Michel Magnan

Environmental reporting management: a continental European perspective

Abstract Extending Cormier and Magnan’s approach [J. Account. Audit Finance 14 (1999) 429] into a new context, our study investigates the determinants of corporate environmental reporting using a cost/benefits framework within France’s unique legal and regulatory context. Results suggest that, in addition to firm size, proprietary costs, information costs and media visibility determine corporate environmental reporting. Industry-specific reporting patterns are also apparent.

Investors' assessment of implicit environmental liabilities: An empirical investigation

Abstract The purpose of our study is to investigate how investors assess the financial implications of a firms environmental performance, as measured by its pollution record relative to existing regulations (pollution measure). It is expected that the larger a firms pollution measure, the greater is the magnitude of implicit environmental liabilities which investors will subtract from its stock market valuation. These implicit environmental liabilities reflect environmental costs and losses which the firm is expected to incur, but which are not yet accounted for in its financial statements. Results from a three-industry sample suggest that market participants assess implicit environmental liabilities to pulp and paper firms, chemicals, and oil refiners. The more these firms pollute, the greater the extent of their implicit environmental liabilities. Weaker evidence is provided for steel, metal and mining firms.

The informational contribution of social and environmental disclosures for investors

Purpose – The aim of the paper is to investigate whether social disclosure and environmental disclosure have a substituting or a complementing effect in reducing information asymmetry between managers and stock market participantsDesign/methodology/approach – This study attempts to provide a comprehensive analysis of a firms social and environmental disclosure strategy. The authors posit that this strategy simultaneously affects information asymmetry and disclosure.Findings – Findings suggest that social disclosure and environmental disclosure substitute each other in reducing stock market asymmetry.Research limitations/implications – The measurement of social and environmental disclosure is based upon a coding instrument that makes some explicit assumptions about the value and relevance of information. Moreover, information asymmetry cannot be directly measured and is inferred from the behaviour of proxy variables such as share price volatility and bid‐ask spread.Practical implications – Results suggest...

The Impact of Mandated Disclosure on Performance-Based CEO Compensation

Regulators argue that mandated compensation disclosure improves corporate governance by permitting shareholders to enjoin boards of directors to reward executives in ways that are consistent with shareholder value creation. We posit that mandated compensation disclosure, or the absence thereof, has a greater impact on the CEO compensation practices of widely held firms than of closely held firms. More specifically, we expect that, in the absence of mandated disclosure, CEO compensation is likely to be less performance-contingent among widely held firms than among closely held firms. Moreover, we also expect that the advent of mandated disclosure leads widely held firms to increase the extent to which CEO compensation is performance-contingent, much more so than closely held firms would. We use a unique database resulting from the Ontario Securities Commission amendment of Regulation 638 in October 1993. For the first time, this amendment required firms listed on the Toronto Stock Exchange to provide detailed executive compensation data similar to that required by the SEC, for current year as well as retroactively for the previous two years. We find that, in the absence of mandated disclosure, CEO cash compensation in widely held firms is less performance-contingent than in closely held firms. With the imposition of mandated disclosure, performance-contingent cash compensation increases more in widely held firms than in closely held firms. Results with respect to stock option grants are mixed, with both closely held and widely held firms reacting to the advent of mandated disclosure.

Corporate governance and information asymmetry between managers and investors

Purpose – The purpose of this paper is to investigate the impact of governance on information asymmetry between managers and investors. Hence, the paper seeks to extend prior voluntary disclosure research.Design/methodology/approach – The paper investigates how a firms governance maps into the level of information asymmetry between managers and investors. Governance encompasses two complementary dimensions: formal monitoring attributes and voluntary disclosure about board processes. Information asymmetry is measured by either share price volatility or Tobins Q.Findings – The results show that some formal monitoring attributes (board and audit committee size) as well as the extent of voluntary governance disclosure reduce information asymmetry. This suggests that governance disclosure may complement a firms governance monitoring attributes, especially in a country such as Canada where investors have good legal protection. It appears also that firms take into account ultimate costs and benefits to shareh...

