Niamh M. Brennan
University College Dublin, Business and Law, Accountancy, Faculty Member
- University of Warwick, Accounting, Alumnusadd
- Corporate Governance, Financial Reporting, Forensic Accounting, Clinicial Governance, Corporate governance, board of directors, Audit Committees, and 9 moreWhistleblowing, Impression Management, Impression Management and Language Use, Voluntary disclosure, Content Analysis, Discourse Analysis, Critical Discourse Analysis, Fraud, and Financial Statement Fraudedit
- Niamh Brennan is Michael MacCormac Professor of Management at University College Dublin and Founder/Academic Director... moreNiamh Brennan is Michael MacCormac Professor of Management at University College Dublin and Founder/Academic Director of the UCD Centre for Corporate Governance. A first-class honours, first-in-class UCD Science (Microbiology and Biochemistry) graduate, Prof Niamh Brennan qualified as a chartered accountant with KPMG, holds a PhD from the University of Warwick and is a Chartered Director of the Institute of Directors (London). With 100+ publications, she has a h-index of 31 reflecting 6,000+ Google Scholar citations. In recognition of her research, Niamh was elected to the Royal Irish Academy in 2020, Ireland’s highest academic honour, the first business school academic to be so recognised. Niamh also received the 2018 British Accounting & Finance Association Distinguished Academic Award, and was inducted into the Interdisciplinary Accounting Research Hall of Fame in 2019 and was awarded a Fellowship of the Irish Academy of Management in 2021. Prof Brennan’s papers received a British Accounting Review best-paper award, Mary Parker Follett Accounting, Auditing and Accountability Journal best-paper and ‘highly commended’ awards, and an Accountancy Ireland best-article award. She has received four best-reviewer awards. Prof Brennan is Associate Editor of the British Accounting Review, Accounting, Auditing and Accountability Journal and Accounting Forum. In a survey of alumni, Niamh was voted one of UCD's top three lecturers for the 2000s onwards. Former chair of the National College of Art & Design and of the Dublin Docklands Development Authority, she holds/has held non-executive directorships with the Children's Hospital Ireland, the Health Service Executive, Ulster Bank, Co-operation Ireland, Coillte (State forestry company), Lifetime Assurance (Bank of Ireland’s life assurance subsidiary) and several private companies, and is/was a member of numerous audit committees. She chaired the Irish Government's Commission on Financial Management and Control Systems in the Health Services and was Vice-Chair of the Irish Government's Review Group on Auditing. Niamh is an Inaugural Honorary Fellow of The Institute of Directors in Ireland and an Honorary Fellow of the Society of Actuaries in Ireland.edit
This paper is open-access free to download on the journal's website
This paper is open-access available to download from the journal's website
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This paper is open-access free to download on the journal's website
Research Interests:
Purpose – The UK private finance initiative (PFI) public policy is heavily criticised. PFI contracts are highly profitable leading to incentives for PFI private-sector companies to support PFI public policy. This contested nature of PFIs... more
Purpose – The UK private finance initiative (PFI) public policy is heavily criticised. PFI contracts are highly profitable leading to incentives for PFI private-sector companies to support PFI public policy. This contested nature of PFIs requires legitimation by PFI private-sector companies, by means of impression management, in terms of the attention to and framing of PFI in PFI private-sector company annual reports. The paper examines this issue.
Design/methodology/approach – PFI-related annual report narratives of three UK PFI private-sector companies, over seven years and across two periods of significant change in the development of the PFI public policy, are analysed using manual content analysis.
Findings – Results suggest that PFI private-sector companies use impression management to legitimise during periods of uncertainty for PFI public policy, to alleviate concerns, to provide credibility for the policy and to legitimise the private sector’s own involvement in PFI.
Research limitations/implications – While based on a sizeable database, the research is limited to the study of three PFI private-sector companies.
Originality/value – Portrayal of public policy in annual report narratives has not been subject to prior research. The research demonstrates how managers of PFI private-sector companies present PFI narratives in support of public policy direction that, in turn, benefits PFI private-sector companies.
Keywords Annual report narratives, Impression management, Legitimacy theory, Private finance initiative
Paper type Research paper
Design/methodology/approach – PFI-related annual report narratives of three UK PFI private-sector companies, over seven years and across two periods of significant change in the development of the PFI public policy, are analysed using manual content analysis.
Findings – Results suggest that PFI private-sector companies use impression management to legitimise during periods of uncertainty for PFI public policy, to alleviate concerns, to provide credibility for the policy and to legitimise the private sector’s own involvement in PFI.
Research limitations/implications – While based on a sizeable database, the research is limited to the study of three PFI private-sector companies.
Originality/value – Portrayal of public policy in annual report narratives has not been subject to prior research. The research demonstrates how managers of PFI private-sector companies present PFI narratives in support of public policy direction that, in turn, benefits PFI private-sector companies.
Keywords Annual report narratives, Impression management, Legitimacy theory, Private finance initiative
Paper type Research paper
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This paper is open-access available on the journal's website
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Purpose – Boards of directors are assumed to exercise three key accountability roles – control, monitoring and oversight roles. By researching one board type – investment fund boards – and the power relations around those boards, we show... more
Purpose – Boards of directors are assumed to exercise three key accountability roles – control, monitoring and oversight roles. By researching one board type – investment fund boards – and the power relations around those boards, we show that such boards are not capable of operating the three key roles assumed of them.
Design/methodology/approach – We conducted 25 in-depth interviews and a focus group session with investment fund directors applying a grounded theory methodology.
Findings – Because of their unique position of power, we find that fund promoter organisations (that establish and attract investors to the funds) exercise control and monitoring roles. As a result, contrary to prior assumptions, oversight is the primary role of investment fund boards, rather than the control role or monitoring role associated with corporate boards. Our findings can be extended to other board-of-director contexts in which boards (e.g., subsidiary boards, boards of state-owned entities) have legal responsibility but limited power because of power exercised by other parties such as large shareholders.
Practical implications – Shareholders and regulators generally assume boards exercise control and monitoring roles. This can lead to an expectations gap on the part of shareholders and regulators who may not consider the practical realities in which boards operate. This expectations gap compromises the very objective of governance – investor protection.
Originality/value – Based on interviews with investment fund directors, we challenge the control-role theory of investment fund boards of directors. Building on our findings, and following subsequent conceptual engagement with the literature, we differentiate control, monitoring and oversight roles, terms which are often used interchangeably in prior research. We distinguish between the three terms on the basis of the level of influence implied by each.
Design/methodology/approach – We conducted 25 in-depth interviews and a focus group session with investment fund directors applying a grounded theory methodology.
Findings – Because of their unique position of power, we find that fund promoter organisations (that establish and attract investors to the funds) exercise control and monitoring roles. As a result, contrary to prior assumptions, oversight is the primary role of investment fund boards, rather than the control role or monitoring role associated with corporate boards. Our findings can be extended to other board-of-director contexts in which boards (e.g., subsidiary boards, boards of state-owned entities) have legal responsibility but limited power because of power exercised by other parties such as large shareholders.
Practical implications – Shareholders and regulators generally assume boards exercise control and monitoring roles. This can lead to an expectations gap on the part of shareholders and regulators who may not consider the practical realities in which boards operate. This expectations gap compromises the very objective of governance – investor protection.
Originality/value – Based on interviews with investment fund directors, we challenge the control-role theory of investment fund boards of directors. Building on our findings, and following subsequent conceptual engagement with the literature, we differentiate control, monitoring and oversight roles, terms which are often used interchangeably in prior research. We distinguish between the three terms on the basis of the level of influence implied by each.
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Purpose – Understanding the influence of information and knowledge exchange and sharing between managers and non-executive directors is important in assessing the dynamic processes of accountability in boardrooms. By analysing... more
Purpose – Understanding the influence of information and knowledge exchange and sharing between managers and non-executive directors is important in assessing the dynamic processes of accountability in boardrooms. By analysing information/knowledge at multiple levels, invoking the literature on implicit/tacit and explicit information/knowledge, we show that information asymmetry is a necessary condition for effective boards. We introduce a conceptual model of manager-non-executive director information asymmetry as an outcome of our interpretation of information/knowledge sharing processes amongst board members. Our model provides a more nuanced agenda of the management-board information asymmetry problem to enable a better understanding of the role of different types of information in practice.
Design/methodology/approach – Our analysis of information/knowledge exchange, sharing and creation and the resultant conceptual model are based on the following elements: (i) manager-non-executive director information/knowledge, (ii) management-board information/knowledge and (iii) board dynamics and reciprocal processes converting implicit/tacit into explicit information/knowledge.
Findings – Our paper provides new insights into the dynamics of information/knowledge exchange, sharing and creation between managers and non-executive directors (individual level)/between management and boards (group level). We characterise this as a two-way process, back-and-forth between managers/executive directors and non-executive directors. The importance of relative/experienced “ignorance” of non-executive directors is revealed, which we term the “information asymmetry paradox”.
Research implications – We set out key opportunities for developing a research agenda from our model based on prior research of knowledge conversion processes and how these may be applied in a boardroom setting.
Practical implications – Our model may assist directors in better understanding their roles and the division of labour between managers and non-executive directors from an information/knowledge perspective.
Originality/value – We apply Ikujiro Nonaka’s knowledge conversion framework to consider the transitioning from individual implicit personal to explicit shared information/knowledge, to understand the subtle processes at play in boardrooms influencing information/knowledge exchange, sharing and creation between managers and non-executive directors.
Design/methodology/approach – Our analysis of information/knowledge exchange, sharing and creation and the resultant conceptual model are based on the following elements: (i) manager-non-executive director information/knowledge, (ii) management-board information/knowledge and (iii) board dynamics and reciprocal processes converting implicit/tacit into explicit information/knowledge.
Findings – Our paper provides new insights into the dynamics of information/knowledge exchange, sharing and creation between managers and non-executive directors (individual level)/between management and boards (group level). We characterise this as a two-way process, back-and-forth between managers/executive directors and non-executive directors. The importance of relative/experienced “ignorance” of non-executive directors is revealed, which we term the “information asymmetry paradox”.
Research implications – We set out key opportunities for developing a research agenda from our model based on prior research of knowledge conversion processes and how these may be applied in a boardroom setting.
Practical implications – Our model may assist directors in better understanding their roles and the division of labour between managers and non-executive directors from an information/knowledge perspective.
Originality/value – We apply Ikujiro Nonaka’s knowledge conversion framework to consider the transitioning from individual implicit personal to explicit shared information/knowledge, to understand the subtle processes at play in boardrooms influencing information/knowledge exchange, sharing and creation between managers and non-executive directors.
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Purpose – This paper reviews and critiques prior research on audit committees using a practice-theory lens. Research on audit committees has followed the same trajectory as early research on boards of directors, which has been criticised... more
Purpose – This paper reviews and critiques prior research on audit committees using a practice-theory lens. Research on audit committees has followed the same trajectory as early research on boards of directors, which has been criticised for its singular theoretical perspectives and methodologies that do not capture the complexity of real-world experiences/behaviours.
Design/methodology/approach – We devise an analytical framework based on practice theory to conduct our review. We examine what audit committees should do (i.e., best practice) versus what audit committees actually do (i.e., actual activities in practice – praxis). Attributes of audit committee members, and the relationship dynamics relevant to their role execution (i.e., practitioners), are considered.
