part of corporate responses to the competition for talent and labour market tightness. Rebalancing environmental, social and governance (ESG) progress requires realigning the incentives. Impacts Efforts will intensify for international coordination on ESG reporting standards and auditing. Executive compensation will increasingly be linked to meeting ESG goals but this will need close investor scrutiny of authenticity. If banks expand sustainability loans beyond green projects, it will mitigate corporate prioritisation of environmental over other ESG aims.

Advance research directives: avoiding double standards

Background Advance research directives (ARD) have been suggested as a means by which to facilitate research with incapacitated subjects, in particular in the context of dementia research. However, established disclosure requirements for study participation raise an ethical problem for the application of ARDs: While regular consent procedures call for detailed information on a specific study (“token disclosure”), ARDs can typically only include generic information (“type disclosure”). The introduction of ARDs could thus establish a double standard in the sense that within the context of ARDs, type disclosure would be considered sufficient, while beyond this context, token disclosure would remain necessary. Main body This paper provides an ethical analysis of ARDs, taking into account the results of numerous empirical studies that have been performed so far. It will be argued that a revised understanding of informed consent can allow for context-sensitive disclosure standards. As a consequence, ARDs that include type disclosure can be acceptable under suitable circumstances. Such an approach raises a number of objections. A thorough examination shows, however, that they are not sufficient to justify a rejection of the approach. Conclusion The approach presented in this paper avoids introducing a double standard. It is, therefore, more suitable for the implementation of ARDs than established approaches.

Compliance level with IFRS disclosure requirements across 12 African countries: do enforcement mechanisms matter?

Purpose The purpose of this study is to investigate the effect of enforcement, and more particularly government quality and the stock market development, on compliance with International Financial Reporting Standards (IFRS) disclosure requirements in 12 African countries. Design/methodology/approach The authors use a self-constructed compliance index from content analysis and apply panel regressions for a sample of 606 firm-year observations during the period 2012 to 2014. Findings This analysis illustrates a high level of disparity of information provided by companies, possibly due to the complexity of the selected standards and the depth of information required. The findings reveal that government quality and stock market development have a positive and significant effect on compliance with IFRS disclosure requirements in Africa. This implies that enforcement plays a key role in improving the compliance level across African countries. Practical implications These findings should be of interest to government policymakers, professional bodies, regulators and standard setters who are concerned with compliance and financial reporting transparency at a country level. It should be a signal to call for more effort to strengthen the enforcement of accounting standards and capital market supervision by putting in place some disciplinary actions for non-compliance with IFRS. The authors also believe that the results may help African policymakers and regulators enhance the level of compliance with IFRS disclosure requirements by enforcing accounting standards. Originality/value This research contributes to the compliance literature by investigating the effect of enforcement on compliance with IFRS disclosure requirements in the African countries, an understudied context where enforcement is a challenge.

Conflict of Interest in Research and Publication: Has the Pendulum Swung Too Far?

Traditionally there has been a collaboration between scientists and industry contributing to the development of new drugs, biologics, and medical devices. Conflict-of-interest (COI) may develop amongst surgeons and academic researchers especially during the process of refinement of techniques and the marketing and sale of devices. Dramatic examples of COI occurred over the last fifty years leading to strict regulations designed to reduce COI at research institutions. Action taken by the International Association of Medical Journal Editors (ICMJE) created COI guidelines to help authors and editors to ensure clear, reproducible, and unbiased medical articles. The Physicians Payments Sunshine Act was designed to increase transparency of financial relationships between physicians and industry. However, there are instances where authors and scientists are not obligated to fully disclose their COI. Only direct payments are required to be reported, not indirect payments to faculty at large academic institutions, allowing some to take advantage of the exceptions to the disclosure requirements while others must disclose payment for their work effort. Based on prominent scandals, regulations aimed at reducing industry influence in research and publication may fail to recognize the potential benefits of collaboration and produce a narrow-minded view of trust. Where should an editorial board or an academic institution draw the line?

SEC’s disclosure effectiveness initiative reshapes MD&A disclosure requirements

Purpose This article examines rule amendments issued by the US Securities and Exchange Commission in November 2020, as part of the SEC’s ongoing “disclosure effectiveness initiative”, that revise in significant respects the requirements for financial disclosures presented in SEC filings as Management’s Discussion and Analysis of Financial Condition and Results of Operations. Design/methodology/approach This article provides an in-depth analysis of the rule amendments in the context of contrasting perspectives expressed by the SEC, individual SEC Commissioners who dissented from adoption of the amendments, and market participants regarding the merits of the SEC’s movement away from prescriptive disclosure requirements towards a more principles-based approach to disclosure. Findings Although the SEC’s rules have long reflected a mix of principles-based and prescriptive disclosure elements, the principles-based emphasis in this latest stage of the SEC’s disclosure modernization project accords the managements of filing companies greater latitude to determine whether financial information is material to investors and how such information should be presented. Originality/value This article provides expert guidance on a major new SEC disclosure development from an experienced securities lawyer.