The International Journal of Accounting

Elsewhere in this issue, Song and Trimble (in press; hereafter ST) present proposals for a method of classifying jurisdictions by the degree to which they have adopted IFRS. ST apply the method to many jurisdictions over 30 years. This classification can be useful to both qualitative and quantitative researchers. As ST suggest, the classification will need to be kept up to date. In that context, this commissioned paper discusses possible enhancements to their method. I suggest that ST’s tables are too ambitious in trying to cover six dimensions: country, year, type of GAAP, range of firms covered, whether the GAAP is required or merely permitted, and the degree of compliance by firms. I would reduce ST’s 13 IFRS statuses to five types of GAAP.

The number of countries that have adopted International Financial Reporting Standards (IFRS) in some form has grown each year. However, the existing literature generally ignores the varied types and the complex timing of IFRS adoption. Our paper provides a cross-reference of IFRS adoption dates and types for 195 countries and territories around the world. This definitive data, including an extensive online dataset, was developed to help researchers better identify IFRS adoption events in the samples used in their empirical studies. Additionally, we highlight potential challenges in identifying IFRS adoption types and dates as well as provide areas of future research that can benefit from our dataset, which can be accessed online https://about.illinoisstate.edu/mktrimb/song-trimble-2022-dataset/.

The research problem

We examined whether the reputation of the nominated advisor (Nomad) impacts the accrual and real earnings management of initial public offering (IPO) firms on the Alternative Investment Market (AIM) of the London Stock Exchange in the UK.

Motivation and theoretical reasoning

While the role of Nomads on the AIM is a significant determinant in ensuring the integrity of the financial reporting quality of their advisee firms, to date, there has been no analysis of the impact of Nomads on such reporting activities.

The test hypothesis

The main hypothesis of this study tested whether IPO firms that appoint a more reputable Nomad exhibit a lower level of accrual-based and real-based earnings management during the IPO.

Target population

The initial sample of this study consisted of all IPO firms that went public on the AIM between January 1998 and December 2008. After restricting the sample to non-financial IPO firms with the necessary data available to estimate accrual and real earnings management and Nomad reputation, the final sample consisted of 432 IPO firms that are backed by 80 Nomads over the sample period.

Adopted methodology

Two real earnings management activities were examined: sales-based manipulation and discretionary expenses–based manipulation. Discretionary accruals were estimated as a proxy of accrual earnings management. To construct the unweighted index of Nomad reputation (NOMAD), data were manually collected for the number of IPOs backed by a Nomad, proceeds of IPOs backed by the Nomad, the Nomad’s age, and the Nomad’s credit score.

Analyses

Following prior research, several techniques and regressions were employed to test the hypothetical relation between Nomad reputation and accrual and real earnings management. As for robustness, both Heckman and instrumental variable (IV) regressions were used to control for sample selection bias, and a three-stage least squares (3SLS) estimation approach was used to test for the two-way interaction between Nomad reputation and earnings management.

Findings

This paper found evidence that more reputable Nomads on the AIM play a significant role in constraining the use of accrual-based and real-based earnings management during the IPO year by their advisee IPO firms. This is also the first evidence on the significant role of reputable financial institutions and intermediaries in monitoring the financial reporting quality in less regulated markets such as the AIM in the UK.

The research problem

We observed the impact of European, international, and national mandatory financial and non-financial regulations on the corporate environmental disclosure of listed companies in the Euronext 100 between 2002 and 2017.

Motivation

Our study was motivated by the perfect European context created by the implementation of the IASs/IFRSs, mandatory since 2005, to enhance financial statement comparability across European companies, and by the national transposition of the 2014/95/EU Non-Financial Reporting Directive requiring European listed and large corporations to disclose information relative to their environmental footprint starting January 1, 2017.

The test hypotheses

H₁: Financial legislation through the IASs/IFRSs implementation improves the level of environmental disclosure in Europe.

H₂: Non-financial legislation through the Non-Financial Reporting Directive improves the level of environmental disclosure in Europe.

Target population

The paper is useful for: (1) researchers wanting to observe the evolution of environmental disclosure in Europe and the main factors influencing it; (2) CEOs and managers who seek to improve their own financial and non-financial reporting; (3) policymakers to know the impact of national and international regulations on environmental disclosure and practices; and (4) users of annual financial statements.

Adopted methodology

We hand collected data using the financial environmental grid proposed by [(). Mandatory environmental disclosures by companies complying with IAS/IFRS: The case of France, Germany and UK. The International Journal of Accounting, 49(2), 231–247] for both descriptive and monetary items from the annual financial statements of all French, Dutch, Belgian, and Portuguese companies included in the Euronext 100 index. We used descriptive statistics and regression models to analyze this data.

