A1 Vertaisarvioitu alkuperäisartikkeli tieteellisessä lehdessä

Board characteristics and negative disclosure tone




TekijätMartikainen Minna, Miihkinen Antti, Watson Luke

KustantajaEmerald

Julkaisuvuosi2023

JournalJournal of Accounting Literature

Vuosikerta45

Numero1

eISSN2452-1469

DOIhttps://doi.org/10.1108/JAL-03-2022-0033

Verkko-osoitehttps://www.emerald.com/insight/content/doi/10.1108/JAL-03-2022-0033/full/html

Rinnakkaistallenteen osoitehttps://research.utu.fi/converis/portal/detail/Publication/177241292


Tiivistelmä

Purpose

Negative disclosure tone in 10-K annual reports has economic consequences, yet relatively little is known about how it is generated. Boards of directors play an important governance role with respect to mandatory disclosures and personally sign off on Form 10-K, leading us to expect directors to influence financial reporting narratives. This study investigates whether the negative tone of firms' narrative annual report disclosures is associated with the human and social capital of its board of directors.

Design/methodology/approach

Multivariate regression analyses of negative disclosure tone (Loughran and McDonald, 2011) on board members' average age, gender, education, financial expertise and turnover is performed. A host of supplemental tests to corroborate our primary analysis, including using Sarbanes-Oxley's financial expert mandate as an exogenous shock to board composition, impact threshold for a confounding variable, placebo analysis, portfolio tests of more and less negative disclosing firms and portfolio tests of “loud” versus “quiet” boards are conducted.

Findings

Evidence that directors' gender, education, financial expertise and board turnover are associated with more negative disclosure tone, while directors' age is associated with less negative disclosure tone is found. The study also looked within the board to differentiate whether these findings are driven by characteristics of inside directors or outside directors serving on the audit committee, or both, as these are the specific groups of directors we would expect to play a role in disclosure. It was found that negative disclosure tone is associated with a lower bid-ask spread, so this study interpreted more negative tone as containing more descriptive information.

Originality/value

This study helps decode the “black box” of annual report disclosure tone, which Loughran and McDonald (2011) show has important economic implications. The results help inform stakeholders such as policymakers, executives and capital market participants as to how board member traits are associated with disclosure. The findings are particularly important as this study bears witness to the increasing prominence of gender/diversity mandates (e.g. Israel, Norway, California) and financial expertise mandates (e.g. Sarbanes-Oxley).


Ladattava julkaisu

This is an electronic reprint of the original article.
This reprint may differ from the original in pagination and typographic detail. Please cite the original version.





Last updated on 2025-27-03 at 21:40