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Author:

Miihkinen, Antti

Title:

Essays on corporate risk and transition disclosures in the IFRS era

Published:

Helsinki : Aalto University, 2013

Description:

270 s.

Series:

Aalto University publication series. DOCTORAL DISSERTATIONS, 1799-4934 ; 35/2013

Series no:

35/2013

Year:

2013 Thesis defence date: 2013-03-15

Discipline:

Accounting

Department:

Laskentatoimen laitos

Electronic dissertation:

» dissertation in pdf-format

[2642 KB]

Index terms:

accounting; communication; laatu; laskentatoimi; quality; raportit; reports; risk management; riskienhallinta; standardit; standards; viestintä

Language:

eng

Bibid:

628507

ISBN:

978-952-60-5040-9

Abstract (eng):

High-quality narrative communication in corporate financial reports is important to make company reporting more useful to investors. However, standard-setters face a taxing challenge in deciding how these sections in corporate financial reports could be regulated most effectively. The objective of this dissertation is to examine risk and transition disclosures by Finnish listed firms in the IFRS era. It will address whether corporate risk and transition disclosures can be improved by releasing a detailed risk disclosure standard and authoritative disclosure recommendations. Also, the economic consequences of high-quality risk disclosures on stock markets will be examined. Finally, this research examines the non-regulatory determinants of risk and transition disclosures.

This research uses positivist research methodology, which is the mainstream methodological avenue in financial accounting research. The main test methods are the standard mean test and the multivariate regression analysis. The sample firms in all essays consist of Finnish listed firms. The disclosure data were manually collected and coded. Data for the other variables were retrieved from the Thomson One Banker Financial, IBES, Worldscope and Datastream databases, or collected manually from the annual reports of the firms or from the register of Euroclear Finland Oy.

This dissertation documents that a detailed national risk disclosure standard increases the quality of overall risk reviews in several dimensions. The results also demonstrate that risk disclosure quality associates negatively with information asymmetry. Additionally, it was found that the usefulness of risk disclosures to investors depends on firm riskiness, investor interest and market conditions. Regarding corporate transition disclosure, the results indicate that recommended disclosure has more mandatory characteristics than voluntary disclosure. Moreover, this dissertation documents several significant non-regulatory determinants of risk and transition disclosures such as firm size, profitability, financial leverage, growth prospects, listing on the NYSE, and board independence.

The results benefit regulators, managers, investors, and analysts. This dissertation demonstrates for standard-setters such as the IASB, and the FASB, the SEC, and other national regulatory bodies that risk reporting under IFRS can be influenced through a detailed national disclosure standard. The findings suggest that a single legislative provision may not be effective enough to ensure transparent disclosure of abstract issues such as risks. Many managers may need detailed descriptions of the required disclosures with illustrative examples. We also demonstrate that managers react to the CESR (now ESMA) transition disclosure recommendation, which is actively promoted by the Finnish Financial Supervision Authority. Thus, in some cases (for example when urgent disclosure improvements are needed) authoritative disclosure recommendations may be a faster and more cost-efficient way to achieve disclosure improvements than laws or standards.

Abstract (fin):

Laadukas tekstimuotoinen raportointi on tärkeä keino, kun halutaan lisätä yrityksen tiedottamisen hyödyllisyyttä sijoittajille. Tekstimuotoisen raportoinnin tehokas sääntely on kuitenkin haastavaa. Tämän väitöskirjan tavoitteena on tarkastella suomalaisten listayhtiöiden riski- ja siirtymätiedottamista IFRS-aikakaudella. Työssä tarkastellaan voiko raportointia parantaa yksityiskohtaisen riskitiedottamisstandardin ja autoritaarisen tiedottamissuosituksen avulla. Väitöskirjassa analysoidaan myös laadukkaan riskitiedottamisen taloudellisia vaikutuksia osakemarkkinoilla sekä riski- ja siirtymätiedottamista selittäviä ei-lainsäädännöllisiä tekijöitä.

Työssä käytetään positivistista tutkimusmetodologiaa, joka on vallitseva lähestymistapa rahoittajien laskentatoimen tutkimuksessa. Väitöskirjan tärkeimmät testimenetelmät ovat keskiarvotesti ja monimuuttujaregressioanalyysi. Otosyritykset koostuvat suomalaisista listayrityksistä. Tiedottamisaineisto on käsin kerättyä ja koodattua. Muiden muuttujien data on hankittu Thomson One Banker Financial, IBES, Worldscope ja Datastream tietokannoista sekä kerätty käsin vuosikertomuksista ja Euroclear Finland Oy:n rekisteristä.