Findings – Research on boards has found that over-emphasis on agency theory’s monitoring role negatively impacts board effectiveness. We invoke other theories in examining what audit committees do in practice. We characterise the role of audit committees as oversight and not monitoring. We question whether, similar to auditing, audit committees are blamist tools or are genuinely orientated towards supporting improvements in organisational management systems. We unpack the ritualistic ceremonial behaviours and symbolic endeavours versus substantive engagement by audit committees. Our analytical framework also considers the “guardianship circle” around audit committees in the form of the key practitioners and their relationships: audit committee members, auditors and senior managers.
Originality/value – Drawing on our analytical framework, we provide directions for further opportunities for research of audit committees.
Design/methodology/approach – We devise an analytical framework based on practice theory to conduct our review. We examine what audit committees should do (i.e., best practice) versus what audit committees actually do (i.e., actual activities in practice – praxis). Attributes of audit committee members, and the relationship dynamics relevant to their role execution (i.e., practitioners), are considered.
Findings – Research on boards has found that over-emphasis on agency theory’s monitoring role negatively impacts board effectiveness. We invoke other theories in examining what audit committees do in practice. We characterise the role of audit committees as oversight and not monitoring. We question whether, similar to auditing, audit committees are blamist tools or are genuinely orientated towards supporting improvements in organisational management systems. We unpack the ritualistic ceremonial behaviours and symbolic endeavours versus substantive engagement by audit committees. Our analytical framework also considers the “guardianship circle” around audit committees in the form of the key practitioners and their relationships: audit committee members, auditors and senior managers.
Originality/value – Drawing on our analytical framework, we provide directions for further opportunities for research of audit committees.
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The paper commences by summarizing the economic geography of Ireland followed by an overview of the Irish legal system. While similar in many respects to the British system from which it is derived, Ireland has a constitution based on the... more
The paper commences by summarizing the economic geography of Ireland followed by an overview of the Irish legal system. While similar in many respects to the British system from which it is derived, Ireland has a constitution based on the American model, to which parliament is subject. Lawyers and the operation of the courts in Ireland are described. While bearing some similarities to the British system, there are notable differences which are highlighted in the paper. The engagement of forensic accountants as expert witnesses in the Irish courts is considered. The paper concludes by observing that while forensic accounting is thriving in Ireland, it is at an early stage of development as far as professional guidelines and education provision is concerned.
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Purpose – This paper explores the interactive element in social and environmental reporting during a controversy between business organisations and a stakeholder over environmental performance. Design/methodology/approach – We adopt... more
Purpose – This paper explores the interactive element in social and environmental reporting during a controversy between business organisations and a stakeholder over environmental performance.
Design/methodology/approach – We adopt Aristotle’s triangular framework of the rhetorical situation to examine how the writer, the audience, and the purpose of communication interact in the choice of rhetorical strategies used to persuade others of the validity and legitimacy of a claim during a public controversy. Our analysis focuses on the strategies (i.e., moves and their rhetorical realisations) in the form of logos (appealing to logic), ethos (appealing to authority), and pathos (appealing to emotion), with a particular emphasis on metaphor, used to achieve social and political goals. We base our analysis on a case study involving a conflict between Greenpeace and six organisations in the sportswear/fashion industry over wastewater discharge of hazardous chemicals. The conflict played out in a series of 20 press releases issued by the parties over a two-month period.
Findings – All six firms interacting with Greenpeace in the form of press releases eventually conceded to Greenpeace’s demand to eliminate hazardous chemicals from their supply chains. We attribute this to Greenpeace’s ability to harness support from other key stakeholders and to use rhetoric effectively. Results show the extensive use of rhetoric by all parties.
Originality/value – We regard legitimacy construction as reliant on communication and as being achieved by organisations participating in a dialogue with stakeholders. For this purpose, we develop an analytical framework which situates environmental reporting in a specific rhetorical situation and links rhetoric, argument, and metaphor.
Design/methodology/approach – We adopt Aristotle’s triangular framework of the rhetorical situation to examine how the writer, the audience, and the purpose of communication interact in the choice of rhetorical strategies used to persuade others of the validity and legitimacy of a claim during a public controversy. Our analysis focuses on the strategies (i.e., moves and their rhetorical realisations) in the form of logos (appealing to logic), ethos (appealing to authority), and pathos (appealing to emotion), with a particular emphasis on metaphor, used to achieve social and political goals. We base our analysis on a case study involving a conflict between Greenpeace and six organisations in the sportswear/fashion industry over wastewater discharge of hazardous chemicals. The conflict played out in a series of 20 press releases issued by the parties over a two-month period.
Findings – All six firms interacting with Greenpeace in the form of press releases eventually conceded to Greenpeace’s demand to eliminate hazardous chemicals from their supply chains. We attribute this to Greenpeace’s ability to harness support from other key stakeholders and to use rhetoric effectively. Results show the extensive use of rhetoric by all parties.
Originality/value – We regard legitimacy construction as reliant on communication and as being achieved by organisations participating in a dialogue with stakeholders. For this purpose, we develop an analytical framework which situates environmental reporting in a specific rhetorical situation and links rhetoric, argument, and metaphor.
Research Interests:
We conceptualise CSR communication as a process of reciprocal influence between organisations and their audiences. We use an illustrative case study in the form of a conflict between firms and a powerful stakeholder which is played out in... more
We conceptualise CSR communication as a process of reciprocal influence between organisations and their audiences. We use an illustrative case study in the form of a conflict between firms and a powerful stakeholder which is played out in a series of 20 press releases over a two-month period to develop a framework of analysis based on insights from linguistics. It focuses on three aspects of dialogism, namely (i) turn-taking (co-operating in a conversation by responding to the other party), (ii) inter-party moves (the nature and type of interaction action characterising a turn i.e., denial, apology, excuse), and (iii) intertextuality (the intensity and quality of verbal interaction between the parties). We address the question: What is the nature and type of verbal interactions between the parties? First we examine (a) whether the parties verbally interact and then (b) whether the parties listen to each other.
We find evidence of dialogism suggesting that CSR communication is an interactive process which has to be understood as a function of the power relations between a firm and a specific stakeholder. Also, we find evidence of intertextuality in the press releases by the six firms which engage in verbal interaction with the stakeholder. We interpret this as linguistic evidence of isomorphic processes relating to CSR practices resulting from the pressure exerted by a powerful stakeholder. The lack of response by ten firms that fail to issue press releases suggests a strategy of ‘watch-and-wait’ with respect to the outcome of the conflict.
Keywords: Dialogism, interaction, intertextuality, CSR communication.
We find evidence of dialogism suggesting that CSR communication is an interactive process which has to be understood as a function of the power relations between a firm and a specific stakeholder. Also, we find evidence of intertextuality in the press releases by the six firms which engage in verbal interaction with the stakeholder. We interpret this as linguistic evidence of isomorphic processes relating to CSR practices resulting from the pressure exerted by a powerful stakeholder. The lack of response by ten firms that fail to issue press releases suggests a strategy of ‘watch-and-wait’ with respect to the outcome of the conflict.
Keywords: Dialogism, interaction, intertextuality, CSR communication.
Research Interests:
Purpose – This paper reviews prior definitions of the umbrella term ‘clinical governance’. The research question is: do clinical governance definitions adequately distinguish between governance, management and practice functions? Three... more
Purpose – This paper reviews prior definitions of the umbrella term ‘clinical governance’. The research question is: do clinical governance definitions adequately distinguish between governance, management and practice functions? Three definitions are introduced to replace that umbrella term.
Design/Methodology/Approach – Content analysis is applied to analyse twenty nine definitions of clinical governance from the perspective of the roles and responsibilities of those charged with governance, management and practice.
Findings – The analysis indicates that definitions of the umbrella term ‘clinical governance’ comprise a mixture of activities relating to governance, management and practice which is confusing for those expected to execute those roles.
Practical implications – Consistent with concepts from corporate governance, we distinguish between governance, management and practice. For effective governance, it is important that there be division of duties between governance roles and management and practice roles. These distinctions will help to clarify roles and responsibilities in the execution of clinical activities.
Originality/Value – Drawing on insights from corporate governance, in particular, the importance of a division of functions between governance roles, and management and practice roles, we propose three new definitions to replace the umbrella term ‘clinical governance’.
Key words: Clinical governance, Definitions, Governance, Management, Practice, Roles and responsibilities
Paper type: Conceptual paper
Design/Methodology/Approach – Content analysis is applied to analyse twenty nine definitions of clinical governance from the perspective of the roles and responsibilities of those charged with governance, management and practice.
Findings – The analysis indicates that definitions of the umbrella term ‘clinical governance’ comprise a mixture of activities relating to governance, management and practice which is confusing for those expected to execute those roles.
Practical implications – Consistent with concepts from corporate governance, we distinguish between governance, management and practice. For effective governance, it is important that there be division of duties between governance roles and management and practice roles. These distinctions will help to clarify roles and responsibilities in the execution of clinical activities.
Originality/Value – Drawing on insights from corporate governance, in particular, the importance of a division of functions between governance roles, and management and practice roles, we propose three new definitions to replace the umbrella term ‘clinical governance’.
Key words: Clinical governance, Definitions, Governance, Management, Practice, Roles and responsibilities
Paper type: Conceptual paper
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Purpose – Can personality traits of Chief Executive Officers (CEOs) be detected at-a-distance? Following newspaper speculation that the banking crisis of 2008 was partly caused by CEO hubris, this paper analyses the CEO letters to... more
Purpose – Can personality traits of Chief Executive Officers (CEOs) be detected at-a-distance? Following newspaper speculation that the banking crisis of 2008 was partly caused by CEO hubris, this paper analyses the CEO letters to shareholders of a single bank over ten years for evidence of CEO personality traits, including: (i) narcissism (a contributor to hubris), (ii) hubris, (iii) overconfidence and (iv) CEO-attribution. Following predictions that hubris increases the longer individuals occupy positions of power, the research examines whether hubristic characteristics intensify over time.
Design/methodology/approach – This paper takes concepts of hubris from the clinical psychology literature and applies them to discourses in CEO letters to shareholders in annual reports. The research comprises a longitudinal study of the discretionary narrative disclosures in the CEO letters to shareholders in eight annual reports, benchmarked against disclosures in the CEO letters to shareholders of the previous and subsequent CEOs of the same organisation.
Findings – Results point to evidence of narcissism and hubris in the personality of the Bank CEO. Over half the sentences analysed were found to contain narcissistic-speak. In 45% of narcissistic-speak sentences, there were three of more symptoms of hubris – what Owen and Davison (2009) describe as extreme hubristic behavior. In relation to CEO overconfidence, only seven (2%) sentences contained bad news. More than half of the good news was attributed to the CEO and all the bad news was attributed externally. The research thus finds evidence of hubris in the CEO letters to shareholders, which became more pronounced the longer the CEO served.
Research limitations/implications – The analysis of CEO discourse is highly subjective, and difficult to replicate.
Originality/value – The primary contribution of this research is the adaptation of the 14 clinical symptoms of hubris from clinical psychology to the analysis of narratives in CEO letters to shareholders in annual reports to reveal signs of CEO hubris.
