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This study aims to examine the relationship between Book-Tax Differences and earnings quality i.e. earnings persistence in order to assess the usefulness of accounting earnings for decision making. Managers may have incentives to increase accounting or “book” earnings while simultaneously reducing taxable income, any difference in the two measures is termed the book-tax difference (BTD). As the measurement of accounting earnings and taxable income is based on two different sets of rules differences can arise because of permissible discretion in the measurement of accounting income representing genuine economic differences. However, differences could also represent earnings management or manipulation, e.g. an increase in accounting income without a corresponding increase in real assets. Consequently this has raised calls to conform accounting earnings and taxable income in an attempt to limit the misuse of the discretion and the deviation permitted between the two measures. Nevertheless, conformity is argued to cause a loss of accounting earnings informativeness which makes them less useful for decision making. Using an earnings persistence model this study aims to address: (1) Does the contribution of the BTD in the model differ from that of underlying earnings and if so, does the nature of the contribution depend on a short term or longer-term measure of the BTDs. (2) Further, when BTDs are disaggregated into their “temporary” and “permanent” sources does the nature of the contribution change. If BTDs behave differently from underlying earnings, this will support the retention of differing measures of accounting earnings and taxable income and more directly retaining discretion in measurement of accounting earnings.

This thesis consists of three self-contained essays, each assessing the interaction between financial accounting and information asymmetry from a different aspect. In the first two essays, I examine how a change in the information environment affects the behavior of market participants. In the third essay, I evaluate the empirical measurement of conditional conservatism in accounting data. Together, these studies contribute to the understanding of the role of financial reporting in mitigating the information gap between stakeholders. In the first essay, I explore the impact of the mandatory adoption of the International Financial Reporting Standards (IFRS) on dividend payout policy and the value relevance of dividends in two Western European economies. I select the UK as a major common-law country (control group) and France as a code-law country (treatment group) in order to implement a difference-in-differences methodology. My findings suggest that IFRS adoption is a major contributor in increasing dividend payouts among code-law firms, compared to common-law firms, due to a greater reduction in information asymmetry following the IFRS mandate. This makes investors in code-law firms more willing to rely on accounting measures of firm performance, thereby causing a significant and material decrease in dividend value relevance among code-law firms relative to common-law firms. In the second essay, I examine the potential for IFRS to influence the market for SEOs. I utilize a difference-in-differences methodology, where the UK (i.e. common-law firms) is the control group and France (i.e. code-law firms) is the treatment group. I argue that IFRS adoption serves to mitigate information asymmetry and improve accounting quality. Accordingly, I find that, following IFRS adoption, earnings management activities decrease among code-law firms prior to issuing SEOs. As a result of the lower levels of earnings management and information asymmetry, I predict and find that the market reaction to issuing SEOs improves significantly for code-law firms following IFRS. Given that equity financing becomes less costly, I find that the propensity to issue new SEOs increases among code-law firms after IFRS adoption. In the third and final essay, I examine the empirical measurement of conditional conservatism (CC) in accounting data. Prior studies have raised serious concerns about the bias in the asymmetric timeliness (AT) measure of CC. This measure, along with the C_Score measure, underpins a large body of empirical research on CC. Thus I endeavor to assess the extent to which prior literature may need to be revised because of its reliance on these measures. In exploring this issue, I replicate prior studies that rely on the AT or the C_Score measure, and then compare the replicated results with those generated by applying the variance ratio (VR) measure of CC, proposed by Dutta & Patatoukas (2017). I show that the AT and the VR measures are associated unconditionally. Furthermore, my findings suggest that the observed variation in the C_Score measure is driven by variation in the bias implicit in the AT measure rather than variation in CC. I also provide evidence showing that the AT measure yields similar conclusions to the VR measure in research designs that model the change in CC following an exogenous change in accounting policy; however, I find that using the AT measure to document cross-sectional differences in CC is highly likely to have given rise to invalid conclusions in a large number of studies.

