Bring risk into the open

Mark Billings, Chris O'brien and Margaret Woods discuss disclosures by major UK-listed companies on the risks arising from defined benefit pension schemes...

Assessing the value relevance of accounting data after the introduction of IFRS in Europe

Since 2005, European-listed companies have been required to prepare their consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS). We examine whether value relevance increased following the introduction of IFRS, using a sample of 3,721 companies listed on five European stock exchanges: Frankfurt, Madrid, Paris, London, and Milan. We find mixed evidence of an increase in value relevance. However, the influence of earnings on share price increased following the introduction of IFRS in Germany, France, and the United Kingdom, while the influence of book value of equity decreased (except for the United Kingdom). © 2010 Blackwell Publishing Ltd.

Discretion in accounting for pensions under IAS 19:using the ‘magic telescope’?

We use a panel data set of UK-listed companies over the period 2005–2009 to analyse the actuarial assumptions used to value pension plan liabilities under IAS 19. The valuation process requires companies to make assumptions about financial and demographic variables, notably discount rate, price inflation, salary inflation and mortality/life expectancy of plan members/beneficiaries. We use regression analysis to analyse the relationships between these key assumptions (except mortality, where disclosures are limited) and company-specific factors such as the pension plan funding position and duration of pension liabilities. We find evidence of selective ‘management’ of the three assumptions investigated, although the nature of this appears to differ from the findings of US authors. We conclude that IAS 19 does not prevent the use of managerial discretion, particularly by companies whose pension plan funding positions are weak, thereby reducing the representational faithfulness of the reported pension figures. We also highlight that the degree of discretion used reflects the extent to which IAS 19 defines how the assumptions are to be determined. We therefore suggest that companies should be encouraged to justify more explicitly their choice of assumptions.

A versenyképesség aktuális kérdései a pénzügyekben - Összefoglaló a pénzügyi kutatócsoport munkájáról = Current issues of competitiveness - Summary on the work of the Finance research team