Keywords Discretionary narrative disclosures, Annual reports, Narcissism, Hubris, CEOs, Social psychology
Paper type Research paper
Design/methodology/approach – This paper takes concepts of hubris from the clinical psychology literature and applies them to discourses in CEO letters to shareholders in annual reports. The research comprises a longitudinal study of the discretionary narrative disclosures in the CEO letters to shareholders in eight annual reports, benchmarked against disclosures in the CEO letters to shareholders of the previous and subsequent CEOs of the same organisation.
Findings – Results point to evidence of narcissism and hubris in the personality of the Bank CEO. Over half the sentences analysed were found to contain narcissistic-speak. In 45% of narcissistic-speak sentences, there were three of more symptoms of hubris – what Owen and Davison (2009) describe as extreme hubristic behavior. In relation to CEO overconfidence, only seven (2%) sentences contained bad news. More than half of the good news was attributed to the CEO and all the bad news was attributed externally. The research thus finds evidence of hubris in the CEO letters to shareholders, which became more pronounced the longer the CEO served.
Research limitations/implications – The analysis of CEO discourse is highly subjective, and difficult to replicate.
Originality/value – The primary contribution of this research is the adaptation of the 14 clinical symptoms of hubris from clinical psychology to the analysis of narratives in CEO letters to shareholders in annual reports to reveal signs of CEO hubris.
Keywords Discretionary narrative disclosures, Annual reports, Narcissism, Hubris, CEOs, Social psychology
Paper type Research paper
Research Interests:
This paper proposes a taxonomy to assist in more clearly locating research on aspects of the association between corporate reputation and corporate accountability reporting. We illustrate how our proposed taxonomy can be applied by using... more
This paper proposes a taxonomy to assist in more clearly locating research on aspects of the association between corporate reputation and corporate accountability reporting. We illustrate how our proposed taxonomy can be applied by using it to frame our exploration of the relationship between measures of reputation and characteristics of the language choices made in CEO letters to shareholders. Using DICTION 5.0 software we analyse the content of the CEO letters of 23 high reputation US firms and 23 low reputation US firms. Our results suggest that company size and visibility each have a positive influence on the extent to which corporate reputation is associated with the language choices made in CEO letters. These results, which are anomalous when compared with those of Geppert and Lawrence (2008), highlight the need for caution when assessing claims about the effects on corporate reputation arising from the language choice in narratives in corporate annual reports.
Keywords: CEO, DICTION, Impression management, Language, Letter to shareholders, Reputation, Taxonomy
Keywords: CEO, DICTION, Impression management, Language, Letter to shareholders, Reputation, Taxonomy
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In this paper we develop a conceptual framework, based on the concepts of rationality and motivation, which uses theories and empirical research from psychology/behavioural finance, sociology and critical accounting to systematise,... more
In this paper we develop a conceptual framework, based on the concepts of rationality and motivation, which uses theories and empirical research from psychology/behavioural finance, sociology and critical accounting to systematise, advance and challenge research on impression management. The paper focuses on research which departs from economic concepts of impression management as opportunistic managerial discretionary disclosure behaviour resulting in reporting bias or as ‘cheap talk’. Using alternative rationality assumptions, such as bounded rationality, irrationality, substantive rationality and the notion of rationality as a social construct, we conceptualise impression management in alternative ways as (i) self-serving bias, (ii) symbolic management and (iii) accounting rhetoric. This contributes to an enhanced understanding of impression management in a corporate reporting context.
Keywords: Discretionary narrative disclosures, Impression management, rationality
Keywords: Discretionary narrative disclosures, Impression management, rationality
Research Interests:
"Purpose – Prior accounting research views impression management predominantly though the lens of economics. Drawing on social psychology research, we provide a complementary perspective on corporate annual narrative reporting as... more
"Purpose – Prior accounting research views impression management predominantly though the lens of economics. Drawing on social psychology research, we provide a complementary perspective on corporate annual narrative reporting as characterised by conditions of ‘ex post accountability’ (Aerts, 2005, p. 497). These give rise to (i) impression management resulting from the managerial anticipation of the feedback effects of information and/or to (ii) managerial sense-making by means of the retrospective framing of organisational outcomes.
Design/methodology/approach – We use a content analysis approach pioneered by psychology research (Newman et al., 2003) which is based on the psychological dimension of word use to investigate the chairmen’s statements of 93 UK listed companies.
Findings – Results suggest that firms do not use chairmen’s statements to create an impression at variance with an overall reading of the annual report. We find that negative organisational outcomes prompt managers to engage in retrospective sense-making, rather than to present a public image of organisational performance inconsistent with the view internally held by management (self-presentational dissimulation). Further, managers of large firms use chairmen’s statements to portray an accurate (i.e., consistent with an overall reading of the annual report), albeit favourable, image of the firm and of organisational outcomes (i.e., impression management by means of enhancement).
Research limitations – The content analysis approach adopted in the study analyses words out of context.
Practical implications – Corporate annual reporting may not only be understood from a behavioural perspective involving managers responding to objectively determined stimuli inherent in the accountability framework, but also from a symbolic interaction perspective which involves managers retrospectively making sense of organisational outcomes and events.
Originality/value – Our approach allows us to investigate three complementary scenarios of managerial corporate annual reporting behaviour: (i) self-presentational dissimulation, (ii) impression management by means of enhancement, and (iii) retrospective sense-making.
Keywords: Impression management; Retrospective sense-making; Chairmen’s statements; Social psychology."
Design/methodology/approach – We use a content analysis approach pioneered by psychology research (Newman et al., 2003) which is based on the psychological dimension of word use to investigate the chairmen’s statements of 93 UK listed companies.
Findings – Results suggest that firms do not use chairmen’s statements to create an impression at variance with an overall reading of the annual report. We find that negative organisational outcomes prompt managers to engage in retrospective sense-making, rather than to present a public image of organisational performance inconsistent with the view internally held by management (self-presentational dissimulation). Further, managers of large firms use chairmen’s statements to portray an accurate (i.e., consistent with an overall reading of the annual report), albeit favourable, image of the firm and of organisational outcomes (i.e., impression management by means of enhancement).
Research limitations – The content analysis approach adopted in the study analyses words out of context.
Practical implications – Corporate annual reporting may not only be understood from a behavioural perspective involving managers responding to objectively determined stimuli inherent in the accountability framework, but also from a symbolic interaction perspective which involves managers retrospectively making sense of organisational outcomes and events.
Originality/value – Our approach allows us to investigate three complementary scenarios of managerial corporate annual reporting behaviour: (i) self-presentational dissimulation, (ii) impression management by means of enhancement, and (iii) retrospective sense-making.
Keywords: Impression management; Retrospective sense-making; Chairmen’s statements; Social psychology."
Research Interests:
This exploratory study extends the analysis of narrative disclosures from routine reporting contexts such as annual reports and press releases to non-routine takeover documents where the financial consequences of narrative disclosures can... more
This exploratory study extends the analysis of narrative disclosures from routine reporting contexts such as annual reports and press releases to non-routine takeover documents where the financial consequences of narrative disclosures can be substantial. Rhetoric and argument in the form of impression management techniques in narrative disclosures are examined. Prior thematic content analysis methods for analysing good and bad news disclosures are adapted to the attacking and defensive themes in the defence documents of target companies subject to hostile takeover bids. The paper examines the incidence, extent and implications of impression management in ten hostile takeover defence documents issued by target companies listed on the London Stock Exchange between 1 January 2006 and 30 June 2008. Three impression management strategies – thematic, visual and rhetorical manipulation – are investigated using content analysis methodologies. The findings of the research indicate that thematic, visual and rhetorical manipulation is evident in hostile takeover defence documents. Attacking and defensive sentences were found to comprise the majority of the defence documents analysed. Such sentences exhibited varying degrees of visual and rhetorical emphasis, which served to award greater or lesser degrees of prominence to the information conveyed by target company management.
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Purpose – This paper develops a holistic measure for analysing impression management and for detecting bias introduced into corporate narratives as a result of impression management. Design/methodology/approach – Prior research on the... more
Purpose – This paper develops a holistic measure for analysing impression management and for detecting bias introduced into corporate narratives as a result of impression management.
Design/methodology/approach – Prior research on the seven impression management methods in the literature is summarised. Four of the less-researched methods are described in detail, and are illustrated with examples from UK Annual Results’ Press Releases (ARPRs). A method of computing a holistic composite impression management score based on these four impression management methods is developed, based on both quantitative and qualitative data in corporate narrative disclosures. An impression management bias score is devised to capture the extent to which impression management introduces bias into corporate narratives. An example of the application of the composite impression management score and impression management bias score methodology is provided.
Findings – While not amounting to systematic evidence, the 21 illustrative examples suggest that impression management is pervasive in corporate financial communications using multiple impression management methods, such that positive information is exaggerated, while negative information is either ignored or is underplayed.
Originality/value – Four impression management methods are described in detail, illustrated by 21 examples. These four methods are examined together. New impression management methods are studied in this paper for the first time. This paper extends prior impression management measures in two ways. First, a composite impression management score based on four impression management techniques is articulated. Second, the composite impression management score methodology is extended to capture a measure for bias, in the form of an impression management bias score. This is the first time outside the US that narrative disclosures in press releases have been studied.
Design/methodology/approach – Prior research on the seven impression management methods in the literature is summarised. Four of the less-researched methods are described in detail, and are illustrated with examples from UK Annual Results’ Press Releases (ARPRs). A method of computing a holistic composite impression management score based on these four impression management methods is developed, based on both quantitative and qualitative data in corporate narrative disclosures. An impression management bias score is devised to capture the extent to which impression management introduces bias into corporate narratives. An example of the application of the composite impression management score and impression management bias score methodology is provided.
Findings – While not amounting to systematic evidence, the 21 illustrative examples suggest that impression management is pervasive in corporate financial communications using multiple impression management methods, such that positive information is exaggerated, while negative information is either ignored or is underplayed.
Originality/value – Four impression management methods are described in detail, illustrated by 21 examples. These four methods are examined together. New impression management methods are studied in this paper for the first time. This paper extends prior impression management measures in two ways. First, a composite impression management score based on four impression management techniques is articulated. Second, the composite impression management score methodology is extended to capture a measure for bias, in the form of an impression management bias score. This is the first time outside the US that narrative disclosures in press releases have been studied.
Research Interests:
Purpose – This paper reviews traditional corporate governance and accountability research, to suggest opportunities for future research in this field. The first part adopts an analytical frame of reference based on theory, accountability... more
Purpose – This paper reviews traditional corporate governance and accountability research, to suggest opportunities for future research in this field. The first part adopts an analytical frame of reference based on theory, accountability mechanisms, methodology, business sector/context, globalisation and time horizon. The second part of the paper locates the seven papers in the special issue in a framework of analysis showing how each one contributes to the field. The paper presents a frame of reference which may be used as a 'roadmap' for researchers to navigate their way through the prior literature and to position their work on the frontiers of corporate governance research.
Design/methodology/approach – The paper employs an analytical framework, and is primarily discursive and conceptual.
Findings – The paper encourages broader approaches to corporate governance and accountability research beyond the traditional and primarily quantitative approaches of prior research. Broader theoretical perspectives, methodological approaches, accountability mechanism, sectors/contexts, globalisation and time horizons are identified.
