Does graphical reporting improve risk disclosure? Evidence from European banks

Jones, Michael; Melis, Andrea; Gaia, Silvia; Aresu, Simone

doi:10.1108/jaar-07-2016-0068

Cited by 18 publications

(24 citation statements)

References 71 publications

(151 reference statements)

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“…Moreover, there is evidence that firms that demonstrate robust accounting practices such as conditional conservatism have higher credit ratings (Lim and Mali, 2015). Credit rating agencies utilize complicated AI technology and machine learning models to estimate credit ratings, (Galindo et al , 2000; Kwon et al , 1997; Shin and Han, 2001; Jones et al , 2018) which may not be decipherable to humans (Huang et al , 2004). Therefore, because it may not possible for firms to artificially inflate credit ratings using opportunistic means, management may develop signaling strategies to legitimize firm quality.…”

Section: Literature Reviewmentioning

confidence: 99%

Do credit ratings influence the demand/supply of audit effort?

Lim

Mali

2020

JAAR

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PurposeFirm management has an incentive to improve credit ratings to enjoy the reputational and financial benefits associated with higher credit ratings. In this study, the authors question whether audit effort in hours can be considered incrementally increasing with credit ratings. Based on legitimacy theory, the authors conjecture that firms with higher credit ratings will demand higher levels of audit effort to signal audit and financial quality compared to firms with higher levels of credit risk.Design/methodology/approachThe authors conduct empirical tests using a sample of Korean-listed firms using a sample period covering 2001–2015.FindingsThe results show that firms with higher credit ratings demand higher audit effort in hours compared to client firms with lower credit ratings. The authors interpret that firms with higher ratings (lower risk) demand higher levels of audit effort in hours to reduce information asymmetry and to demonstrate that financial reporting systems are robust based on audit effort signaling audit quality. The authors also interpret that firms with lower credit ratings do not have incentives to signal similar audit quality. The authors also capture the “Big4 auditor expertise” effect by demonstrating that client firms audited by nonBig4 auditors demand additional audit effort with increasing credit rating compared to Big4 clients.Research limitations/implicationsAudit effort is considered a signal of firm risk in the literature. This study’s results show evidence that audit effort is inversely related to firm risk.Practical implicationsThe results show that audit hour information is informative and likely managed by firm stakeholders. Internationally, it is not possible to capture the audit demand of clients because listing audit hours on financial statements is not a rule. Given that audit hours can be considered informative, the authors believe that legislators could consider implementing a policy to mandate that audit hours be recorded on international annual reports to enhance transparency.Originality/valueSouth Korea is one of few countries to list audit effort on annual reports. Therefore, the link between audit effort and credit ratings is unique in South Korea because it is one of few countries in which market participants likely monitor audit effort.

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Section: Literature Reviewmentioning

confidence: 99%

Do credit ratings influence the demand/supply of audit effort?

Lim

Mali

2020

JAAR

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“…This is found in firms reports and banks' annual reports as well (Jones et al, 2018;Sartawi, 2015). Most of these prior studies find evidence for the existence of graphical manipulations in developed countries; for instance, Falschlunger et al (2015) and Jones et al (2018) in European countries, Cho et al (2012) in both US and European countries, Godfrey et al (2003) in Australia, C€ ure et al (2020) in Turkey, with a very few studies in developing countries, such as Sartawi (2015) in Jordan.…”

Section: Influence Of Narrative Disclosure Readabilitymentioning

confidence: 94%

“…There is a growing body of literature revealing that management can manipulate graphical representations for the enhancement of firm's favorable image only (Godfrey et al , 2003; Jones et al , 2018; Sartawi, 2015) or both obfuscation and enhancement (Cho et al , 2012; Cüre et al , 2020; Falschlunger et al , 2015). This is found in firms reports and banks' annual reports as well (Jones et al , 2018; Sartawi, 2015).…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

“…Then, they can be used by management as a part of the impression management process, which is found by many prior studies (e.g. Beattie and Jones, 2002; Beattie and Jones, 2008; Cho et al , 2012; Cüre et al , 2020; Dilla and Janvrin, 2010; Falschlunger et al , 2015; Godfrey et al , 2003; Jones et al , 2018; Muiño and Trombetta, 2009; Sartawi, 2015) and can bias investors' perceptions, especially the non-professionals. Most prior studies usually address the effect of graphical representations separately, without considering the probability of management's use of other impression management strategies together with the graphical information.…”

