Essays on Disclosure Regulation and Application, Social Ties in the Auditing Profession, and Enforcement Investigations

Transkript

1 Essays on Disclosure Regulation and Application, Social Ties in the Auditing Profession, and Enforcement Investigations INAUGURALDISSERTATION zur Erlangung der Würde eines Doktors der Wirtschaftswissenschaft der Fakultät für Wirtschaftswissenschaft der Ruhr-Universität Bochum Kumulative Dissertation, bestehend aus fünf Beiträgen vorgelegt von Benedikt Downar, M. Sc. aus Bochum 2015

2 Dekan: Prof. Dr. Helmut Karl Referent: Prof. Dr. Jürgen Ernstberger Korreferent: Prof. Dr. Bernhard Pellens Tag der mündlichen Prüfung: II

3 Contents Contents... III List of Tables... VII List of Figures... IX 1. Introduction Motivation and scope Summary and publications details Paper 1: The Monitoring Effect of More Frequent Disclosure Paper 2: Die Unternehmenseckdaten in deutschen Nachhaltigkeitsberichten. Ein Unternehmen zwei Gesichter Paper 3: Who Makes it to the Top? Determinants of Career Success in the Auditing Profession Paper 4: Reviewing a Friend The Role of Social Ties and Similarities in Influencing Review Work in Auditing Paper 5: IFRS Enforcers at Work Unintended Consequences of Pending Enforcement Investigations The Monitoring Effect of More Frequent Disclosure Introduction Hypothesis development Research design Identification strategy Sample data Methodology Results Descriptive statistics Main results Moderating effect of corporate governance and supervisory power Moderating effect of earnings attributes III

4 Moderating effect of financial resources Moderating effect of firm characteristics Alternative measures of the change in cash and cash valuation Alternative measures of agency costs Timing of the event date Sample composition and confounding events Conclusion Die Unternehmenseckdaten in deutschen Nachhaltigkeitsberichten. Ein Unternehmen - zwei Gesichter Einleitung Konzeptioneller Rahmen zur Analyse der Unternehmenseckdaten Darstellung nachhaltigen Wirtschaftens anhand von Leistungsindikatoren Kategorien zur Analyse der Leistungsindikatoren in den Unternehmenseckdaten Empirische Analyse der Unternehmenseckdaten in Nachhaltigkeitsberichten Untersuchungsmethodik und zugrunde liegende Daten Untersuchungsergebnisse Zusammenfassung und künftige Entwicklung Who Makes it to the Top? - Determinants of Career Success in the Auditing Profession Introduction Career success in the auditing profession Career success Professional identity of auditors Determinants of career success Data and methodology Results Descriptive statistics IV

5 Multivariate results Sensitivity analyses Conclusion Reviewing a Friend The Role of Social Ties and Similarities in Influencing Work in Auditing Introduction Background and hypotheses Review work in auditing Impact of similarity on the pairing of cosigners and lead auditors The effect of social ties on audit quality Measures of social ties and similarities Effects of social ties and similarities on lead auditor selection Research design Sample selection Results Consequences of social ties and similarities for audit quality Research design Sample selection Results Conclusion IFRS Enforcers at Work Unintended Consequences of Pending Enforcement Investigations Introduction Institutional background Related literature and hypohtesis development Enforcement and real activities manipulation Hypothesis development Research design Regression approach Measurement of real activities manipulations V

6 Sample and data Results Descriptive statistics and correlations Univariate results Multivariate findings Additional analyses and robustness checks Robustness checks Conclusions Bibliography Curriculum Vitae VI

7 List of Tables Table 1: Reporting frequency distribution by country Table 2: Definition of variables Table 3: Descriptive statistics and correlations Table 4: The effect of disclosure frequency on the market value of cash Table 5: The moderating effect of governance and supervisory power Table 6: The moderating effect of earnings attributes Table 7: The moderating effect of financial resources Table 8: The moderating effect of firm characteristics Table 9: Alternative measures of the change in cash holdings Table 10: Alternative measures of cash valuation Table 11: Alternative measures of agency costs Tabelle 12: Kategorisierung von Leistungsindikatoren in Anlehnung an die Regelungen des DRS Tabelle 13: Kategorisierung von Leistungsindikatoren in Anlehnung an die Regelungen des GRI-3.1-Leifadens Tabelle 14: Anzahl der Kennzahlen und Leistungsindikatoren in den Unternehmenseckdaten (NB) Tabelle 15: Finanzielle Leistungsindikatoren in den Unternehmenseckdaten (NB) Tabelle 16: Nicht-finanzielle Leistungsindikatoren Table 17: Definition of variables Table 18: Individual auditor characteristics Table 19: Promotions in the auditing profession Table 20: Transition matrix on career advancements Table 21: Up-or-out analysis Table 22: Career level comparison Table 23: Determinants of promotion Table 24: Definition of variables Table 25: Sample selection for selection model Table 26: Descriptive statistics of the selection model VII