Research limitations/implications – Greater use of qualitative research methods are suggested, which present challenges particularly of access to the “black box” of corporate boardrooms.
Originality/value – Drawing on the analytical framework, and the papers in the special issue, the paper identifies opportunities for further research of accountability and corporate governance.
Keywords Corporate governance, Accountability, Mechanisms of Accountability
Paper type Research review
Design/methodology/approach – The paper employs an analytical framework, and is primarily discursive and conceptual.
Findings – The paper encourages broader approaches to corporate governance and accountability research beyond the traditional and primarily quantitative approaches of prior research. Broader theoretical perspectives, methodological approaches, accountability mechanism, sectors/contexts, globalisation and time horizons are identified.
Research limitations/implications – Greater use of qualitative research methods are suggested, which present challenges particularly of access to the “black box” of corporate boardrooms.
Originality/value – Drawing on the analytical framework, and the papers in the special issue, the paper identifies opportunities for further research of accountability and corporate governance.
Keywords Corporate governance, Accountability, Mechanisms of Accountability
Paper type Research review
Research Interests:
The purpose of this paper is to review and synthesize the literature on discretionary narrative disclosures. We explore why, how, and whether preparers of corporate narrative reports use discretionary disclosures in corporate narrative... more
The purpose of this paper is to review and synthesize the literature on discretionary narrative disclosures. We explore why, how, and whether preparers of corporate narrative reports use discretionary disclosures in corporate narrative documents and why, how, and whether users react thereto. To facilitate the review, we provide three taxonomies based on: the motivation for discretionary narrative disclosures (opportunistic behavior, i.e. impression management, versus provision of useful incremental information); the research perspective (preparer versus user); and seven discretionary disclosure strategies. We also examine the whole range of theoretical frameworks utilized by prior research, and we put forward some suggestions for future research.
Research Interests:
This paper studies 14 companies which were subject to an official investigation arising from the publication of fraudulent financial statements. The research found senior management to be responsible for most fraud. Recording false sales... more
This paper studies 14 companies which were subject to an official investigation arising from the publication of fraudulent financial statements. The research found senior management to be responsible for most fraud. Recording false sales was the most common method of financial statement fraud. Meeting external forecasts emerged as the primary motivation. Management discovered most fraud, although the discovery was split between incumbent and new management.
Research Interests:
Over the last number of years whistleblowers have been gaining prominence. This paper investigates some of the factors that influence the propensity or willingness to blow the whistle among trainee auditors. Three categories of factors... more
Over the last number of years whistleblowers have been gaining prominence. This paper investigates some of the factors that influence the propensity or willingness to blow the whistle among trainee auditors. Three categories of factors are examined: audit firm organisational structures, personal characteristics of whistleblowers and situational variables.
A survey of 240 final year students of the Institute of Chartered Accountants in Ireland was undertaken. Trainee auditors (just about to sit their finals) were asked about their confidence in internal and external reporting structures in their firms. Using four scenarios, audit trainees were questioned on their willingness to challenge an audit partner’s inappropriate response to concerns raised during the audit. Finally, audit trainees were asked about the influence of legal protection on their likelihood of whistleblowing.
Results indicate that where firms have adequate formal structures for reporting wrongdoing, trainee auditors are more likely to report wrongdoing and have greater confidence that this will not adversely affect their careers. Training increases this confidence. Trainee auditors also express a willingness to challenge an audit partner’s unsatisfactory response to wrongdoing. Significant differences were found in attitudes depending on whether the reports of wrongdoing were internal or external. The willingness to report wrongdoing externally reduces for older (aged over 25) trainees.
A survey of 240 final year students of the Institute of Chartered Accountants in Ireland was undertaken. Trainee auditors (just about to sit their finals) were asked about their confidence in internal and external reporting structures in their firms. Using four scenarios, audit trainees were questioned on their willingness to challenge an audit partner’s inappropriate response to concerns raised during the audit. Finally, audit trainees were asked about the influence of legal protection on their likelihood of whistleblowing.
Results indicate that where firms have adequate formal structures for reporting wrongdoing, trainee auditors are more likely to report wrongdoing and have greater confidence that this will not adversely affect their careers. Training increases this confidence. Trainee auditors also express a willingness to challenge an audit partner’s unsatisfactory response to wrongdoing. Significant differences were found in attitudes depending on whether the reports of wrongdoing were internal or external. The willingness to report wrongdoing externally reduces for older (aged over 25) trainees.
Research Interests:
Reflecting investor expectations, most prior corporate governance research attempts to find a relationship between boards of directors and firm performance. This paper critically examines the premise on which this research is based. An... more
Reflecting investor expectations, most prior corporate governance research attempts to find a relationship between boards of directors and firm performance. This paper critically examines the premise on which this research is based. An expectations gap approach is applied for the first time to implicit expectations which assume a relationship between firm performance and company boards. An expectations gap has two elements: A reasonableness gap and a performance gap. Seven aspects of boards are identified as leading to a reasonableness gap. Five aspects of boards are identified as leading to a performance gap. The paper concludes by suggesting avenues for empirically testing some of the concepts discussed in this paper.
Key Words: Boards of Directors; Expectations gap; Firm Performance
Key Words: Boards of Directors; Expectations gap; Firm Performance
Research Interests:
This paper comprises a review of the literature on materiality in accounting. The paper starts by examining the context in which materiality is relevant, and the problems arising from applying the concept in practice. Definitions of... more
This paper comprises a review of the literature on materiality in accounting. The paper starts by examining the context in which materiality is relevant, and the problems arising from applying the concept in practice. Definitions of materiality from legal, accounting and stock exchange sources are compared. The relevance of materiality to various accounting situations is discussed. Methods of calculating quantitative thresholds are described and illustrated. Prior research is reviewed, focussing on materiality thresholds, and on the materiality judgments of auditors, preparers and financial statement users. The paper concludes with some suggestions for future research and for policy makers concerning this best kept accounting secret.
Keywords: Materiality definitions, Materiality thresholds, Materiality rules of thumb, Materiality judgments
Keywords: Materiality definitions, Materiality thresholds, Materiality rules of thumb, Materiality judgments
Research Interests:
This paper looks at the role of experts from both a United Kingdom and North America perspective. The paper starts by pointing out the important role of expert evidence in assisting the tier of fact. The distinction between accountants as... more
This paper looks at the role of experts from both a United Kingdom and North America perspective. The paper starts by pointing out the important role of expert evidence in assisting the tier of fact. The distinction between accountants as fact witnesses and as expert witnesses is identified. The expert’s primary obligation is to the court not the hiring party. Expert evidence is not a substitute for the exercise of the court’s own judgement. The qualities of expert evidence are discussed, as are the significance of the necessary qualities of such expert evidence. A lack of these qualities increases the likelihood that civil liability will be imposed on expert witnesses. The paper outlines the steps to be taken in engaging expert accountants.
Research Interests:
This paper examines the issue of independence of boards of directors and non-executive directors of companies listed on the Irish Stock Exchange. Based on information published in annual reports, the study found that most Irish listed... more
This paper examines the issue of independence of boards of directors and non-executive directors of companies listed on the Irish Stock Exchange. Based on information published in annual reports, the study found that most Irish listed companies were complying with the Combined Code's recommendations for a balanced board structure, albeit with only 60 per cent having majority-independent boards. The study found a lack of consistency in interpreting the definition of “independence”, a lack of disclosure of information and, by applying criteria generally regarded as prerequisite to independence of non-executive directors, certain situations which imposed upon their independence.
Research Interests:
Recent accounting scandals are the product of multiple failings of auditing, accounting, corporate governance and of the market. In discussing the many factors that led to failure, this paper attempts to provide insights on regulatory... more
Recent accounting scandals are the product of multiple failings of auditing, accounting, corporate governance and of the market. In discussing the many factors that led to failure, this paper attempts to provide insights on regulatory inadequacies that contributed to these problems. At the centre is human failure – in particular greed and weakness. Reforms in progress are briefly examined, with the caveat that no reforms will ever fully cater for human weakness.
Research Interests:
This paper examines the extent to which a sample of 11 knowledge-based Irish listed companies is adopting methodologies for reporting of intellectual capital in their annual reports. Their market and book values were compared and a... more
This paper examines the extent to which a sample of 11 knowledge-based Irish listed companies is adopting methodologies for reporting of intellectual capital in their annual reports. Their market and book values were compared and a content analysis of the annual reports of the 11 listed companies was conducted. With the exception of two of the 11 listed companies, significant differences in market and book values were found suggesting that knowledge-based Irish listed companies have a substantial level of non-physical, intangible, intellectual capital assets. The level of disclosure of intellectual capital attributes by the 11 listed companies studied was low.
Keywords: Intellectual capital, Voluntary disclosure, Content analysis"
Keywords: Intellectual capital, Voluntary disclosure, Content analysis"
Research Interests:
This study of Irish company investor relations material on the Internet was carried out in two parts. Firstly, Irish listed companies were surveyed for Web sites and investor relations material on the sites found was analysed. Results... more
This study of Irish company investor relations material on the Internet was carried out in two parts. Firstly, Irish listed companies were surveyed for Web sites and investor relations material on the sites found was analysed.
Results showed that 66 (67%) Irish listed companies had a Web site. Of these, 53 (84%) contained investor relations material. The most common type was background information on the company. The least common was background information on the industry in which the company operates.
Despite the many new forms of investor relations activities now possible using technology inherent to the Internet (e.g. the option to download financial information in spreadsheet format, to participate online in company meetings, press and analyst conferences or to take part in Internet chat sessions with the investor relations department) none were featured on Irish publicly listed company (plc) Web sites.
In the second part of the study, a content analysis of investor relations material on ten third-party sites was performed. The coverage on these third-party sites of Irish listed companies was also analysed.
Results showed that nine (90%) sites provided some form of investor relations material free of charge to users. Share prices were provided on 90% of third-party sites. Historic share prices were found on six (60%) sites. None of the sites offered background information on different industries. The most commonly featured financial information was a direct e-mail order service for annual reports. Only one site, Yahoo! Finance, availed of the new technology inherent to the Internet by providing ratios and other information in a format that could be downloaded onto a spreadsheet.
No site covered all Irish plcs. The site with the highest coverage covered 93 Irish companies (94%) while the lowest covered 71 (72%) companies.
Results showed that 66 (67%) Irish listed companies had a Web site. Of these, 53 (84%) contained investor relations material. The most common type was background information on the company. The least common was background information on the industry in which the company operates.
Despite the many new forms of investor relations activities now possible using technology inherent to the Internet (e.g. the option to download financial information in spreadsheet format, to participate online in company meetings, press and analyst conferences or to take part in Internet chat sessions with the investor relations department) none were featured on Irish publicly listed company (plc) Web sites.
In the second part of the study, a content analysis of investor relations material on ten third-party sites was performed. The coverage on these third-party sites of Irish listed companies was also analysed.
Results showed that nine (90%) sites provided some form of investor relations material free of charge to users. Share prices were provided on 90% of third-party sites. Historic share prices were found on six (60%) sites. None of the sites offered background information on different industries. The most commonly featured financial information was a direct e-mail order service for annual reports. Only one site, Yahoo! Finance, availed of the new technology inherent to the Internet by providing ratios and other information in a format that could be downloaded onto a spreadsheet.