Section: Introductionmentioning

confidence: 99%

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The influence of narrative disclosure readability, information ordering and graphical representations on non-professional investors' judgment: evidence from an emerging market

El-Sayed

Adel

Elmougy

et al. 2020

JAAR

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PurposeThis study examines whether manipulation in attributes of corporate narrative disclosures and the use of graphical representations can bias non-professional investors' judgment towards firms' future performance, in an emerging market context.Design/methodology/approachThe authors conduct three different experiments with a 2 × 2 between-subjects design, using accounting and finance senior undergraduate students to proxy for the non-professional investors.FindingsResults show that simple (more readable) disclosures improve non-professional investors' judgment towards firms' future performance. In addition, it is found that non-professional investors are prone to a recency effect from the intentional ordering of narrative information, when using complex (less readable) narratives. However, no primacy effect is found, when using simple (more readable) disclosures. The results further provide evidence that the inclusion of graphical representations, along with the manipulated narrative disclosures, can moderate the recency effect of information order, when using less readable and complex narrative disclosures.Research limitations/implicationsThe results reveal that although the content of corporate disclosures can be objective, neutral and relevant, manipulation in textual features and the use of graphical presentations, can interact to impact how non-professional investors perceive and process the disclosed information. This study provides an Egyptian evidence regarding this issue, as the majority of prior studies concentrate on developed capital markets. In addition, it contributes to prior studies evaluating the appropriateness of the Belief Adjustment Model predictions about the effect of textual presentation order on decision-making, by providing evidence from an emerging market.Practical implicationsResults attempt to increase the awareness of investors and encourage them to use multiple sources of information to avoid the probable bias that can result from management's manipulation of narratives. In addition, the study could be of interest to regulators and standard-setters, where the results reveal the need for guidelines and regulations to guide the disclosure of narrative information and the use of graphical information in corporate reports.Originality/valueTo the best of the authors' knowledge, this is the first study to examine the effect of two impression management strategies in narrative disclosures (readability and information order), along with the use of graphical representations, on non-professional investors' judgment in an emerging market, like Egypt.

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“…Banks face various risks in their quest of providing excellent financial services (Rahim et al , 2018). Thus, the risks integral to banks’ major business activities can be eliminated/mitigated by adopting proper business practices (Supriadi and Pheng, 2018; Jones et al , 2018; Xu et al , 2017; Svatá and Fleischmann, 2011; IBBM, 2010). Operational risk is known as unexpected risk faced by banks and has now been specifically defined by regulators and recognized by banks to be important in designing their respective risk profiles (Mizgier and Wimmer, 2018; Leone et al , 2018; Yang et al , 2017; Ames et al , 2015; Bodla and Verma, 2008).…”

Section: Introductionmentioning

confidence: 99%

Operational risk management and customer complaints

Rahim

Ahmed

Sarkawi

et al. 2019

BIJ

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PurposeThe purpose of this paper is to examine the relationship between operational risk management and customer complaints. It also determines whether product complexity moderates the relationship between the operational risk management and customer complaints.Design/methodology/approachThis study utilizes a quantitative method: quantitative data were collected using a questionnaire. The population of this study is 1,845 local conventional bank branches based in Malaysia.FindingsThe findings revealed that components of operational risk management, namely practice of hazard identification and formulation of implementation of risk control, have negative and significant relationships with customer complaints. Empirical evidence confirmed the moderating effects of product complexity on the relationship between operational risk management and customer complaints.Originality/valueFrom the perspective of developing countries, the main contribution of this study is the elucidation of the effect of operational risk management on customer complaints in commercial banks in Malaysia. This study confirmed the usability of the resource-based view theory in the banking industry, as well as operational risk management as a bank resource.

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Does graphical reporting improve risk disclosure? Evidence from European banks

Cited by 18 publications

References 71 publications

Do credit ratings influence the demand/supply of audit effort?

Do credit ratings influence the demand/supply of audit effort?

The influence of narrative disclosure readability, information ordering and graphical representations on non-professional investors' judgment: evidence from an emerging market

Operational risk management and customer complaints

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