The generalisability of much published research on corporate voluntary disclosure is problematic because there are many corporate and country level factors related to corporate voluntary disclosure: these factors have mainly been investigated in developed countries. Corporate voluntary disclosure is the disclosure of more corporate information than is legally required. Much research has focused on determinants of the quantity of corporate disclosure, while few studies have researched determinants of the quality of corporate voluntary disclosure. Quantity of corporate voluntary disclosure is measured by merely disclosing a particular item of information, whereas provision of additional information about a particular item that qualifies the level of the disclosure determines the quality of corporate voluntary disclosure. The limited research to date has not proven whether determinants of the quantity of corporate voluntary disclosure may also explain the variation of quality of corporate voluntary disclosure. Moreover, many of the existing studies of determinants of corporate voluntary disclosures are from developed countries. However, according to New Institutional Theory and Resource Dependency Theory, these results many not be applicable in developing countries. Finally, there are few cross-countries studies examining the quantity of corporate voluntary disclosure studies, and even fewer prior cross-countries studies on the quality of corporate voluntary disclosure particularly. It is the belief of the current research that the relationships between the quality of corporate voluntary disclosure and national legal systems, the financial expertise of directors, and audit committees have not previously been studied. Consequently, this thesis sought to examine factors relating mainly to the quality of corporate voluntary disclosure in ten developing countries: Turkey, Singapore, Malaysia, India, Ghana, Nigeria, South Africa, Brazil, Mexico and Chile. Unambiguously, the thesis interest was to examine how firm level factors are related to the quantity and quality of voluntary disclosure, as shown in annual reports. Also, it analyses how country level factors are associated with the quantity and quality of voluntary disclosure. New Institutional Sociology, Resource Dependence, and Agency theories have been used to explain these relationships. Methodologically, the quality and quantity of corporate voluntary disclosure was extracted from 600 corporate annual reports, taken from 300 randomly selected companies from 10 countries for the years 2011 and 2012. Then, an un-weighted corporate voluntary disclosure index measured both the quality and quantity of corporate voluntary disclosure. Results from multiple linear regression models show that share diffusion ownership was positively related to the quantity of corporate voluntary disclosure, as were the country level of press freedom, accounting professionalism and tertiary education. Share diffusion ownership, and country level of accounting professionalism, were negatively related to the quality of corporate voluntary disclosure. However, being audited by the big four auditing firms, and country level of tertiary education disclosure, were positively correlated with the quality of corporate voluntary disclosure. The results of percentage of audit committee on board directors, the percentage of board directors who have financial expertise, and the percentage of independent board directors were not related to either the quality or quantity of corporate voluntary disclosure. These results imply that regulators should focus their enforcement efforts on corporate bodies who are likely to have limited voluntary disclosure, to reduce enforcement costs. This means that governments, regulatory bodies and industrial associations should ensure that there is press freedom, professionalism, economic development and high educational levels in order to motivate corporations to disclose corporate information voluntarily. This thesis contributes to the literature in four main ways, through its investigation of the quality of corporate voluntary disclosure, contextually, its reconciliation of contradictory previous results and its offering of policy implications for regulators.

International Financial Reporting Standard No. 8 (IFRS 8) was issued by the International Accounting Standards Board (IASB) in November 2006 and became effective for periods beginning on or after January 2009. IFRS 8 is issued as a part of the IASB convergence program with the USA Financial Accounting Standard Board (FASB). IFRS 8 provides guidelines on how segment information should be reported to external users. It requires segment information to be reported in accordance with the management approach. In particular, operating segments are to be identified in the same way they are reported to Chief Operating Decision Makers (CODM). It is worth noting that IFRS 8 replaced International Accounting Standard No. 14 Revised (IAS 14R). IAS 14R requires reportable segments to be identified in accordance with the (risk and reward) approach. There are three main objectives to this study: (i) to evaluate and compare the disclosure of segment information pre and post the implementation of IFRS 8 for UK listed companies; (ii) to investigate the impact of the management approach on analysts’ earnings forecast accuracy; and (iii) to investigate the impact of the quality of segments’ profit information on stock market ability to anticipate future changes in earnings. For the purpose of achieving these research objectives a positivist theoretical framework is implemented. The three objectives of this study are investigated using two methods; descriptive statistics and mean difference tests; and regression analysis using Ordinary Least Square (OLS), Fixed Effect and Tobit regressions. The findings of this study suggest that the disclosure of segmental information post the adoption of IFRS 8 has witnessed significant and sizable changes. The comparison of segment information reporting pre and post IFRS 8 indicates that UK listed companies provide more disaggregated information post the adoption of IFRS 8. The results show that the implementation of IFRS 8 has resulted in more segments reported for both Line of Business (LOB) and Geographical (GEO) segments. The mean number of reported segments increased from 2.98 to 3.34 for LOB segments and from 4.08 to 4.71 for GEO segments. Statistical tests show that the increase in the number of geographical segments is statistically significant. In addition, the analysis documents a statistically significant increase in the quality (i.e. fineness) of geographical segments disclosed post IFRS 8. However, in contrast the results also show that post the implementation of IFRS 8 the number of line items disclosed has decreased for both LOB and GEO segments. The findings x show that the decline in geographical segments’ line items is statistically different from zero. Also, the results reveal that the most significant line item that is no longer provided for geographical segment is related to earnings/profit information. In addition, the analysis documents a decline in the quality of segment profit reported by companies post the adoption of IFRS 8. With regards to the impact of segmental information on analysts’ earnings forecast accuracy, the results indicate that the adoption of the management approach (IFRS 8), and reporting finer geographical segments provide financial analysts with a significantly better insight about future changes in earnings. In addition, the analysis shows that better quality of segmental earnings disclosure provides financial analysts with a better insight into future changes in earnings. Moreover, we find evidence that companies which defined their main operating segments based on line of business characteristics have been perceived by financial analysts as more informative about future earnings. With regards to the particular impact of the quality of segmental earnings disclosure on stock price ability to anticipate and reflect future changes in earnings, the study finds strong evidence for the impact of quality of segmental profit disclosure on the market ability to anticipate future changes in earnings. The regression results reveal that when the segmental profit margin is different from the consolidated margin, the market has better ability to foresee future change in earnings over short and long term periods. Reporting earnings figures for both main operating segments and entity-wide segments (mostly geographical) improves stock price’s ability to incorporate future earnings for short term periods (i.e. next year earnings). In addition the study shows that when segment profit matches the consolidated income statement the market anticipation power of the next year’s earnings is higher.