A pénzügy kutatócsoport a TÁMOP-4.2.1.B-09/1/KMR-2010-0005 azonosítójú projektjében igen szerteágazó elemzési munkát végzett. Rámutattunk, hogy a különböző szintű gazdasági szereplők megnövekedett tőkeáttétele egyértelműen a rendszerkockázat növekedéséhez vezet, hiszen nő az egyes szereplők csődjének valószínűsége. Ha a tőkeáttételt eltérő mértékben és ütemben korlátozzák az egyes szektorokban, országokban akkor a korlátozást később bevezető szereplők egyértelműen versenyelőnyhöz jutnak. Az egyes pénzügyi intézmények tőkeallokációját vizsgálva kimutattuk, hogy a különféle divíziók közt mindig lehetséges a működés fedezetésül szolgáló tőkét (kockázatot) úgy felosztani, hogy a megállapodás felmondás egyik érintettnek se álljon érdekében. Ezt azonban nem lehet minden szempontból igazságosan megtenni, így egyes üzletágak versenyhátrányba kerülhetnek, ha a konkurens piaci szereplők az adott tevékenységet kevésbé igazságtalanul terhelték meg. Kimutattunk, hogy az egyes nyugdíjpénztárak befektetési tevékenységének eredményességére nagy hatással van a magánnyugdíjpénztárak tevékenységének szabályozása. Ezek a jogszabályok a társadalom hosszú távú versenyképességére vannak hatással. Rámutattunk arra is, hogy a gazdasági válság előtt a hazai bankok sem voltak képesek ügyfeleik kockázatviselő képességét helyesen megítélni, ráadásul jutalékrendszerük nem is tette ebben érdekelté azokat. Számos vizsgálatunk foglalkozott a magyar vállalatok versenyképességének alakulásával is. Megvizsgáltuk a különféle adónemek, árfolyamkockázatok és finanszírozási politikák versenyképességet befolyásoló hatását. Külön kutatás vizsgálta a kamatlábak ingadozásának és az hitelekhez kapcsolódó eszközfedezet meglétének vállalati értékre gyakorolt hatásait. Rámutattunk a nemfizetés növekvő kockázatára, és áttekintettük a lehetséges és a ténylegesen alkalmazott kezelési stratégiákat is. Megvizsgáltuk azt is, hogy a tőzsdei cégek tulajdonosai miként használják ki az osztalékfizetéshez kapcsolódó adóoptimalizálási lehetőségeket. Gyakorlati piaci tapasztalataik alapján az adóelkerülő kereskedést a befektetők a részvények egy jelentős részénél végrehajtják. Külön kutatás foglakozott a szellemi tőke hazai vállalatoknál játszott szerepéről. Ez alapján a cégek a problémát 2009-ben lényegesen magasabb szakértelemmel kezelték, mint öt esztendővel korábban. Rámutattunk arra is, hogy a tulajdonosi háttér lényeges hatást gyakorolhat arra, ahogyan a cégek célrendszerüket felépítik, illetve ahogy az intellektuális javakra tekintenek. _____ The Finance research team has covered a wide range of research fields while taking part at project TÁMOP-4.2.1.B-09/1/KMR-2010-0005. It has been shown that the increasing financial gearing at the different economic actors clearly leads to growth in systematic risk as the probability of bankruptcy climbs upwards. Once the leverage is limited at different levels and at different points in time for the different sectors, countries introducing the limitations later gain clearly a competitive advantage. When investigating the leverage at financial institutions we found that the capital requirement of the operation can always be divided among divisions so that none of them would be better of with cancelling the cooperation. But this cannot be always done fairly from all point of view meaning some of the divisions may face a competitive disadvantage if competitors charge their similar division less unfairly. Research has also shown that the regulation of private pension funds has vital effect on the profitability of the investment activity of the funds. These laws and regulations do not only affect the funds themselves but also the competitiveness of the whole society. We have also fund that Hungarian banks were unable to estimate correctly the risk taking ability of their clients before the economic crisis. On the top of that the bank were not even interested in that due to their commission based income model. We also carried out several research on the competitiveness of the Hungarian firms. The effect of taxes, currency rate risks, and financing policies on competitiveness has been analysed in detail. A separate research project was dedicated to the effect of the interest rate volatility and asset collaterals linked to debts on the value of the firm. The increasing risk of non-payment has been underlined and we also reviewed the adequate management strategies potentially available and used in real life. We also investigated how the shareholders of listed companies use the tax optimising possibilities linked to dividend payments. Based on our findings on the Hungarian markets the owners perform the tax evading trades in case of the most shares. A separate research has been carried out on the role played by intellectual capital. After that the Hungarian companies dealt with the problem in 2009 with far higher proficiency than five years earlier. We also pointed out that the ownership structure has a considerable influence on how firms structure their aims and view their intangible assets.

Szisztematikus optimizmus a válság idején = Overoptimism during the financial crises

Számos publikáció bizonyította, hogy az elemzők a tőzsdei vállalatokra készült egy részvényre jutó nyereség- (EPS-earnings per share) előrejelzéseikben szisztematikusabban kedvezőbb tervértéket adnak meg, mint a tényérték. A cikkben az EPS-előrejelzéseket vizsgálta meg a szerző a válság első másfél évében, melyek ezen időszakban is optimistának bizonyultak a vizsgált adatbázison. Az elmúlt húsz évben számos magyarázat látott napvilágot a pénzügyi előrejelzésekben tapasztalható „túltervezésre”. A viselkedéstani magyarázatok jelentős része az elemzők túlzott önbizalmát, jövőbe vetett túlzott optimizmusát jelölték meg okként. Jelen cikk – az empirikus kutatáson túl – nagy hangsúlyt fektet a két fogalom részletes bemutatására, mivel a válság éveit is optimista EPS-előrejelzések jellemezték. _____ There are numerous evidences from the 1980s that analysts give systematically more favorable forecasts for the earnings per share of listed companies than the fact, i.e. they are generally optimistic. In the current article the author investigated the EPS forecasting error in the first two and a half years of the crisis (2008-2010), which was also proved to be an era of the optimistic forecasting error. During the last 20 years reasons of so called “overplanning” have been explained in several ways. Many of these cognitive thinking patterns explanations relied on the phenomenon of overconfidence, and overoptimism without giving detailed description of these concepts. Beside the empirical part of the research current article puts more emphasis on the analysis of these theoretical concepts.