On the Relationship between Voluntary Disclosure, Earnings Smoothing and the Value-Relevance of Earnings: The Case of Switzerland

Abstract This paper examines whether voluntary disclosure by Swiss firms constrains the use of discretionary accruals to smooth earnings, and explores the effect of voluntary disclosure on the value relevance of earnings. We focus on Swiss firms because Switzerlands financial reporting system provides managers with extensive discretion in corporate disclosure, and there are important variations in the level of information provided in their annual reports. We consider that managers can choose two different ways to voluntarily convey information, either through the quality and quantity of annual report disclosure or, through compliance with International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS) or US Generally Accepted Accounting Principles (GAAP). Relying on a simultaneous equations approach, our results suggest that Swiss firms use discretionary accruals to smooth earnings. However, this relation is reduced for firms that voluntarily disclose more information in their annual report or comply with IAS/IFRS or US GAAP. Moreover, we show that discretionary accruals of high disclosers or of firms voluntarily complying with IAS/IFRS or US GAAP receive a lower valuation weight.

The contractual and value relevance of reported earnings in a dividend-focused environment

This study investigates the relevance of reported earnings in the context of an institutional environment, i.e., Switzerland, in which investors focus on dividends. In conjunction with a dividend focus, the financial reporting environment faced by Swiss firms provides their managers with more accounting discretion than managers of Anglo-Saxon firms typically have. From a contractual perspective, dividendbased earnings management is expected since Swiss corporate law explicitly states that dividends, which must be voted on by stockholders, are to be based upon a firms reported earnings. From a value perspective, thin trading conditions and a long-term investment horizon are expected to increase the importance of dividend payments and to influence the informativeness of reported earnings. Results indicate that Swiss managers do engage in dividend-based earnings management, that earnings quality signals are used by managers to voluntarily constrain their accounting choices and that the value relevance of earnings is conditional upon dividend payments.

Performance reporting by oil and gas firms: contractual and value implications

Abstract Performance reporting by oil and gas firms is multidimensional, with earnings, cash flows from operations and changes in reserves revealing different facets of underlying firm performance. However, for Canadian oil and gas firms, managerial incentives for earnings management as well as investors’ appreciation of various performance metrics can be affected by the intensity of external monitoring that accompanies a U.S. stock exchange listing. From a contractual perspective, our findings provide some evidence that managers of Canadian oil and gas firms engage in income smoothing, with a U.S. listing as well as large firm size leading to more conservative accruals. From a value perspective, our findings suggest that cash flow is the performance metric most closely associated with stock market valuation and the best predictor of future cash flows. Discoveries are also found to be a reliable and relevant performance metric. However, only investors in U.S. listed firms appear to adjust reported earnings and cash flow figures for the potential overstatement that is caused by the use of the full cost method. Investors in firms that are listed only in Canada do not appear to take the full cost/successful efforts choice fully into account when assigning value multiples to earnings or cash flow.

Inside Agency: The Rise and Fall of Nortel

By employing the theoretical template provided by agency theory, this article contributes a detailed clinical analysis of a large multinational Canada-headquartered telecommunications company, Nortel. Our analysis reveals a twenty-first century norm of usual suspects: a CEO whose compensation is well above those of his peers, a dysfunctional board of directors, acts of income smoothing to preserve the confidence of volatile investors, and revelations of financial irregularities followed by a downfall. In many ways, the spectacular rise and – sudden – fall of Nortel illustrates excesses of actors within, and contradictions of the system of corporate governance implied by the agency model. Furthermore, this case illustrates limitations of the agency framework in complex situations with short-term oriented investors.

Why do Boards Differ? Because Owners Do: Assessing Ownership Impact on Board Composition

Manuscript Type. Empirical. Research Question/Issue. Does the ownership structure of a firm, specifically the aggregation of the different ownership types within each firm, relate with the composition of its board?. Research Findings/Insights. Using archival data from a sample comprising 1,487 U.S. firms, we find that the composition of the individual profiles of directors on corporate boards (i.e., independent, affiliated, or insider) match a firms aggregated ownership configuration (institutional, corporate parent, family‐entrepreneur control) even after parsing out the impact of CEO characteristics, firm size, and performance. Further analyses elaborate on the specific relationship between each director profile and ownership types present within the firm. Theoretical/Academic Implications. This study builds upon three conceptual perspectives: agency, resource dependency, and behavioral. We argue that each type of ownership has differing imperatives and may prefer different types of directors to fulfill their governance needs. The paper illustrates that the relationship between corporate governance, specifically board composition, and ownership is a comprehensive phenomenon that is best understood through multiple theoretical lenses. Practitioner/Policy Implications. This study shows that ownership and board composition are not substitutable governance mechanisms as commonly understood, but might be complementary mechanisms. A finding that governance mechanisms are complementary implies that regulatory or institutional pressures to modify board composition with the addition of directors with similar profiles may affect the governance in unforeseen ways.