No site covered all Irish plcs. The site with the highest coverage covered 93 Irish companies (94%) while the lowest covered 71 (72%) companies.
Research Interests:
Profit forecasts are rarely disclosed in the UK except in prospectuses, circulars and during takeover bids. There are few regulations governing the content of profit forecasts. Under stock exchange rules these forecasts must be reported... more
Profit forecasts are rarely disclosed in the UK except in prospectuses, circulars and during takeover bids. There are few regulations governing the content of profit forecasts. Under stock exchange rules these forecasts must be reported on by both reporting accountants and the merchant bankers advising on the deal. The format of the forecasts is at the discretion of individual companies.
This paper summarises the regulations, including professional pronouncements, governing accountants’ reports on profit forecasts. Practical examples of such accountants’ reports extracted from 250 profit forecasts published during 701 UK takeover bids in the period 1988 to 1992 are reproduced and discussed. These examples provide useful precedent material for practitioners involved in reporting on a profit forecast. The paper concludes with a discussion of policy issues and suggestions for policy makers.
Keywords: Accountants’ reports, profit forecasts, takeovers
"
This paper summarises the regulations, including professional pronouncements, governing accountants’ reports on profit forecasts. Practical examples of such accountants’ reports extracted from 250 profit forecasts published during 701 UK takeover bids in the period 1988 to 1992 are reproduced and discussed. These examples provide useful precedent material for practitioners involved in reporting on a profit forecast. The paper concludes with a discussion of policy issues and suggestions for policy makers.
Keywords: Accountants’ reports, profit forecasts, takeovers
"
Research Interests:
Substantial differences between company book values and market values indicate the presence of assets not recognised and measured in company balance sheets. Intellectual capital assets account for a substantial proportion of this... more
Substantial differences between company book values and market values indicate the presence of assets not recognised and measured in company balance sheets. Intellectual capital assets account for a substantial proportion of this discrepancy. At present, companies are not required to report on intellectual capital assets which leaves the traditional accounting system ineffective for measuring the true impact of such intangibles.
Regulations currently in place are analysed in this paper. Prior research concerning intellectual capital is next presented. Frameworks for intellectual capital are compared. Indicators used for the measurement of intellectual capital are examined. The research methodologies employed for collecting information about the use of intellectual capital accounts in companies are reviewed.
Guidelines available to companies for reporting on intellectual capital are considered and also the efforts made towards developing an accounting standard for intellectual capital. Finally, current issues and policy implications of accounting for intellectual capital in the future are examined.
Keywords: Intangible assets, intellectual capital
Regulations currently in place are analysed in this paper. Prior research concerning intellectual capital is next presented. Frameworks for intellectual capital are compared. Indicators used for the measurement of intellectual capital are examined. The research methodologies employed for collecting information about the use of intellectual capital accounts in companies are reviewed.
Guidelines available to companies for reporting on intellectual capital are considered and also the efforts made towards developing an accounting standard for intellectual capital. Finally, current issues and policy implications of accounting for intellectual capital in the future are examined.
Keywords: Intangible assets, intellectual capital
Research Interests:
The use of the Internet for financial reporting purposes by 109 Irish companies in 1998 is examined. The relationship between Internet disclosure and size, leverage, demand for corporate information and industry is analysed. Results... more
The use of the Internet for financial reporting purposes by 109 Irish companies in 1998 is examined. The relationship between Internet disclosure and size, leverage, demand for corporate information and industry is analysed.
Results show that 35 (37 per cent) listed and 15 (100 per cent) semi-state companies had a Web site. Larger companies, with larger annual report print runs, were significantly more likely to have a Web site. There was no association between presence of an Internet site and leverage or number of shareholders. Companies in the services and financial industries were significantly more likely to have a Web site.
Results show that 35 (37 per cent) listed and 15 (100 per cent) semi-state companies had a Web site. Larger companies, with larger annual report print runs, were significantly more likely to have a Web site. There was no association between presence of an Internet site and leverage or number of shareholders. Companies in the services and financial industries were significantly more likely to have a Web site.
Research Interests:
This paper examines voluntary disclosure of profit forecasts by bidding companies during takeovers. Disclosure is examined from two perspectives: (i) factors influencing disclosure and (ii) the influence of good news and bad news on... more
This paper examines voluntary disclosure of profit forecasts by bidding companies during takeovers. Disclosure is examined from two perspectives: (i) factors influencing disclosure and (ii) the influence of good news and bad news on disclosure.
Takeover documents published during 701 takeover bids for public companies listed on the London Stock Exchange in the period 1988 to 1992 were examined.
Two variables accounted for almost all the influences on disclosure of forecasts: bid horizon and type of bid. Probability of forecast disclosure was greater the shorter the bid horizon and during contested bids. In addition, there was some evidence that the nature of the purchase consideration offered by the bidder (cash or paper) and the industry of the bidder influenced disclosure. Disclosure was significantly more likely in paper bids and in the durable goods industry.
Forecasts were more likely to be disclosed when firms had good news to report.
Takeover documents published during 701 takeover bids for public companies listed on the London Stock Exchange in the period 1988 to 1992 were examined.
Two variables accounted for almost all the influences on disclosure of forecasts: bid horizon and type of bid. Probability of forecast disclosure was greater the shorter the bid horizon and during contested bids. In addition, there was some evidence that the nature of the purchase consideration offered by the bidder (cash or paper) and the industry of the bidder influenced disclosure. Disclosure was significantly more likely in paper bids and in the durable goods industry.
Forecasts were more likely to be disclosed when firms had good news to report.
Research Interests:
This paper explores the extent to which there are significant differences in disclosure requirements under US, UK, and international accounting standards. Previous research into international disclosure diversity has focused on an... more
This paper explores the extent to which there are significant differences in disclosure requirements under US, UK, and international accounting standards. Previous research into international disclosure diversity has focused on an analysis of disclosure practices in different countries rather than on disclosures required by regulations in different countries. Financial disclosures required by UK professional regulations and by International Accounting Standards (IASs) are summarised and classified using Barth and Murphy's (1994) categorisation by purpose of disclosure and by category and subject. US, UK and international required disclosures are compared and areas of divergence are highlighted. Although differences in required disclosures between the three regulatory regimes are evident from the analysis, these differences are not significant in the multivariate models tested. A notable difference is greater required disclosures in the UK/IASs concerning entity structures (business combinations, consolidations, segmental reporting etc.).A greater proportion of US required disclosures address risks and potentials and assess returns. A much greater proportion of UK/IASs disclosures related to items recognised in accounts. The Financial Accounting Standards Board is currently examining the issue of disclosure effectiveness in the US. By highlighting areas of diversity in required disclosures in the US, UK and internationally this study will add insights to this discussion of disclosure effectiveness.
Research Interests:
This paper examines factors influencing voluntary forecast disclosure by target companies, whether good/bad news forecasts are disclosed and the influence of forecasts on the outcome of hostile bids. Disclosure was significantly more... more
This paper examines factors influencing voluntary forecast disclosure by target companies, whether good/bad news forecasts are disclosed and the influence of forecasts on the outcome of hostile bids. Disclosure was significantly more likely during contested bids. In agreed bids, probability of forecast disclosure was greater the shorter the bid horizon. In contested bids, forecasts were more likely where there were large block shareholdings, for larger targets and for targets in the capital goods industry. There was a clear tendency to disclose good news forecasts. A significant positive association between forecast disclosure and increase in offer price was found.
Key words: voluntary disclosure, forecasts, targets, good/bad news, takeover defences
Key words: voluntary disclosure, forecasts, targets, good/bad news, takeover defences
Research Interests:
This paper maps the network of interlocking directorships formed by the boards of the top 50 financial and 200 non-financial companies in Ireland. The Irish network is compared with those in ten countries, based on the same sample size... more
This paper maps the network of interlocking directorships formed by the boards of the top 50 financial and 200 non-financial companies in Ireland. The Irish network is compared with those in ten countries, based on the same sample size and selection criteria as used in this paper, using the methods and theory of Social Network Analysis (SNA). Fundamental to the paper is the idea that the network of interlocking directorates is in some way structured, and not the result of random processes.
Irish boards were found to have a relatively loose connected network structure which is sparser and less dense than those of other countries. This is reflected in the relatively low percentage of multiple directors and the relatively fewer number of directorships per multiple director.
In general, indigenous Irish public companies tended to be central in the network, while a disproportionately large number of foreign and private companies were isolated on the periphery. However, a number of foreign-owned companies were central to the network - in particular, those which started as indigenous Irish companies which were subsequently taken over.
When account is taken of the nature of the Irish economy and business in comparison with that of the ten other countries, it is seen that the opportunities for company interlinking at board level in Ireland are relatively fewer. However, within these constraints, there is a thriving network of corporate power in Ireland.
Key words: Boards of directors, Interlocking directorates, Inter-country comparisons
Irish boards were found to have a relatively loose connected network structure which is sparser and less dense than those of other countries. This is reflected in the relatively low percentage of multiple directors and the relatively fewer number of directorships per multiple director.
In general, indigenous Irish public companies tended to be central in the network, while a disproportionately large number of foreign and private companies were isolated on the periphery. However, a number of foreign-owned companies were central to the network - in particular, those which started as indigenous Irish companies which were subsequently taken over.
When account is taken of the nature of the Irish economy and business in comparison with that of the ten other countries, it is seen that the opportunities for company interlinking at board level in Ireland are relatively fewer. However, within these constraints, there is a thriving network of corporate power in Ireland.
Key words: Boards of directors, Interlocking directorates, Inter-country comparisons
Research Interests:
Literature on gender based salary differentials has proliferated in recent years but there have been few studies on salary differentials in the accounting profession. This paper examines factors influencing remuneration of Irish chartered... more
Literature on gender based salary differentials has proliferated in recent years but there have been few studies on salary differentials in the accounting profession. This paper examines factors influencing remuneration of Irish chartered accountants. Responses to the Leinster Society of Chartered Accountants (LSCA) annual salary survey in 1995 and 1996 were analysed. Employee-related and employer-related factors influencing remuneration were examined including Gender, Work experience, Level of responsibility, Employment contract and Size and Industry.
Research Interests:
This research analyses corporate governance practices as disclosed in the annual reports of Irish companies. In particular the paper investigates: • Independence of boards; • Separation of the role of chairman and chief executive; •... more
This research analyses corporate governance practices as disclosed in the annual reports of Irish companies. In particular the paper investigates:
• Independence of boards;
• Separation of the role of chairman and chief executive;
• Presence of board sub-committees;
• Women on boards.
The study is based on a sample of 84 Irish quoted and commercial semi-state companies. Significant improvements were found in corporate governance practices compared with similar earlier studies. Most Irish companies comply with the Cadbury Committee recommendations. Nonetheless there is some evidence of non-compliance. There is evidence that women continue to be under-represented on boards of Irish companies.
• Independence of boards;
• Separation of the role of chairman and chief executive;
• Presence of board sub-committees;
• Women on boards.
The study is based on a sample of 84 Irish quoted and commercial semi-state companies. Significant improvements were found in corporate governance practices compared with similar earlier studies. Most Irish companies comply with the Cadbury Committee recommendations. Nonetheless there is some evidence of non-compliance. There is evidence that women continue to be under-represented on boards of Irish companies.
