The impact of financial instruments disclosures on the cost of equity capital

Purpose This study aims to investigate the impact of financial instrument disclosures under the International Financial Reporting Standard (IFRS) 7 on the cost of equity capital (COEC). Design/methodology/approach The sample consists of 56 banks listed in the Gulf cooperation council (GCC) stock markets over 7 years from 2011 to 2017. A self-constructed index is used to measure the compliance level in addition to quantitative methods and panel data regression adopted to test the research hypotheses. Findings The authors find that the compliance level with IFRS 7 does not improve from 2011 until 2017 in the GCC banks. The authors also find that compliance with IFRS 7 disclosures reduces the COEC. Originality/value The authors also provide new empirical evidence that the level of mandatory financial instruments disclosures under IFRS 7 reduces the COEC. The findings offer policy implications. It shows that compliance with IFRS 7 disclosure requirements leads to desirable economic consequences.

Does Governance Affect Compliance with IFRS 7?

Although there has been considerable research on the impact of corporate governance on corporate voluntary disclosure, empirical evidence on how governance affects compliance with mandatory disclosure requirements is limited. We contribute to governance and disclosure literature by examining the impact of corporate governance on compliance with IFRS 7 for the banking sector in Gulf Cooperation Council (GCC). We use a self-constructed disclosure index to measure compliance with IFRS 7. We use regression analyses to examine the impact of board characteristics, audit committee characteristics and ownership structure on compliance with IFRS 7. Using a sample of 335 bank-year observations for GCC listed banks over the period 2011–2017, we report evidence that corporate governance variables affect compliance with IFRS 7. However, the significance of these variables depends on the type of the regression model used. Our findings suggest that governance matters for mandatory disclosure requirements. So to improve the level of compliance, regulators, official authorities, and policymakers should intensify their efforts toward improving corporate governance codes, following up their implementation and enhancing the enforcement mechanisms.

Risk Disclosure and Firm Value: Evidence from the United Kingdom

The International Accounting Standard Board (IASB) aimed to increase the decision usefulness of firms’ risk disclosures with the 2007 introduction of the International Financial Reporting Standards (IFRS) 7. Specifically, listed firms were mandated to provide information to the market on both their (1) exposure and (2) risk management, which are associated with holding their financial instruments. This study investigates whether IFRS 7 financial instruments and their disclosures are associated with firm valuation. Using data on premiumlisted United Kingdom (UK) companies, for the period 2007–2019, I find evidence that firm value (proxied by Tobin's Q) is negatively associated with the quantity of IFRS 7 interest and credit risk disclosures. I further find that the market value decreases with the presence of quantitative information tabulated in the disclosures. The findings of this study have important implications for the IASB's standard-setting process.

Corporate governance and compliance with IFRS 7

Purpose This paper aims to investigate the impact of the characteristics of two corporate governance mechanisms, namely, board of directors and audit committee (hereafter AC), on the level of compliance with International Financial Reporting Standard [hereafter International Financial Reporting Standards (IFRS)] 7 “Financial instruments: Disclosures” (hereafter FID). Design/methodology/approach Using a self-constructed checklist of 128 items, this research measures the compliance with IFRS 7 of 63 Canadian financial institutions listed on the Toronto Stock Exchange during a period of three years (2014-2016). Fixed effect panel regressions have been used to capture the individual effect present in authors’ data. Findings Empirical results show that the mean compliance level with IFRS 7 requirements is about 77 per cent and identify various areas of non-compliance. This level of compliance has a positive linkage with the board size and independence. Similarly, the AC independence and financial accounting expertise are shown to positively affect authors’ dependent variable. Nevertheless, CEO/chairman duality, AC size and meeting frequency are not significantly correlated with the level of compliance with IFRS 7. Originality/value This study expands prior compliance literature in the Canadian setting by examining the determinants of compliance with IFRS mandatory disclosures. Also, and to the best of the authors’ knowledge, this paper is among the first studies that have investigated the effect of corporate governance characteristics (hereafter CGC) on compliance with all IFRS 7 requirements in general.

Determinants of financial instruments risk disclosure: An empirical analysis in the banking sector

This study investigates the effects of firm and country factors, considered as determinants of the financial instruments risk disclosure (FIRD) proxied by IFRS 7 in the European banking system. We select 582 banks-year observations based on the largest five European economies (France, Germany, Italy, Spain and the UK) as provided by the International Monetary Fund (IMF). Our analysis covers a period of 8 years (2007-2014) and adopts an OLS model. Results show that both firm (the type of auditor, board size and profitability) and country factors (financing environment, regulatory environment, and organizational status) affect FIRD. Limitations for this paper could relate to country selection, as well as on the breadth of the sample. Nevertheless, these aspects could unveil possible areas of future inquiry. The contribution of the study is twofold. It enriches the literature about firm and country determinants on financial instruments risk disclosure, as combined rather than single-standing variables. Yet, it draws the attention of banks’ management and investors on what the crucial factors to reach an optimal level of FIRD are and gain the confidence of capital markets, reducing information asymmetries. This is the first empirical investigation on the determinants of FIRD, using IFRS 7, in the European banking sector that adopts firm and country factors in a combined effort.