Väitöskirjassa osoitetaan, että yksityiskohtainen kansallinen riskitiedottamisstandardi lisäsi yritysten riskikatsausten laatua useassa eri laatudimensiossa. Tulokset myös paljastavat, että riskitiedottamisen laadulla ja sijoittajien osakemarkkinoilla kohtaamalla informaation epäsymmetrialla on negatiivinen korrelaatio. Lisäksi työssä osoitetaan, että riskitiedottamisen hyödyllisyys sijoittajille riippuu seuraavista kontingenssitekijöistä: yrityksen riskisyys, sijoittajien osoittama kiinnostus yritystä kohtaan ja markkinatilanne. Väitöskirjan siirtymätiedottamiseen liittyvät tulokset paljastavat, että yritysjohto tulkitsi siirtymätiedottamissuosituksen hyvin pakottavaksi, mikä lisäsi sen vaikutusta ja differoi suosituksen noudattamisen vapaaehtoisesta tiedottamisesta. Työssä löydetään myös todisteita siitä, että riski- ja siirtymätiedottamisen laatua voidaan selittää useilla ei-lainsäädännöllisillä tekijöillä kuten yrityskoko, kannattavuus, velkaantuneisuus, kasvunäkymät, listaus New Yorkin pörssissä ja hallituksen riippumattomien jäsenten lukumäärä.

Tulokset ovat hyödyllisiä lainsäätäjille, johdolle, sijoittajille ja analyytikoille. Väitöskirja osoittaa standardien säätäjille (IASB ja FASB, SEC sekä muut kansalliset lainsäätäjät), kuinka riskiraportointiin voidaan vaikuttaa yksityiskohtaisella kansallisella tiedottamisstandardilla. Yleisellä tasolla annetut tiedottamisvaatimukset eivät välttämättä olekaan tarpeeksi tehokkaita takaamaan laadukasta tiedottamista abstrakteista asioista, kuten esimerkiksi riskeistä. Väitöskirjassa myös osoitetaan, että yritysjohto reagoi hyvin CESR:n (nykyinen ESMA) siirtymätiedottamissuositukseen, jonka noudattamisen puolesta Rahoitustarkastus (nykyinen Finanssivalvonta) aktiivisesti puhui. Joissain tilanteissa (esim. kun tarvitaan nopeata parannusta yritysten tiedottamiseen) autoritaariset tiedottamissuositukset voivatkin olla nopeampi ja kustannustehokkaampi tapa parantaa tiedottamista kuin lait ja standardit.

Thesis defence announcement:

Clear guidelines improved companies' risk reporting

The quality of risk reporting by Finnish listed firms improved when the Finnish Accounting Practice Board (Kirjanpitolautakunta) provided detailed national guidelines for it and clarified the requirements of the Accounting Act and Ordinance in 2006. (Econ.), from the Aalto University School of Business.

These issues are explained in the doctoral thesis of Antti Miihkinen, M.Sc.

Miihkinen studied the effects of a detailed risk reporting standard on how companies report about their risks in a textual form – for example in annual reports. He noticed that the risk reporting standard increased reporting on risks, improved the balance of the information between various risk topics and made the description of risks more informative.

The results of the thesis show that the responsibility for reporting risks assigned on a general level is not necessarily an effective enough way to guarantee high-quality disclosure about abstract issues such as risks.

’Earlier, the guidelines on risk reporting were very general and could be interpreted in many ways,’ Miihkinen explains.

Disagreement about future cash flow expectations decreased

Miihkinen also analysed the economic impacts of high-quality risk reporting on share markets. The results showed that the quality of risk reporting and asymmetry of information have a negative connection. When reporting on risks is carried out well, information asymmetry is lower.

’This means that a company that reports adequately about its risks has a smaller information risk. As investors are having fewer differing opinions about the future expectations for the company and about the risks related to them, also the share price will be closer to its fundamental value.’

According to Miihkinen, society as a whole benefits from this. Peoples' assets become directed towards targets that are the most profitable, the best of the companies keep riding the wave and new workplaces are created.

Larger companies were better reporters than the small ones

In 2005, the International Financial Reporting Standards (IFRS) for public companies came into force in the EU. Miihkinen also investigated how companies informed investors about the transition to the use of the IFRS standards. He found that an authoritative and actively marketed transition disclosure recommendation was an efficient way to improve companies' transition disclosure.

The quality of both risk and transition disclosures could also be explained by many factors that were not dependent on legislation. Large Finnish listed firms were on average better than small firms in both transition and risk disclosures. Other explanatory factors were profitability, financial leverage, growth prospects, listing on the New York Stock Exchange, and board independence.

Opponents:

Sahlström, Petri
professor
University of Oulu, Finland

Chairperson:

Kinnunen, Juha
professor

Aaltodoc:

https://aaltodoc.aalto.fi/handle/123456789/11568

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