Research Interests:
This paper examines factors influencing voluntary forecast disclosure by target companies, whether good/bad news forecasts are disclosed and the influence of forecasts on the outcome of hostile bids. Disclosure was significantly more... more
This paper examines factors influencing voluntary forecast disclosure by target companies, whether good/bad news forecasts are disclosed and the influence of forecasts on the outcome of hostile bids. Disclosure was significantly more likely during contested bids. In agreed bids, probability of forecast disclosure was greater the shorter the bid horizon. In contested bids, forecasts were more likely where there were large block shareholdings, for larger targets and for targets in the capital goods industry. There was a clear tendency to disclose good news forecasts. A significant positive association between forecast disclosure and increase in offer price was found.
Key words: voluntary disclosure, forecasts, targets, good/bad news, takeover defences.
Key words: voluntary disclosure, forecasts, targets, good/bad news, takeover defences.
Research Interests:
Shades of Grey: Directors’ Dilemmas addresses dilemmas facing company directors. It contains 34 directors’ dilemmas with an analysis and discussion of each dilemma. My sources for the dilemmas comprise newspaper articles and heavily... more
Shades of Grey: Directors’ Dilemmas addresses dilemmas facing company directors. It contains 34 directors’ dilemmas with an analysis and discussion of each dilemma. My sources for the dilemmas comprise newspaper articles and heavily disguised personal experiences from my 25-years-plus service as a non-executive director on a range of boards and audit committees. I piloted the dilemmas amongst company directors and other students attending my corporate governance programme and courses at University College Dublin.
There is no right answer to each dilemma, although there may be some courses of action that are clearly wrong. The dilemmas are deliberately designed to capture the grey areas in the real world, and to illustrate just how difficult it can be to be a good company director. That said, while there are lots of shades of grey, good company directors need to call black ‘black’ when it is so. It is important that directors stand up and say when certain behaviour is wrong. Particularly in a boardroom scenario, if you believe something is ‘black’ but do not say so, then you risk losing the opportunity for it to be explained. The issue may turn out to be more complicated than at first glance.
The dilemmas cover areas of particular challenge in boardrooms including directors’ fiduciary duties/conflict of interest, the exercise of due care and skill, decision making, behavioural issues, information asymmetry and the conduct of board business.
There is no right answer to each dilemma, although there may be some courses of action that are clearly wrong. The dilemmas are deliberately designed to capture the grey areas in the real world, and to illustrate just how difficult it can be to be a good company director. That said, while there are lots of shades of grey, good company directors need to call black ‘black’ when it is so. It is important that directors stand up and say when certain behaviour is wrong. Particularly in a boardroom scenario, if you believe something is ‘black’ but do not say so, then you risk losing the opportunity for it to be explained. The issue may turn out to be more complicated than at first glance.
The dilemmas cover areas of particular challenge in boardrooms including directors’ fiduciary duties/conflict of interest, the exercise of due care and skill, decision making, behavioural issues, information asymmetry and the conduct of board business.
Research Interests:
The topic of corporate governance is the subject of a burgeoning literature. Accordingly it is impossible to summarise an entire field in a book of readings. For this reason, I have focused this selection of readings on the financial... more
The topic of corporate governance is the subject of a burgeoning literature. Accordingly it is impossible to summarise an entire field in a book of readings. For this reason, I have focused this selection of readings on the financial reporting aspects of corporate governance, which marries two of my research interests. Given the speed of change in the area of corporate governance, generally-speaking the volume of readings is skewed towards more recent publications. However, some seminal material is included from which a considerable amount of corporate governance empirical research was derived, especially Jensen and Meckling (1976), Fama & Jensen (1983) and Jensen (1993). Denis (2001) suggests that the groundswell for research on corporate governance by financial economists stated with Jensen and Meckling’s (1976) paper on the theory of the firm and featuring agency theory.
This is a focussed interdisciplinary compilation of readings which brings together corporate governance and financial reporting, and issues of accountability. It does not comprise a broad coverage of all corporate governance issues. Instead, it takes a narrower perspective, concentrating only on those corporate governance mechanisms influencing financial reporting and accountability.
The papers selected comprise a mixture of theoretical and review articles and original empirical research. The empirical papers primarily consider financial reporting aspects of corporate governance. Financial reporting itself is the focus of much of these papers. However, other governance mechanisms relevant to financial reporting are also considered, especially the role of audit committees, of internal audit, of risk management and the role of external audit. Papers are selected from as wide a variety of journals, and as many non-US journals, as possible.
This is a focussed interdisciplinary compilation of readings which brings together corporate governance and financial reporting, and issues of accountability. It does not comprise a broad coverage of all corporate governance issues. Instead, it takes a narrower perspective, concentrating only on those corporate governance mechanisms influencing financial reporting and accountability.
The papers selected comprise a mixture of theoretical and review articles and original empirical research. The empirical papers primarily consider financial reporting aspects of corporate governance. Financial reporting itself is the focus of much of these papers. However, other governance mechanisms relevant to financial reporting are also considered, especially the role of audit committees, of internal audit, of risk management and the role of external audit. Papers are selected from as wide a variety of journals, and as many non-US journals, as possible.
Research Interests:
This book is based on my experiences in completing my PhD thesis in 1995 and as Programme Director of the Master of Accounting at University College Dublin. I have prepared, evolved and used these notes as part of the Master of Accounting... more
This book is based on my experiences in completing my PhD thesis in 1995 and as Programme Director of the Master of Accounting at University College Dublin. I have prepared, evolved and used these notes as part of the Master of Accounting Research Methodology course. They are now being published for a wider audience, thanks to generous funding from the Irish Accountancy Educational Trust.
The Irish Accountancy Educational Trust was established in 1981 by the Institute of Chartered Accountants in Ireland as an independent charitable trust. Its objectives are to promote and facilitate the development of accountancy. The policy of the Trustees is to act as a catalyst for activities which would otherwise not be feasible. The author gratefully acknowledges the generous support received from The Irish Accountancy Educational Trust in respect of this publication. This book would not have been published but for its support.
This is an introductory text. The complexities of many of the topics introduced here are left for more specialist and advanced publications. The book aims to be a concise, practical guide to the basics of doing research in accounting and preparing a research report – usually a dissertation. The primary audience for the book is undergraduate and masters-level students, although PhD students starting off may find some topics useful. Examples, references etc. are taken from the accounting literature, but students in other business disciplines may find some of the material applicable to their subject.
The Irish Accountancy Educational Trust was established in 1981 by the Institute of Chartered Accountants in Ireland as an independent charitable trust. Its objectives are to promote and facilitate the development of accountancy. The policy of the Trustees is to act as a catalyst for activities which would otherwise not be feasible. The author gratefully acknowledges the generous support received from The Irish Accountancy Educational Trust in respect of this publication. This book would not have been published but for its support.
This is an introductory text. The complexities of many of the topics introduced here are left for more specialist and advanced publications. The book aims to be a concise, practical guide to the basics of doing research in accounting and preparing a research report – usually a dissertation. The primary audience for the book is undergraduate and masters-level students, although PhD students starting off may find some topics useful. Examples, references etc. are taken from the accounting literature, but students in other business disciplines may find some of the material applicable to their subject.
Research Interests:
Despite the importance of profit forecasts to investors, little attention has been given so far to their publication, presentation and content. The object of the paper is two-fold: • Firstly, the paper examines disclosures in... more
Despite the importance of profit forecasts to investors, little attention has been given so far to their publication, presentation and content.
The object of the paper is two-fold:
• Firstly, the paper examines disclosures in profit forecasts and in takeover documents from the perspective of rhetoric and argument to show how managements use accounting information to defend their own position and rebut the arguments of the other side. Persuasion in forecasts, and the verbal jousting and argument between bidder and target managements during contested bids, is considered.
• Secondly, the paper reproduces and discusses examples concerning disclosures in profit forecasts and in takeover documents. This is intended as useful precedent material for practitioners involved in preparing profit forecasts.
This paper reviews financial reporting in profit forecasts, based on a systematic analysis of the disclosure practices in 250 profit forecasts disclosed during 701 public company takeover bids in the UK in the 5 year period 1988 to 1992. There were 74 examples selected from the 250 forecasts to illustrate particular practices which are commented on and discussed in the text. The examples shown do not necessarily illustrate best practice. It is intended that they highlight the wide variety of disclosure-related issues to be taken into consideration in preparing a forecast for publication. It is hoped these examples will act as useful precedent material to be consulted by practitioners involved in preparing profit forecasts for publication in the future.
In selecting material to reproduce, there was particular emphasis on disclosures used by management for rhetorical purposes – to persuade shareholders or to attack the other side in the bid.
The research showed that there was some evidence of strategic information disclosures by management both in the accounting practices employed in preparing forecasts, in the variability of levels of disclosure and the choice of wording used in some disclosures. In particular, the choice of disclosure practices by management may be used to provide protection if the forecast is not subsequently achieved, thus serving management’s own self-interest.
The following recommendations are made to improve reporting practices:
• Specification of minimum levels of disclosure in forecasts would reduce the flexibility in reporting practices which would result in greater consistency between companies in forecast items disclosed.
• The role of the reporting accountants and financial advisors should be expanded to require them to consider and report on the objectivity and consistency of disclosures in takeover documents.
The object of the paper is two-fold:
• Firstly, the paper examines disclosures in profit forecasts and in takeover documents from the perspective of rhetoric and argument to show how managements use accounting information to defend their own position and rebut the arguments of the other side. Persuasion in forecasts, and the verbal jousting and argument between bidder and target managements during contested bids, is considered.
• Secondly, the paper reproduces and discusses examples concerning disclosures in profit forecasts and in takeover documents. This is intended as useful precedent material for practitioners involved in preparing profit forecasts.
This paper reviews financial reporting in profit forecasts, based on a systematic analysis of the disclosure practices in 250 profit forecasts disclosed during 701 public company takeover bids in the UK in the 5 year period 1988 to 1992. There were 74 examples selected from the 250 forecasts to illustrate particular practices which are commented on and discussed in the text. The examples shown do not necessarily illustrate best practice. It is intended that they highlight the wide variety of disclosure-related issues to be taken into consideration in preparing a forecast for publication. It is hoped these examples will act as useful precedent material to be consulted by practitioners involved in preparing profit forecasts for publication in the future.
In selecting material to reproduce, there was particular emphasis on disclosures used by management for rhetorical purposes – to persuade shareholders or to attack the other side in the bid.
The research showed that there was some evidence of strategic information disclosures by management both in the accounting practices employed in preparing forecasts, in the variability of levels of disclosure and the choice of wording used in some disclosures. In particular, the choice of disclosure practices by management may be used to provide protection if the forecast is not subsequently achieved, thus serving management’s own self-interest.
The following recommendations are made to improve reporting practices:
• Specification of minimum levels of disclosure in forecasts would reduce the flexibility in reporting practices which would result in greater consistency between companies in forecast items disclosed.
• The role of the reporting accountants and financial advisors should be expanded to require them to consider and report on the objectivity and consistency of disclosures in takeover documents.
