Accounting Transparency and International Standard Setting

This chapter explores accounting transparency as an important aspect of corporate accountability. After defining accounting transparency and identifying factors that influence it, the chapter considers the debate between providers and users of accounting information on how transparent accounting information should be defined, measured, and reported. It also discusses the roles of international standard-setting organizations in promoting accounting transparency as well as measures of accounting transparency, including disclosure level and market reactions. Finally, it looks at future prospects for setting international accounting standards, paying particular attention to International Financial Reporting Standards.

Transparency Differences at the Top of the Organization

This chapter examines the opposing forces that induce or impede firms to become transparent in terms of their board of directors’ (BoD) and top management teams’ (TMT) demographic characteristics, education, and experiences. Extant literature on governance transparency often draws on a “market-pull perspective” to emphasize the market-level motives that drive organizations toward rising levels of governance transparency. In this chapter we introduce the “strategic hoarding perspective,” which emphasizes the human capital attrition factors that discourage firms to openly report information about their BoD and TMT composition. Our theory and data from 208 large listed firms in Switzerland, the United Kingdom, and the Netherlands for the years 2005 and 2009 suggest that organizations’ relative transparency preferences in terms of BoD and TMT characteristics can better be explained based on a combination of market-pull and strategic hoarding perspectives. Implications and directions for further research are discussed.

Transparency and Inward Investment Incentives

This chapter examines transparency in relation to inward foreign direct investment (FDI), particularly inward investment-focused policies and incentives. It begins by reviewing the literature on transparency and inward investment incentives before discussing some of the merits of transparency based on its effects on the quantity and quality as well as the process by which FDI is attracted. It then considers the distinction between transparency in norms versus transparency in processes and how these differences affect FDI attraction. It also explores multilevel transparency and its impact on inward investment, along with multiparty transparency and its effect on FDI. The chapter concludes by focusing on the relationship between multinational corporations and host countries.

Stress Testing, Transparency, and Uncertainty in European Banking

In the aftermath of the 2007–2009 global financial crisis EU regulators and supervisors attempted to restore the confidence of still fragile financial system. To allow early detection of ailing banks, enhance transparency, and decrease uncertainty of information asymmetry between market players, supervisors disclosed the results of stress tests to breach the information gap in the market. Between 2009 and 2013 the Committee of European Banking Supervisors (CEBS) and the European Banking Authority (EBA) performed and disclosed results on stress tests, capital, and transparency exercises. Using 572 observations of listed banks subject to six cross-border stress tests exercises in Europe, this event study finds that the announcements of the test itself, methodology, and results were informative at aggregated level and led to significant positive market returns. In turn, the exercises were noninformative for the identification of viable and nonviable banks and not sensitive to the business models of the participating banks.

Governance Transparency and the Institutions of Capitalism

This chapter explores the relationship between governance transparency and institutions of capitalism. It considers two major components of governance transparency in a country: disclosure regarding self-dealing and disclosure regarding ultimate corporate ownership. It also examines the effects of governance transparency on some of the fundamental mechanisms of capitalism, including transaction costs and the institutions of business exchange. Some evidence of the importance of governance transparency in the structure of capital markets is presented. The chapter reviews how governance transparency is measured and how it influences the culture of equity, the cost of equity, participation in stock markets, and a nation’s financial architecture.

Multinational Corporations’ Relationship with Political Actors

As a result of globalization and the rapid advancements in information availability, international firms are increasingly facing issues of transparency and avoidance of illegitimate opaque behavior. Whereas earlier studies concern either transparency or opacity independently, this chapter extends the analytical scope and conceives of them as related issues. The aim is to propose a theoretical view on transparency in the relationship between multinational companies (MNCs) and political organizations. Underpinning a continuum for transparency/opacity, the theoretical view resorts to behavioral theory and puts forward the elements of trust/distrust and legitimacy/illegitimacy for further understanding the management of transparency in this relationship. The interplay between the three concepts of transparency/opacity, legitimacy/illegitimacy, and trust/distrust are discussed and the reasoning is further demonstrated by using cases from two Swedish firms, Ericsson and Teliasonera, which are presented in the appendix.

Transparency of Innovation Policy

This chapter focuses on transparency in innovation policy, with emphasis on the science and technology policy arena. It begins by presenting the broader innovation systems policy domain and analyzing the nature of innovation and innovation processes as well as the rationale for innovation policy including the goals, instruments, and actors involved in such a policy. It then considers policy instruments and “soft” institutions that influence the outcomes of science and technology policy, including the protection of intellectual property rights. The chapter concludes by assessing the benefits of transparency in the innovation policy arena.

Monetary Policy Transparency

This chapter examines transparency as a key feature of monetary policymaking by central banks around the world. It begins by presenting a conceptual framework for transparency and reviewing empirical measures, practices, and trends in monetary policy transparency. It then looks at theory regarding macroeconomic transparency as well as relevant empirical evidence. It also considers two ways in which monetary policy has become more transparent: the publication of macroeconomic forecasts and analysis and the disclosure of forward guidance about policy actions. The chapter illustrates how transparency allows the private sector to align its expectations with those of the central bank, making monetary policy more effective in the process.

Transparency of Fair Value Accounting and Tax

This chapter examines transparency in fair value accounting (measurement, presentation, additional disclosure), with special emphasis on tax disclosure and on the presentation of fair values in the statement of other comprehensive income. After considering the international relevance of the International Financial Reporting Standards, the chapter discusses fair value accounting in the context of accounting standards. It then reviews prior research to determine whether fair value accounting adds to accounting transparency. It also looks at the measurement and presentation of the transparency of fair value accounting based on relevance and reliability, along with issues of earnings management and procyclical effects.

Corporate Governance and Optimal Transparency

This chapter explores the link between corporate governance and transparency. It begins by discussing definitions of corporate governance and transparency and goes on to review the literature on their relationship, covering also research on information disclosure. It then introduces a stylized model for the interrelationship between corporate governance and transparency. In key position is the board which is assumed to safeguard maximization of the long-run value of the firm’s equity in shareholders’ interests. Transparency is analyzed from shareholders’ point of view. The chapter highlights why increased transparency may reduce shareholder value and thus to a varying degree will be substituted with corporate governance mechanisms.