Företags potentiella manipulation av tillväxttakt i goodwillnedskrivningstestet : En kvantitativ studie av svenska och finska börsnoterade företag

Bakgrund och problem: I och med den nya standarden IAS 36 ska företagen göra uppskattningar angående den långsiktiga tillväxttakten i goodwillnedskrivningstestet. Detta innebär en möjlighet att manipulera tillväxttakten för att på så vis undvika eller framkalla nedskrivning av goodwill. Problemformulering: Hur påverkar utvalda variabler företags potentiella manipulation av angiven tillväxttakt? Syfte: Syftet med studien är att bidra med förklaringar till vad som påverkar att företag redovisar för höga respektive för låga tillväxttakter i goodwillnedskrivningstestet. Metod: Denna studie bygger på en kvantitativ metod där urvalet består av samtliga svenska och finska börsnoterade företag med redovisad goodwill. Utifrån existerade kunskap formuleras fyra hypoteser som testas mot empirin. Resultat och slutsats: Resultatet av denna studie visar inga signifikanta samband mellan den beroende variabeln manipulation och de oberoende variablerna storlek, skuldsättningsgrad, bransch och redovisningstillsyn. Den deskriptiva statistiken visar att i stort sett hälften av företagen manipulerar tillväxttakten.

Corporate Social Responsibility och lönsamhet : Finns det ett samband mellan företags rapporterade CSR-arbete och dess lönsamhet?

Bakgrund: Vilken roll har företag i vårt samhälle? Vilken funktion ska de fylla? Är företagens funktion att vara vinstmaximerande och enbart se till sitt eget bästa, eller har de ett större ansvar och skyldigheter mot samhället? Dessa frågor har diskuterats under lång tid och bilden av företag och företagande förändras kontinuerligt i takt med att samhället förändras. Tankarna om att företag har ett socialt ansvar, vid sidan av det ekonomiska, har spridit sig över världen och frågor som har dykt upp är om det finns någon motsättning mellan socialt ansvar och företagens vinstintresse. Eller kan det vara så att socialt ansvarstagande kan leda till ökad lönsamhet? Syfte: Att genom en empirisk undersökning ge en förklaring om svenska noterade bolags rapporterade arbete med CSR har en positiv inverkan på dess lönsamhet. Metod: För att uppnå syftet valdes en deduktiv kvantitativ metod för att kunna göra en statistisk generalisering. Det rapporterade CSR-arbetet operationaliseras med hjälp av Folksams rapport "Index för ansvarsfullt företagande" och lönsamhet mäts via avkastning på totalt kapital (ROA) samt vinstmarginal. Analysen genomförs med hjälp av multipla regressionsanalyser. Slutsats: Studiens resultat visar att företags rapporterade CSR-arbete har en positiv inverkan på svenska noterade företags lönsamhet, både mätt i avkastning på totalt kapital (ROA) och vinstmarginal.

Den goda viljan och framtida lönsamhet : En studie om nedskrivning av goodwill är en ledande indikator på framtida minskad lönsamhet i svenska och finska börsnoterade bolag