Research Interests:
Takeovers are complex business phenomena, undertaken for a variety of strategic and financial objectives. The progress and outcomes of takeover bids are heavily influenced by the behaviour and motivations of managers in bidding and target... more
Takeovers are complex business phenomena, undertaken for a variety of strategic and financial objectives. The progress and outcomes of takeover bids are heavily influenced by the behaviour and motivations of managers in bidding and target companies. Motivations and behaviour vary depending on whether bids are friendly or not.
This research investigates one aspect of managerial behaviour during takeover bids - that of disclosure of profit forecasts. As forecast disclosure is largely unregulated in the UK, this can provide valuable insights into managerial voluntary disclosure decisions. This in turn may be helpful in assisting policy makers to develop regulations governing disclosure of forecasts.
Profit forecasts are rarely disclosed by UK managements in routine circumstances (such as in annual reports). However, a substantial number of companies issuing prospectuses, either to raise new capital or during takeover bids, include a profit forecast. This raises the question as to why, in a market generally averse to routine disclosure of profit forecasts, companies involved in takeovers would overcome that aversion and publish their forecasts.
The fact that there is a general culture hostile to routine disclosure of profit forecasts in the UK suggests that companies’ motivation will be to make no disclosure unless there are very attractive or compelling reasons. If disclosure of profit forecasts were a routine feature of company behaviour, a decision to make a forecast in a takeover situation would not require any particularly strong motivation.
Forecasts are normally made during takeover bids to support arguments being put forward by directors. The nature of these arguments will differ depending on whether the bid is agreed (i.e. recommended by target firm directors) or is contested.
The research is based on eleven in-depth interviews with participants in the decision to disclose a forecast in public company takeover bids. Interviews were conducted in 1993 and 1994.
The eleven interviews were carried out as part of a larger empirical research project which examined disclosure of profit forecasts in 701 takeover bids for public companies listed on the London Stock Exchange in the period 1988 to 1992. Interviewees were selected from a wide variety of backgrounds, firm positions and takeover contexts, so that all the relevant issues could be explored. All interviewees were involved in one or more of the 701 public company takeover bids which were part of the research sample. Eleven interviews were deemed sufficient, as a point of saturation (whereby no additional points were coming out of the interviews) had been reached.
The object of the interviews was to gain a better understanding of the disclosure process from those who had participated in forecast disclosure decisions taken during takeover bids. In addition, the interviews provide some background on the strategic issues underlying disclosure.
Interview Findings
Interview responses are analysed by reference to five themes:
• Factors influencing disclosure;
• Motivations for disclosure of forecasts by bidders;
• Motivations for disclosure of forecasts by targets;
• Role of forecasts in defending against hostile bids;
• Information disclosed in forecasts.
Managerial motives to disclose or not disclose a forecast will be influenced by whether the forecast is persuasive in supporting arguments of directors. Many factors influence the disclosure decision. Two are particularly important. Whether the forecast discloses better or worse figures than expected (by say market analysts) is likely to influence the disclosure decision. A separate but related issue is whether forecasts disclose ‘good’ or ‘bad’ news. Various other factors are also considered, including the influence of company characteristics on disclosure.
Motivations underlying management decisions to disclose or not disclose forecasts are likely to be different for bidders and targets. Consequently, bidders’ and targets’ disclosure decisions are separately analysed.
Profit forecasts are issued for the purpose of persuading shareholders to support the arguments of directors. Following this, an interesting question is whether, in fact, they are effective in achieving this objective. There is anecdotal evidence that target companies in contested bids use profit forecasts as a means of fighting off an unwelcome bidder. Views on whether forecasts are effective defence weapons are examined.
Once a company decides to publish a profit forecast, further decisions have to be made on the detailed information to disclose in the forecast. Relevant to their persuasiveness is the amount of information included in forecasts. The factors and motivations underlying the financial items and assumptions in forecasts are also examined.
Factors influencing disclosure - If market expectations of results are inaccurate a forecast is much more likely. Good news forecasts are also more likely, although bad news forecasts may be disclosed in certain circumstances.
Advisors are very influential in the disclosure decision. Variability of earnings and the riskiness of the forecast are also important factors.
Motivations for disclosure of forecasts by bidders - Results show that bidding companies disclose forecasts mainly to support the price of any shares issued during the bid.
Motivations for disclosure of forecasts by targets - Targets companies in agreed bids disclose forecasts mainly to support directors’ recommendations to shareholders to accept the bid, or as a requirement of bidders, who want information discussed during bid negotiations validated in the form of a formal profit forecast reported on by advisors and reporting accountants. Targets in contested bids disclose forecasts to get an increase in offer price or to defeat the bid.
Forecast as a defensive weapon: It is clear that, in most circumstances, forecasts are not effective defence weapons - they are disclosed by only a minority of targets in contested bids. However, where circumstances favour disclosure, most interviewees agreed that a forecast is an effective weapon in a takeover bid.
There was no consensus on what the benefit of disclosure is, although most commentators referred to forecasts in the context of getting an increase in offer price. There was only one mention of a forecast defeating a bid.
Information disclosed in forecasts - Accepting that the amount forecast is most important, interviewees agreed that more detailed forecasts are more credible and provide forecasters with greater protection. Forecasters had a strong preference for including assumptions in forecasts as this offered protection to the forecaster. Users of forecasts were averse to assumptions, recognising that they reduced the reliability and credibility of forecasts, especially non-standard assumptions specific to individual businesses.
Recommendations of the study
The research identified a number of issues relevant to decisions to disclose profit forecasts during takeover bids. Based on the findings of the research seven recommendations are proposed:
• Profit forecasts should not be made mandatory - Investors will interpret the absence of a forecast in the worse possible way and are therefore not disadvantaged by their non-disclosure.
• Companies should keep the market better informed - Companies would not need to disclose forecasts if they disclosed information more regularly to the stock market and ensured that shareholders and analysts are kept informed of company prospects. Regulators should consider requiring quarterly, as well as interim, reports by public companies.
• Companies should adopt consistent disclosure practices for good news and bad news - There is little regulatory control on how good news or bad news is disclosed. There is evidence that good news may be forecast whereas bad news is communicated to shareholders in more qualitative ways. Although desirable, in practice it would be difficult to devise regulations to ensure that good news and bad news is communicated in the same way.
• Dividend forecasts should be reported on in the same way as profit forecasts - In practice many companies make dividend forecasts which are not reported on by reporting accountants and advisors This appears to amount to a forecast ‘by the back door’.
• Directors’ responsibility statements should be included in profit forecasts - Directors should be required to include a responsibility statement in profit forecasts, similar to the requirements of the Cadbury Report (1992) in relation to annual reports. This statement should clarify the division of responsibilities between directors and those reporting on forecasts.
• Disclosures in profit forecasts should be better regulated - Profit forecasts vary considerably in content. It is impossible to completely standardise the content of profit forecasts. However, UK regulations should attempt limit the variability of disclosures in forecasts by specifying a standard minimum level of disclosure to apply to all forecasts.
• There should be better control on disclosure of assumptions - Interview evidence clearly points to manipulation of assumptions in forecasts to protect directors in the event of forecasts going wrong. Directors should distinguish between standard assumptions and those specific to the business being forecast. In addition, directors might include a statement explaining the purpose of the assumptions and outlining the consequences if experience is different from the assumptions.
This research investigates one aspect of managerial behaviour during takeover bids - that of disclosure of profit forecasts. As forecast disclosure is largely unregulated in the UK, this can provide valuable insights into managerial voluntary disclosure decisions. This in turn may be helpful in assisting policy makers to develop regulations governing disclosure of forecasts.
Profit forecasts are rarely disclosed by UK managements in routine circumstances (such as in annual reports). However, a substantial number of companies issuing prospectuses, either to raise new capital or during takeover bids, include a profit forecast. This raises the question as to why, in a market generally averse to routine disclosure of profit forecasts, companies involved in takeovers would overcome that aversion and publish their forecasts.
The fact that there is a general culture hostile to routine disclosure of profit forecasts in the UK suggests that companies’ motivation will be to make no disclosure unless there are very attractive or compelling reasons. If disclosure of profit forecasts were a routine feature of company behaviour, a decision to make a forecast in a takeover situation would not require any particularly strong motivation.
Forecasts are normally made during takeover bids to support arguments being put forward by directors. The nature of these arguments will differ depending on whether the bid is agreed (i.e. recommended by target firm directors) or is contested.
The research is based on eleven in-depth interviews with participants in the decision to disclose a forecast in public company takeover bids. Interviews were conducted in 1993 and 1994.
The eleven interviews were carried out as part of a larger empirical research project which examined disclosure of profit forecasts in 701 takeover bids for public companies listed on the London Stock Exchange in the period 1988 to 1992. Interviewees were selected from a wide variety of backgrounds, firm positions and takeover contexts, so that all the relevant issues could be explored. All interviewees were involved in one or more of the 701 public company takeover bids which were part of the research sample. Eleven interviews were deemed sufficient, as a point of saturation (whereby no additional points were coming out of the interviews) had been reached.
The object of the interviews was to gain a better understanding of the disclosure process from those who had participated in forecast disclosure decisions taken during takeover bids. In addition, the interviews provide some background on the strategic issues underlying disclosure.
Interview Findings
Interview responses are analysed by reference to five themes:
• Factors influencing disclosure;
• Motivations for disclosure of forecasts by bidders;
• Motivations for disclosure of forecasts by targets;
• Role of forecasts in defending against hostile bids;
• Information disclosed in forecasts.
Managerial motives to disclose or not disclose a forecast will be influenced by whether the forecast is persuasive in supporting arguments of directors. Many factors influence the disclosure decision. Two are particularly important. Whether the forecast discloses better or worse figures than expected (by say market analysts) is likely to influence the disclosure decision. A separate but related issue is whether forecasts disclose ‘good’ or ‘bad’ news. Various other factors are also considered, including the influence of company characteristics on disclosure.
Motivations underlying management decisions to disclose or not disclose forecasts are likely to be different for bidders and targets. Consequently, bidders’ and targets’ disclosure decisions are separately analysed.
Profit forecasts are issued for the purpose of persuading shareholders to support the arguments of directors. Following this, an interesting question is whether, in fact, they are effective in achieving this objective. There is anecdotal evidence that target companies in contested bids use profit forecasts as a means of fighting off an unwelcome bidder. Views on whether forecasts are effective defence weapons are examined.
Once a company decides to publish a profit forecast, further decisions have to be made on the detailed information to disclose in the forecast. Relevant to their persuasiveness is the amount of information included in forecasts. The factors and motivations underlying the financial items and assumptions in forecasts are also examined.
Factors influencing disclosure - If market expectations of results are inaccurate a forecast is much more likely. Good news forecasts are also more likely, although bad news forecasts may be disclosed in certain circumstances.
Advisors are very influential in the disclosure decision. Variability of earnings and the riskiness of the forecast are also important factors.
Motivations for disclosure of forecasts by bidders - Results show that bidding companies disclose forecasts mainly to support the price of any shares issued during the bid.
Motivations for disclosure of forecasts by targets - Targets companies in agreed bids disclose forecasts mainly to support directors’ recommendations to shareholders to accept the bid, or as a requirement of bidders, who want information discussed during bid negotiations validated in the form of a formal profit forecast reported on by advisors and reporting accountants. Targets in contested bids disclose forecasts to get an increase in offer price or to defeat the bid.