Analyses

The results are interpreted through the lenses of neo-institutional theory, legitimacy theory, and homogeneity theory.

Findings

The results show that mandatory financial and non-financial regulations improved the level of environmental disclosure of European companies from different countries over time, but the level of reporting was still very low. The force of coercive isomorphism is not strong enough to cause companies to be more environmentally responsible and to report more, but normative and mimetic isomorphism, and gaining legitimacy, could have a positive influence on the environmental reporting practices of European companies. Taken as a whole, the policy of “one size fits all” is not appropriate for environmental regulation in Europe and needs to be adapted because each country has a specific culture, tradition, and education regarding environmental values. These values should be improved to promote a better environmental conscience, better individual responsibility, and a tangible feeling of truth and transparency in disclosures, with all these generating real environmental practices and reliable reporting without any trace of greenwashing.

Although regulation on corporate social and environmental reporting in Europe has grown in recent years, there has been limited empirical research on the level, quality, and economic consequences of this regulated disclosure. Barbu, Feleaga and Ferrat (2022) advance our understanding of the impact of European Union legislation on the quantity of corporate environmental disclosures in Europe, showing that regulations improve the level of environmental disclosure. Future research on environmental reporting should provide more in-depth economic intuition and address issues related to differences in cross-country analyses, as well as investigate in more depth both the level and quality of increased disclosure on social and environmental issues, the factors influencing this type of disclosure, and any economic consequences.

This paper offers our insights concerning the issues raised by Prof. Charitou (2022) [Discussion of “The evolution of environmental reporting in Europe: The role of financial and non-financial regulation”. The International Journal of Accounting, 57, a–b] in commentaries on the article “The Evolution of Environmental Reporting in Europe: The Role of Financial and Non-Financial Regulation” [Barbu, E. M., Feleaga, L., & Ferrat, Y. (2022). The International Journal of Accounting, 57, c–d]. As suggested by Charitou (2022), we explain the pertinence of our financial environmental grid of 12 items based on IAS/IFRS, and we propose a complementary non-financial environmental grid of almost 100 elements useful to ensure an exhaustive analysis of corporate environmental disclosure and environmental governance. Furthermore, we analyzed the results through the influence of national regulation on environmental disclosure and practices, and we explain why it is important to work on the synergy among environmental, social, and economic pillars and with the Sustainable Development Goals (SDGs) to improve corporate social and environmental responsibility.

The research problem

We examine the association between financial reporting quality and trade credit capital for a large sample of European private firms. Furthermore, we explore how information asymmetry and credit rationing moderate the link between financial reporting quality and trade credit financing.

Motivation

Trade credit constitutes one of the most important sources of financing for private firms. Nevertheless, prior research has provided few and inconclusive evidence of the link between financial reporting quality and private firms’ trade credit capital. Our study is further motivated by the recent calls for more research on the determinants of the relation between financial reporting quality and trade credit financing (e.g., ()).

The test hypotheses

H₁: There is a positive association between financial reporting quality and private firms’ access to trade credit capital.

H_2a: The relation between financial reporting quality and private firms’ access to trade credit capital is more positive when information asymmetry and uncertainty about future cash flows are high.

H_2b: The relation between financial reporting quality and private firms’ access to trade credit capital is more positive when credit is rationed.

Target population

Policymakers who seek to improve accounting standards and customize them to the financial reporting needs of private firms and their stakeholders (e.g., international financial reporting standards for small and medium-sized enterprises), private firm managers, and private firm suppliers.

Adopted methodology

Ordinary Least Squares regression analyses.

Analyses

We examine the association between financial reporting quality and trade credit financing for a large sample of private firms from Europe’s five largest economies, i.e., France, Germany, Italy, Spain, and the United Kingdom. Our sample period spans from 2010 to 2016. We use the Amadeus database as our source of data. We regress trade credit capital on three proxies for financial reporting quality. In cross-sectional analyses, we repeat our main estimations by interacting our proxies for financial reporting quality with proxies for information asymmetry and credit rationing.

Findings

We find strong evidence that high-quality financial reporting is associated with more trade credit financing in private firms. We further show that the positive relation between high-quality financial reporting and trade credit is stronger when information asymmetry and uncertainty about future cash flows is high as well as when credit is rationed. These findings suggest that suppliers complement insider communication channels and financial reporting quality and provide a more nuanced understanding of the interplay among information asymmetry, credit rationing, and trade credit financing.