Bakgrund: Goodwill är en omdebatterad immateriell tillgångspost. En nedskrivning ska enligt redovisningsstandarden IAS 36 baseras på bolagens framtida ekonomiska utveckling. Därmed kan en nedskrivning vara en indikation på hur bolagets ekonomiska framtid kommer att gestalta sig. Tidigare forskning visar att bolagsledningens subjektiva bedömningar kan leda till att nedskrivningens relevans kan ifrågasättas. Syfte: Enligt IFRS 3 och IAS 36 ska goodwill värderas till det framtida uppskattade värde som tillgången ska generera. Grundtanken med standarderna är att öka tillförlitligheten och relevansen för att bättre återspegla bolagens ekonomi i de finansiella rapporterna. Utifrån grundtanken bör en nedskrivning av goodwill vara en ledande indikator på framtida minskad lönsamhet. Vi avser därmed att undersöka om det finns ett samband mellan nedskrivning av goodwill och minskad framtida lönsamhet i svenska och finska börsnoterade bolag samt om det finns en skillnad mellan länderna när det gäller sambandet. Metod: Uppsatsen är baserad på en kvantitativ metod med en deduktiv ansats där sekundärdata hämtats från databas samt årsredovisningar. Informationen har samlats in för att därefter testas med regressionsanalyser. Slutsats: Studien kan inte styrka att standarden ger en bättre återspegling av bolagens ekonomi i de finansiella rapporterna. Resultatet visar att hanteringen av goodwill kan ske utifrån ett opportunistiskt beteende då nedskrivningen kan vara baserad på en redan realiserad försämring av goodwill istället för att vara baserad på framtida bedömningar. Resultatet antyder att tillsynen inte är harmoniserad inom EU, då det finns en signifikant skillnad mellan Sverige och Finland två år efter nedskrivningen. Studiens resultat kan användas till att ifrågasätta gällande standardens utformning.

Value and proportions of intangible assets : A comparison between the private- and the public sector

Organizations within the public- and the private sector have different aims with their accounting. Privately held organizations often have the intention to make profit, while authorities within the public sector aim to provide citizens with different services. The difference between these two sectors is also visible in the legislation, where International Accounting Standards Board set the standards for privately held organizations and Ekonomistyrningsverket do the same for the public sector. Because of the larger demand by the society for knowledge and technology, included in the category intangible assets, these are more emphasized in the accounting for organizations. Intangible assets are although linked with complexity which is associated with the measurement. The purpose of this study is therefore to see whether there are any existing differences in how to measure and value intangible assets and internally generated ones between listed companies in the private sector and authorities operating in the public sector. This study is conducted with both a qualitative and quantitative perspective. The data collected for this study is secondary, and is gathered through samples of annual reports from different companies in order to be representative for the whole population. The main results of this study is that there are differences in the measurement and valuation of intangible assets dependent on which sector an organization operates within and this is not due to the standards and regulations. The differences are visible in the percentage change in value of intangible assets since they fluctuate more heavily in the private sector than in the public sector. Simultaneously, the proportions of internally generated intangible assets compared to intangible assets in general differ between the two sectors.

Integrating corporate responsbility into investor relations. Sustainability report as a part of investor relations.

Corporate responsibility is a question that many stakeholders are interested in. These stakeholders can be e.g. company’s employees, partners, clients, media or investors. Especially for listed companies, investors are one of the most important stakeholders. It is essential for a company to maintain the trust of current investors and gain the trust of potential investors. Investors cannot be divided only into two groups, individual and institutional investors. Investors differ a lot, especially when it comes to investment decisions. Investors can make their investment decisions based on many things, and strong financial performance is not necessarily good enough a reason. Socially responsible investors value responsibility and sustainability related factors when making investment decisions. These things can be divided into three dimensions: environmental, social and economic responsibility. Many companies disclose a sustainability report in order to be able to answer to the needs of different stakeholders, including investors. The purpose of this thesis was to study how companies integrate corporate responsibility into investor relations, and how sustainability report can be used in investor relations. Furthermore, this thesis examined the key elements of sustainability reports. The research was made by a qualitative study in two phases. In the first phase five representatives of two Finnish listed companies, KONE and Kesko were interviewed. The interviewees are professionals within investor relations and corporate responsibility communications. In the second phase of the study the sustainability reports of these two companies were analyzed with content analysis. The existing theory and the interviews created the base for the content analysis. This study suggests that there is a connection between corporate responsibility and investor relations, and those should be integrated. Socially responsible investors are an important target group for companies, and companies should be able to respond to their and other stakeholders’ needs. Sustainability report can be used as a tool both within the company and in external communication for these purposes.