Forecast as a defensive weapon: It is clear that, in most circumstances, forecasts are not effective defence weapons - they are disclosed by only a minority of targets in contested bids. However, where circumstances favour disclosure, most interviewees agreed that a forecast is an effective weapon in a takeover bid.
There was no consensus on what the benefit of disclosure is, although most commentators referred to forecasts in the context of getting an increase in offer price. There was only one mention of a forecast defeating a bid.
Information disclosed in forecasts - Accepting that the amount forecast is most important, interviewees agreed that more detailed forecasts are more credible and provide forecasters with greater protection. Forecasters had a strong preference for including assumptions in forecasts as this offered protection to the forecaster. Users of forecasts were averse to assumptions, recognising that they reduced the reliability and credibility of forecasts, especially non-standard assumptions specific to individual businesses.
Recommendations of the study
The research identified a number of issues relevant to decisions to disclose profit forecasts during takeover bids. Based on the findings of the research seven recommendations are proposed:
• Profit forecasts should not be made mandatory - Investors will interpret the absence of a forecast in the worse possible way and are therefore not disadvantaged by their non-disclosure.
• Companies should keep the market better informed - Companies would not need to disclose forecasts if they disclosed information more regularly to the stock market and ensured that shareholders and analysts are kept informed of company prospects. Regulators should consider requiring quarterly, as well as interim, reports by public companies.
• Companies should adopt consistent disclosure practices for good news and bad news - There is little regulatory control on how good news or bad news is disclosed. There is evidence that good news may be forecast whereas bad news is communicated to shareholders in more qualitative ways. Although desirable, in practice it would be difficult to devise regulations to ensure that good news and bad news is communicated in the same way.
• Dividend forecasts should be reported on in the same way as profit forecasts - In practice many companies make dividend forecasts which are not reported on by reporting accountants and advisors This appears to amount to a forecast ‘by the back door’.
• Directors’ responsibility statements should be included in profit forecasts - Directors should be required to include a responsibility statement in profit forecasts, similar to the requirements of the Cadbury Report (1992) in relation to annual reports. This statement should clarify the division of responsibilities between directors and those reporting on forecasts.
• Disclosures in profit forecasts should be better regulated - Profit forecasts vary considerably in content. It is impossible to completely standardise the content of profit forecasts. However, UK regulations should attempt limit the variability of disclosures in forecasts by specifying a standard minimum level of disclosure to apply to all forecasts.
• There should be better control on disclosure of assumptions - Interview evidence clearly points to manipulation of assumptions in forecasts to protect directors in the event of forecasts going wrong. Directors should distinguish between standard assumptions and those specific to the business being forecast. In addition, directors might include a statement explaining the purpose of the assumptions and outlining the consequences if experience is different from the assumptions.
Research Interests:
A multiple choice questionnaire (MCQ) style examination typically consists of 20/30 short statements, each of which is followed by a number of alternative answers. Only one answer is strictly correct. This allows the examiner to mark... more
A multiple choice questionnaire (MCQ) style examination typically consists of 20/30 short statements, each of which is followed by a number of alternative answers. Only one answer is strictly correct. This allows the examiner to mark candidates' responses in an objective rather than subjective fashion. This style of examination question has recently been adopted by the Institute of Chartered Accountants in Ireland and is also used in third level institutions.
MCQs have a number of advantages over traditional examination formats. First, they allow the examiner to ask questions on every topic on the syllabus and thus test the candidates range of knowledge. Perhaps more importantly, correction of answers is entirely objective and comparatively easy. Large numbers of scripts can be objectively tested in a short space of time.
Objective tests can also be an effective teaching tool. The topics covered in each chapter are logically sequenced so that as the student progresses through the chapter they build up their knowledge and skills in relation to that topic. In addition, the book emphasises problem areas and attempts to help students avoid common mistakes in financial accounting. Thus the tutor can indicate the correct solution and also explain or seek responses as to why other plausible answers are incorrect to the given statement. Such a process should ensure greater understanding of the topic under discussion.
This book is suitable for students taking introductory financial accounting examinations of the professional accountancy bodies, third level accounting students or other students studying introductory financial accounting courses. The three revision examinations at the end of this book are reproduced with the kind permission of the Institute of Chartered Accountants in Ireland.
MCQs have a number of advantages over traditional examination formats. First, they allow the examiner to ask questions on every topic on the syllabus and thus test the candidates range of knowledge. Perhaps more importantly, correction of answers is entirely objective and comparatively easy. Large numbers of scripts can be objectively tested in a short space of time.
Objective tests can also be an effective teaching tool. The topics covered in each chapter are logically sequenced so that as the student progresses through the chapter they build up their knowledge and skills in relation to that topic. In addition, the book emphasises problem areas and attempts to help students avoid common mistakes in financial accounting. Thus the tutor can indicate the correct solution and also explain or seek responses as to why other plausible answers are incorrect to the given statement. Such a process should ensure greater understanding of the topic under discussion.
This book is suitable for students taking introductory financial accounting examinations of the professional accountancy bodies, third level accounting students or other students studying introductory financial accounting courses. The three revision examinations at the end of this book are reproduced with the kind permission of the Institute of Chartered Accountants in Ireland.
Research Interests:
Opinions are divided on whether firms use corporate reports (1) to communicate with external parties in a clear and transparent manner (incremental information hypothesis), (2) to shape messages to suit their own agenda, or, worse still,... more
Opinions are divided on whether firms use corporate reports (1) to communicate with external parties in a clear and transparent manner (incremental information hypothesis), (2) to shape messages to suit their own agenda, or, worse still, (3) to mislead audiences (impression management hypothesis). Two competing hypotheses are considered in this chapter to explain why equity offerings coincide with stock overpricing. The dominant hypothesis to date – the market timing hypothesis – is that managers opportunistically time equity offerings to coincide with high stock prices. The empirical evidence supporting this hypothesis is ambiguous. The impression management hypothesis offers an alternative perspective. In this context, impression management entails the construction of an impression by organizations with the intention of influencing stockholders’ view of the firm as reflected in the stock price. Managers may engage in impression management, using persuasive language in pre-equity-offering communications (e.g., narrative disclosures), to drive up the stock price in advance of planned equity offerings.
Research Interests:
This chapter focuses on impression management in accounting communication. Impression management entails the construction of an impression by organisations with the intention to appeal to their audiences, including shareholders,... more
This chapter focuses on impression management in accounting communication. Impression management entails the construction of an impression by organisations with the intention to appeal to their audiences, including shareholders, stakeholders, the general public, and the media. If successful, it undermines the quality of financial reporting and capital misallocations may result. What is more, wider social and political consequences include unwarranted support by non-financial stakeholders or by society at large. Impression management is examined by reference to four perspectives: the economic, psychological, sociological, and critical. These variously conceptualise impression management as reporting bias, self-serving bias, symbolic management, and ideological bias.
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This chapter provides insights into the governance of schools. Roles and responsibilities of school boards and school board members are considered, as is the composition of school boards. The elements contributing to effective boards are... more
This chapter provides insights into the governance of schools. Roles and responsibilities of school boards and school board members are considered, as is the composition of school boards. The elements contributing to effective boards are discussed, in particular the key roles of chairman and school principal which in turn influence board dynamics. Some practical suggestions follow on how to improve school board processes, including agendas, minutes of meetings, board papers, information flows and school board committees. The chapter concludes by referencing the value of school boards evaluating their own effectiveness.
Keywords: Governance, school boards, school board members, roles and responsibilities, board effectiveness
Keywords: Governance, school boards, school board members, roles and responsibilities, board effectiveness
Research Interests:
An overview of corporate governance is provided in this chapter, commencing with a discussion of alternative definitions of governance. Internal and external mechanisms of governance are described. The role of boards of directors, and... more
An overview of corporate governance is provided in this chapter, commencing with a discussion of alternative definitions of governance. Internal and external mechanisms of governance are described. The role of boards of directors, and theories explaining those roles, are also considered. In order to provide some insights into governance research, 15 academic papers with an Irish angle were selected for analysis, by reference to theoretical perspective, governance mechanism studied, research method adopted and results. The analytical table demonstrates the variety of research conducted. Some concluding comments are then drawn.
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... expectations held by multiple interest groups. Widmer's (1993) study of non-profit human ... and consequences of role ambiguity experienced by directors on non-profit boards. They ... an alternative context (for example... more
... expectations held by multiple interest groups. Widmer's (1993) study of non-profit human ... and consequences of role ambiguity experienced by directors on non-profit boards. They ... an alternative context (for example family firms, nonprofit organisations, venture capital ...
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The findings of this report highlight a number of worrying trends in Irish plcs. Only 41% of companies complied with the recommendations for separate audit, remuneration and nomination committees; 40% of companies do not have majority... more
The findings of this report highlight a number of worrying trends in Irish plcs. Only 41% of companies complied with the recommendations for separate audit, remuneration and nomination committees; 40% of companies do not have majority independent boards. Board size averages 9.4 members, well below the UK average of 12-13 members. This may breach the Higgs recommendations that boards should be of sufficient size and have an appropriate balance of skills and experience.
The report shows that if the recommendations of the Higgs Report are implemented, many Irish listed companies will need to make considerable improvements for their boards to be judged fully independent. The financial reporting council has adopted the Higgs recommendations (with some modifications) in a Combined, revised Code on Good Governance, which is effective from 1st November 2003.
Many individual non-executive directors failed to meet the criteria for independence for reasons such as previous association through business, auditing or family, years served without re-election or a history as former employees. The report reveals that there remains confusion as to what criteria constitutes an independent director. A number of firms also failed to disclose sufficient biographical information on directors.
Inter-locking directorships where directors are sitting on each other’s boards however, are not as common as might be expected, with only six cases highlighted.
The research was carried out by Professor Niamh Brennan, Academic Director of the IoD Centre for Corporate Governance at UCD, (a joint venture between the IoD and University College Dublin) and Michael McDermott, a consultant and former MBA graduate from UCD. It examined firstly the independence of boards of directors and board sub committees by analysing board compositions as disclosed in annual reports. Secondly it considered the independence of individual non-executive directors by analysing disclosures in annual reports and applying determinants generally regarded as prerequisites for an independent director.
The report shows that if the recommendations of the Higgs Report are implemented, many Irish listed companies will need to make considerable improvements for their boards to be judged fully independent. The financial reporting council has adopted the Higgs recommendations (with some modifications) in a Combined, revised Code on Good Governance, which is effective from 1st November 2003.
Many individual non-executive directors failed to meet the criteria for independence for reasons such as previous association through business, auditing or family, years served without re-election or a history as former employees. The report reveals that there remains confusion as to what criteria constitutes an independent director. A number of firms also failed to disclose sufficient biographical information on directors.
Inter-locking directorships where directors are sitting on each other’s boards however, are not as common as might be expected, with only six cases highlighted.
The research was carried out by Professor Niamh Brennan, Academic Director of the IoD Centre for Corporate Governance at UCD, (a joint venture between the IoD and University College Dublin) and Michael McDermott, a consultant and former MBA graduate from UCD. It examined firstly the independence of boards of directors and board sub committees by analysing board compositions as disclosed in annual reports. Secondly it considered the independence of individual non-executive directors by analysing disclosures in annual reports and applying determinants generally regarded as prerequisites for an independent director.