To Reveal or Not to Reveal? The Influence of Cultural Secrecy on Discretionary Disclosure Decisions

Prior studies on the relationship between culture and discretionary disclosure fail to account for concurrent managerial incentives to reveal private information to the capital market. Our study extends the literature by investigating whether these managerial incentives offset the cultural influence on managers’ discretionary disclosure decisions. To this end, we exploit a setting in which managers have the discretion to influence both the quantity and quality of disclosure and can thereby either conceal or reveal private information. For a sample of European firms, we find that despite incentives to reveal private information, managers’ culturally determined preference for secrecy leads them to provide a low quantity as well as a lower quality of disclosure. Our results are robust to several sensitivity checks and demonstrate the relative importance of cultural influence on discretionary disclosure decisions.

Different disclosure activities and sophisticated investors

ABSTRACT This article aims to verify what the influence is of different disclosure activities on the concentration of more sophisticated investors in Brazilian companies. The study fills a gap regarding the influence that disclosure activities can have on the concentration of sophisticated investors in Brazilian firms, considering that this may occur due to their ability to maximize the usefulness of the information disclosed and the return on investments, with a reduction in the cost of allocated funds. This subject is relevant because it verifies not the clientless effect of disclosure, presented by the only study previously developed on the subject in the United States (Kalay, 2015), but rather the influence that disclosure activities (earnings forecasts, market communications, and investor relations [IR]) have on the most sophisticated investors’ decisions to allocate funds in companies in the Brazilian market. As an impact on the area, it was noted that those companies that release market communications attract the investment of funds and the concentration of sophisticated investors much more than those that present better IR and release profit forecasts. We studied 89 publicly-traded companies whose reference forms were published in the period from 2011 to 2016. The number of institutional investors disclosed in the reference forms was used as a proxy to categorize them as more sophisticated. The different disclosure activities were represented by the disclosure of profit forecasts, the number of market communications, and the best IR. The best IR proxy was categorized using the companies awarded by IR Magazine Brazil that presented the best IR in the study period. The results of this study show that the most sophisticated investors concentrated in companies with better IR, in those that do not disclose profit forecasts, and in companies with a greater number of disclosed market communications. The disclosure of market communications is the disclosure activity that most influences the concentration of sophisticated investors in Brazilian companies that use more voluntary disclosure than discretionary disclosure to allocate their funds.

A study of discretionary narrative disclosure strategies of the most and least profitable MENA region banks

The study aims to investigate whether the discretionary narrative disclosure strategies (DNDS) of impression management (IM) adopted by different banks in the narrative section of 200 annual reports of a sample of 50 banks in five different countries of Middle East and North Africa (MENA) region (Egypt, Jordan, Lebanon, Saudi Arabia, and United Arab of Emirates) vary according to their profitability for 2011-2014. Seven variables were employed to identify the association between profitability and the extent of existence of DNDS of IM in the chairmen’s letters of the bank’s annual reports. These variables are reading ease manipulation (REM), rhetorical manipulation (RM), thematic manipulation (TM), visual and structural implementation (VSM), performance comparisons (PC), choice of earnings number (CEN), and performance attribution (PA). By employing an independent sample t -test, it was found that three out of the seven strategies have differed significantly between banks in terms of profitability. These strategies are REM, PC, and CEN. Specifically, more profitable banks use very difficult language; selects favorable benchmark from prior years; and don’t select favorable earnings number in annual reports narrative. It is interesting to note that banks in MENA region produce narratives – especially the chairmen’s letter the discretionary disclosure section- to influence the perception of their stakeholders rather than to display the narratives in accordance with the “true and fair view” principle of accounting. Therefore, this study recommends regulators for more actively intervening to ensure that the voluntary status of the annual reports is more closely scrutinized by auditors in order to reduce the negative effects of DNDS of IM.