Integrated Reporting, Sustainability Reporting & Assurance

After the most recent financial crisis 2008-9, there has been a decline in trust of stakeholders in capital-market oriented reporting by corporations. As a result, traditional financial reporting should be complemented by corporate sustainability reporting, which would ideally be unified into integrated reporting.

While there has been considerable empirical research into CSR reporting, this is not yet the case for integrated reporting in the 2013-framework published by the International Integrated Reporting Council (IIRC). This research project examines the content elements investors demand and their relationship to the quality of integrated reporting in the German capital market.

Sustainable investors & ESG performance

Research towards sustainable financing and investing seeks to align the economic, social, and ecologic impact of corporate actions by emphasizing the relevance of a triple bottom line approach. Particularly after the financial crisis 2008/09, regulators, financial intermediaries, company executives, and further stakeholders are increasingly interested in the interdependencies between financial and non-financial performance of companies.

This research projects investigates the determinants of a more sustainable global financial system. Specifically, a major impetus is to understand the relevance of socially responsible investments (SRI) on corporate behavior.

There is a strong trend towards SRI in the private sector. Voluntary signatories to the United Nations-supported Principles for Responsible Investments (UN PRI) managed 68.4 trillion US-Dollar in assets in 2017. More institutional investors are incorporating ESG (Environmental, Social, and Governmental) issues into investment analysis and decision-making processes. In that regard, this project aims to understand the impact of SRI on the quality of non-financial disclosure and the economic performance of companies.

In March 2018, the European Commission adopted the action plan for financing sustainable growth drafted by the High-Level Expert Group (HLEG) on Sustainable Finance. The main objective of the European Commission is the reorientation of capital flows towards sustainable investments. In combination with the strong trend towards SRI in the private sector, this can lead to systemic changes in the European financial system, which substantiates the actuality and relevance of this research topic.   

Board Composition & (Gender) Diversity

Recently there have been a large number of reform efforts aiming at improving corporate performance by increasing board diversity. In addition to introducing the legal gender quota now at the focus of much political discussion, other diversity characteristics such as ethnicity or occupation, board independence and expertise are increasingly being studied in empirical research on corporate governance from an international viewpoint.

This research project board composition looks at the one tier and two tier system of corporate governance in Europe and studies the effects on the capital market.

Say-on-Pay in the German two-tier system

The compensation of executives is an extensive and partially controversial discussion within the academic as well as novel literature. Several countries introduced so called ‘Say-on-Pay’ votes in order to reduce the perceived ‘excessive’ compensation of chief executive officers in listed corporations and to align the interests of shareholder and manager.

Say-on-Pay refers to a regulation which enables shareholders to vote on the appropriateness of executive compensation during the annual general meeting of the firm. Even though the vote itself is usually non-binding, first research results suggest that higher rates of voting dissent lead to changes in the level and structure of management remuneration.

Within this research project the factors which drive the board to schedule a voluntary Say-on-Pay vote during the annual general meeting are examined. Thereafter, the reasons for shareholders’ dissent are analysed and its effect on executive remuneration estimated.

The project is focused on the German capital market. This capital market provides a natural experiment due to the dual board system and voluntary Say-on-Pay votes.

Fair Value Accounting, Earnings Management and Corporate Governance

Fair Value Accounting has reached the spotlight in the field of recognition and valuation of assets and liabilities in the international empirical accounting research. By implementing IFRS 13 the standard setter has introduced the fair value hierarchy, which categorises fair values into three levels.

Critics question the objectivity of the valuation, especially in the case of third level fair values which are based on internal calculations. Recent studies have shown that third level fair values are less relevant to investors. However, the impact of corporate governance variables (e.g. board gender diversity) on the fair value valuation and the associated notes has not been examined in detail. Furthermore, the effect of third level fair values on the quality of external audit has not been answered in the empirical literature.

In the lights of the above, the research project will focus on the one hand on the analysis of the association of certain corporate governance factors with fair value accounting and on the other hand on the impact of fair values on audit quality.