The Financial Reporting Council of the United Kingdom launched the Complexity project in 2008 to investigate the causes of complexity in annual reports, given increased concerns on the increasing size, complexity and the declining relevance of annual reports. However, to date, there is still limited academic evidence on the determinants and consequence of the complexity of annual reports, though annual reports remain increasingly complex. This thesis specifically investigates what determines the syntactical complexity of narratives in annual reports, and what is the consequence of syntactical complexity in annual report narratives. It does this by assessing in three empirical chapters (i) what firm characteristics determine the syntactical complexity in narratives, (ii) what board characteristics determine syntactical complexity in narratives, and (iii) what role do narratives play when investors react to earnings information. Syntactical complexity of narratives is measured using the fog index readability formula from computational linguistics, and the tone index measure, both widely used in assessing narratives in accounting research. The results reported in the first empirical chapter of the thesis indicate that specific characteristics of a firm determine the level of syntactical complexity of narratives. It shows that the performance of the firm, size of the firm, age of the firm, and the operations of the firm, play a role in the complexity of annual report narratives. The results reported in the second empirical chapter indicate that board composition factors determine the level of syntactical complexity of narratives. It shows that the age of directors, size of the board, percentage of female directors in the board, average board tenure and the number of nationalities in the board play a role in the level of complexity of annual report narratives. The third empirical chapter presents results indicating that the syntactical complexity of narratives increases with the Post Earnings Announcement Drift. It shows that the movement of post earnings return, in the direction of unexpected earnings, increases when management provide narratives with a more positive outlook. Overall, the results reported in this study indicate that the characteristics of the firm and the composition of the board of directors play a role in the level of complexity of annual report narratives. In addition, the results indicate that the syntactical complexity of annual report narratives, influences investors’ reaction to earnings information. These results are important for policy makers and regulatory bodies that are seeking to reduce the complexity and increase the relevance of annual reports. The results are consistent with the view that firm specific factors and the governance of the firm, are important in the narrative communication process, and that complexity of narrative communication affects resource allocation decisions.

After the fall of the communist regime in Hungary, the country went through a transitional change. As a result, new financial reporting and accounting standards were put forward for adoption by Parliament in compliance with pertaining European and international legislation. The examination of credit institutions’ financial statements is an unexplored area in Hungary. This study set out to investigate their annual financial reports to seek evidence if credit institutions, both large and small by assets size, avoided earnings decreases and/or engaged in earnings management (EM) prior to and after the 2008 financial crisis. The Burgstahler and Dichev (1997), Degeorge, Patel and Zeckhauser (1999) models and Kolmogorov-Smirnov, Monte-Carlo Method, accrual, benchmark and distributional tests were used to study credit institutions financial statements for the period of 1999-2012. A total of 16 banking industry specific ratios were selected to analyse credit institution’s annual financial statements. Four hypotheses were tested with three empirical testing approaches with 95% and 99% confidence intervals and 0.05 and 0.01 significance levels. The findings of this study confirm that foreign and domestic credit institutions trading in Hungary, regardless of their size, not only managed their earnings but also avoided earnings decreases both prior to and after the 2008 financial crisis. Additionally, 7 out of the 16 tested ratios do not contain total assets; therefore, they do not suffer from a possible reverse accruals effect. The application of non-accruals base ratios for statistical testing may increase the power of the test. The conclusion and the original contribution this study provides to the pool of knowledge on the subject in question adds new evidence to existing literature on earnings management by being the first to examine as well as to provide significant evidence on earnings management of foreign and domestic credit institutions trading in Hungary, an ex-communist Eastern European economy.