Low-Volatility Anomaly in Helsinki Stock Exchange

International research shows that low-volatility stocks have beaten high-volatility stocks in terms of returns for decades on multiple markets. This abbreviation from traditional risk-return framework is known as low-volatility anomaly. This study focuses on explaining the anomaly and finding how strongly it appears in NASDAQ OMX Helsinki stock exchange. Data consists of all listed companies starting from 2001 and ending close to 2015. Methodology follows closely Baker and Haugen (2012) by sorting companies into deciles according to 3-month volatility and then calculating monthly returns for these different volatility groups. Annualized return for the lowest volatility decile is 8.85 %, while highest volatility decile destroys wealth at rate of -19.96 % per annum. Results are parallel also in quintiles that represent larger amount of companies and thus dilute outliers. Observation period captures financial crisis of 2007-2008 and European debt crisis, which embodies as low main index annual return of 1 %, but at the same time proves the success of low-volatility strategy. Low-volatility anomaly is driven by multiple reasons such as leverage constrained trading and managerial incentives which both prompt to invest in risky assets, but behavioral matters also have major weight in maintaining the anomaly.

Are joint audits associated with higher audit fees?

In its October 2010 Green Paper on audit policy, the European Commission suggested that joint audits might be a way of improving the audit market in Europe. However, some parties consider that a joint audit system is not an efficient solution because the perceived improvements in audit quality, if any, are not commensurate with the significant increase in audit fees. We compare audit fees paid during the years 2007-2011 by listed companies in France, where joint audits are mandatory, with those paid by British and Italian companies. Theory suggests that audit fees in countries with high investor protection, such as the UK, are likely to be greater than those in countries with lower investor protection, such as France and Italy, ceteris paribus. However, we find significantly higher audit fees in France after controlling for well-documented auditor, client, and engagement attributes, which vary across countries. Furthermore, since we do not find statistically significant differences in the magnitude of abnormal accruals, the higher audit fees observed in France do not appear to be associated with higher audit quality.

Natural fibers based composites - Technical and social issues

Brazil is the only country in South America to have an automotive supplier sector based on natural fibers. New opportunities are arising due to an increase demand by the car makers in applying natural fibers in their parts. Several crop fibers have been developed in Brazil. Among them can be listed caroa, piacava, pupunha, mutum and others of regional application. For the automotive industry, which requires large quantities with uniform quality, the alternatives are sisal (170,000 ton/yr), curaua (150 ton/yr in 2003), malva, 200 ton/yr; Brazil is the single largest producer country of sisal, and commercially, the only one in curaua. For South America, the alternatives are fique in Colombia, abaca in equator, flax in Argentina and curaua in Venezuela. It must be understood by the target countries of drugs, is that crop fiber can be an economic alternative to coca in the Andes region, therefore an instrument of land reform and drug reduction plantations. Several companies have a strong program of apply natural fibers based components in their products: Volkswagen do Brazil, DaimlerChrysler, General Motors do Brazil. Among their suppliers can be listed companies such Pematec (curaua), Toro (sisal, coir and jute), Incomer (sisal and jute), Ober (jute, curaua), Indaru (jute and sisal), Antolin (imported kenaf,) Tapetes Sao Carlos (sisal), Poematec (coir) and Art-Gore, with Woodstock'' wood and natural fibers). Figures about production and demand are discussed in the paper.

Worldwide convergence of IFRS: Evidence from the global automotive industry

Worldwide convergence of International Financial Reporting Standards (IFRS), ongoing since 2002, is a requirement if international comparability between publicly listed companies is to be ensured. Convergence is examined from the point of view of regulators, accountants, and users of financial information. For this purpose, data on 534 companies from the global automotive industry is used. This paper concludes that worldwide convergence is mostly being effective. Its triumph, however, varies depending on the set of accounting standards being compared to IFRS. Options within IFRS, national tax regulation, cultural differences, different company strategies and country resistance are found to hinder convergence.

A divulgação de informação do governo societário e o seu efeito no mercado de capitais. Evidência no PSI20 - Euronext Lisbon

Dissertação de Mestrado, Finanças Empresariais, Faculdade de Economia, Universidade do Algarve, 2016