This study investigates four significant dimensions of the corporate annual reports (CARs) environment in one of the emerging markets in the Middle East, Kuwait: [1] the perceptions of major external users of annual reports regarding current voluntary disclosure practices, [2] the identification of voluntary items perceived as useful, [3] the assessment of voluntary disclosure levels and their evolvement over the period covered by the current study (2005-2008), [4] the impact of a comprehensive set of company characteristics and corporate governance attributes on explaining variations in the extent of disclosure. A questionnaire survey is used to test the first two dimensions, covering four user groups, while hand-collected data from a sample of 206 annual reports of non-financial companies and other complementary sources are used to test the other two. The study employs a theoretical framework (agency, signalling, legitimacy, and stakeholder theories) to explore the motivations of companies to release voluntary information. The 143 received responses are analysed using Kruskal-Wallis and Mann-Whitney tests. The analysis brings to light the remarkable agreement among the participants on the importance of CARs, interim reports, and advice from specialists as sources of information for making judgments. Regarding the level of voluntary disclosure, respondents strongly agree that the annual reports of listed companies provide inadequate information to users. Participants also indicate their desire for more information to be required than companies currently provide, to improve decision making and the usefulness of CARs. The results suggest that most users believe that there is a necessity to develop sophisticated capital market infrastructure and comprehensive regulations to help foster confidence in the capital market and protect market participants. Although multivariate analysis reveals that the actual level of voluntary disclosure is low, the overall level is gradually improving over time. The extent of voluntary disclosure tends to be significantly higher as the percentage of government ownership increases. Disclosure practices are also positively influenced by cross-listing and company size. Conversely, voluntary disclosure practices are negatively influenced by cross-directorships, board size, role duality, and company growth, while family members, ruling family on the board, and audit committees have no bearing on disclosure. Interestingly, the determinants of disclosure vary among the categories of information. No single explanatory variable explains the variation in the overall level of voluntary disclosure and the variations in the disclosure level of all categories of information.

This thesis consists of four empirical essays on option-implied information and asset pricing in the US market. The first essay examines the predictive ability of option-implied volatility measures proposed by previous studies by using firm-level option and stock data. This essay documents significant non-zero returns on long-short portfolios formed on call-put implied volatility spread, and implied volatility skew. Cross-sectional regressions show that the call-put implied volatility spread is the most important factor in predicting one-month ahead stock returns. For two-month and three-month ahead stock returns, “out-minus-at” of calls has stronger predictive ability. The second essay constructs pricing factors by using at-the-money option-implied volatilities and their first differences, and tests whether these pricing factors have significant risk premiums. However, results about significant risk premiums are limited. The third essay focuses on the relationship between an asset’s return and its sensitivity to aggregate volatility risk. First, to separate different market conditions, this study focuses on how VIX spot, VIX futures, and their basis perform different roles in asset pricing. Secondly, this essay decomposes the VIX index into two parts: volatility calculated from out-of-the-money call options and volatility calculated from out-of-the-money put options. The analysis shows that out-of-the-money put options capture more useful information in predicting future stock returns. The fourth essay concentrates on systematic standard deviation (i.e., beta) and skewness (i.e., gamma) by incorporating option-implied information. Portfolio level analysis shows that option-implied gamma performs better than historical gamma in explaining portfolio returns at longer horizons (five-month or longer). In addition, firm size plays an important role in explaining returns on constituents of the S&P500 index. Finally, cross-sectional regression results confirm the existence of risk premiums on option-implied components for systematic standard deviation and systematic skewness calculation.

On 30 November 2006, the International Accounting Standard Board (IASB) released International Financial Reporting Standard (IFRS) 8 Operating Segments which replaced the revised International Accounting Standard (IAS) 14 Segmental reporting. This study consists of four main projects covering the empirical analysis of the non-financial FTSE 350 constituents’ first segmental disclosures under IFRS 8. The new standard is a result of the joint short term project between the IASB and the Financial Accounting Standards Board (FASB) and it is almost identical to its US counterpart. The first part of this study analyses the level of compliance (measured by compliance indices) with the requirements of IFRS 8 and examines the factors that might provide some explanation of the variances in the compliance levels of the companies. The results suggest that there is substantial non-compliance with the entity-wide disclosure requirements of IFRS 8. There is evidence that the companies are withholding sensitive information (such as reliance on major customers; non-current assets and external revenue attributed to the entity’s country of domicile and material foreign countries) which provides support for the proprietary cost theory. The results also indicate that the extent of compliance varies significantly. The evidences suggest that the identity of the auditor is one of the most important company characteristics in explaining the overall level of compliance with the segmental reporting requirements of IFRS 8. Thus, the audit quality provided by the BIG 4 audit companies seems to be different. Additionally, the findings reveal that the overall level of compliance and the level of compliance with the entity-wide requirements of the standard is significantly greater for companies organised around different products and services (business reportable segments) or a combination of different products, services and geographical areas (mixed reportable segments) compared to companies organised around different geographic areas (geographic reportable segments). It raises the question whether the companies use their organisational structure to conceal / reveal information. The relatively high level of non-compliance with the entity-wide requirements of the standard and the considerable variance between the levels of compliance of the individual companies questions the success of the convergence of the accounting standards and the quality and the comparability of the financial statements. It is no doubt that geographic disclosures provide useful information on assessing internationally diversified companies’ risks and prospects and on making economic decisions. The second part of this study analyses the impact of IFRS 8 on the quality of the geographic disclosures of the sample companies and tries to provide some explanation for better understanding the diversity of the preparers’ geographic disclosure practice and their possible incentives to conceal / reveal geographic information. The findings suggest that the introduction of IFRS 8 has both positive and negative impacts on the geographic disclosure quality of the companies. The results reinforce previous research findings and indicate that the companies’ geographic disclosure quality cannot be described by only one quality measure. Considerable variation was found in the companies’ geographic disclosure quality. However, none of the studied company characteristics had significant effect on all of the quality measures. Additionally, the research results seem to indicate that it is not in the interest of a relatively high percentage of the sample companies to change their geographic disclosure practice. The companies stick with their disclosure practice even under the new standard. Geographic information disaggregated to country-level results in greater accountability and transparency and provides financial information that is more useful and relevant for financial statement users than information provided for geographic regions. However, IFRS 8 only requires the separate disclosure of individually material countries and it does not provide guidance on how to set the materiality level. The third part of the study provides some insight into (1) how the companies apply the materiality concept in defining their individually material countries and (2) how different company characteristics affect the companies’ materiality decisions. The quantitative materiality threshold applied by the sample companies (estimated by the method developed by Doupnik and Seese, 2001) varies considerably which indicates that the companies do not follow a general quantitative benchmark. However, with the exception of early adoption none of the studied company characteristics had significant effect on the materiality threshold applied by the companies. The results suggest that there could be both quantitative and qualitative factors, not studied in this research that might be more important in the preparers’ materiality decisions. However, only the preparers know what is behind their materiality decision. Only a few companies disclosed information about the quantitative materiality threshold applied and none of them disclosed information about the qualitative factors considered in assessing the materiality of an individual country. The empirical findings provide evidence that the companies use both the flexibility provided by IFRS 8 and the shield of the materiality concept when they make materiality decisions about their individually material, therefore reportable countries. Greater transparency and detail about the companies’ materiality decision would reduce the uncertainty and could enhance the understandability of the companies’ segmental notes. The IASB has recently announced plans to consider a project on materiality (IASB, 2013a). The findings of this study could present relevant information to the IASB’s work on providing guidance on the application of the materiality concept. In the last decade there have been calls from civil societies, regulatory bodies and international economic organisations to require multinational companies (MNCs) to disclose information about their activities in those countries where they have operation. The fourth part of the study provides a summary of the impact of the introduction of IFRS 8 on the sample UK listed companies’ country-level disclosures and critically evaluates whether the existing geographic disclosure requirements through IFRS 8 provide sufficient financial information and transparency for the different financial statement users. The results indicate that (1) the fact that IFRS 8 only requires the disclosure of the revenue and non-current assets for the country of domicile and for the material foreign countries, (2) the way the MNCs apply the materiality concept to define countries that need to be individually disclosed and (3) the companies preference to keep geographic information at minimum level result in a relatively poor level of audited country-level information even among the largest listed companies. Therefore, what is disclosed in the companies’ audited financial statements is very far from the idea of full country-by-country reporting (CBCR). The IASB decided not to undertake proactive work in this area and preparers argue that enough information and transparency is provided under the requirements of IFRS 8. However, the findings of this study and the fact that legislative bodies in the US and in the EU had to bypass the IASB and issue CBCR related new regulations indicate that the country-level requirements of IFRS 8 and the country-level information provided by the companies in their segmental notes are not sufficient and transparent enough. To ensure the same reporting requirement for entities worldwide and to increase transparency and the availability of important geographic financial information, to enhance consistency and to help the comparison CBCR should be considered by the IASB and addressed in international accounting standard(s).