8 Table 27: LEAD selection model Table 28: Subsample analysis: Big4 (large office) versus non-big4 (small office) comparison Table 29: Subsample analysis: Internal versus external rotation Table 30: Subsample analysis: Client importance Table 31: Audit quality analysis Table 32: Going concern analysis Table 33: Definition of measurement and control variables Table 34: Sample selection Table 35: Descriptive statistics Table 36: Spearman rank correlations and Pearson correlations Table 37: Multivariate regression results for real activities manipulation Table 38: Split-sample analyses for real activities manipulation Table 39: multivariate regression results for accrual-based earnings management Table 40: Rank and probit regressions for real activities manipulation VIII

9 List of Figures Figure 1: Cash valuation differences prior to and after the implementation of the transparency directive Abbildung 2: Zusammenhang der Kategorien im Geschäfts- und Nachhaltigkeitsbericht (eigene Darstellung) Abbildung 3: Kategorien für die Einordnung der finanziellen und nicht-finanziellen Leistungsindikatoren Abbildung 4: Indexverteilung Abbildung 5: Branchenverteilung Abbildung 6: Finanzielle Leistungsindikatoren (Mittelwert) nach Kategorie Abbildung 7: Nicht-finanzielle Leistungsindikatoren (Mittelwert) nach Kategorie Abbildung 8: Gegenüberstellung der Unternehmenseckdaten Abbildung 9: Gegenüberstellung der Kategorien finanzieller Leistungsindikatoren Abbildung 10: Gegenüberstellung der Kategorien nicht-finanzieller Leistungsindikatoren Abbildung 11: Anteil je Kategorie basierend auf der Kategorisierung des GRI Figure 12: Promotion and career level identification Figure 13: Similarities and ties of actual and counterfactual pairs Figure 14: Timeline of enforcement investigations Figure 15: Real activities manipulations and accrual-based earnings management around enforcement investigations IX

10 1. Introduction 1.1. Motivation and scope In the last decades the financial accounting environment in Europe underwent a variety of reforms. For example, the implementation of the fourth and seventh EC Directive (78/660/EEC and 83/349/EEC), the adoption of International Financial Reporting Standards (1606/2002/EC), or the implementation of the Transparency Directive (2004/109/EC). Taken together, such reforms led to a higher disclosure quantity, frequency, and complexity. As a consequence, shareholders and other stakeholders are equipped with a variety of information to derive, e.g., investment or divestment decisions in the course of the year. However, the costs and benefits of disclosure regulation are far from clear and depend on the respective perspective (e.g., company or shareholders and other stakeholders) (Leuz and Wysocki 2008). To address the issue of disclosure frequency regulation the first paper of this dissertation ( The Monitoring Effect of More Frequent Disclosure ) provides insights on the monitoring benefits of more frequent disclosure from a shareholder perspective using a quasi-experimental setting in the European Union. Since the implementation of the Transparency Directive (2004/109/EC), firms listed on a regulated stock market segment in the European Union are required to publish interim management statements for the first and third quarter in addition to semi-annual and annual financial statements. In 2013, this directive was amended because of increasing criticism of EU member states due to high costs for smaller firms and shortsighted decisions of the management. Currently, EU countries are no longer allowed to prescribe mandatory quarterly reporting as of November 2015 (2013/50/EU). In contrast to that firms listed in the US are required to publish quarterly reports since 1970 (Butler et al. 2002) and Robert Litan, former codirector of the AEI Brookings Joint Center on Regulator Studies, even suggests that 1

11 [ ] if in an age of computers and the internet, companies have the ability to publish their financial statements more frequently than every quarter, why should not public policy encourage that result? (Robert Litan 2002) We argue that following the implementation of the Transparency Directive shareholders are better able to monitor managerial behavior, to reduce the likelihood of expropriating corporate resources, and to enforce their individual rights in a timelier manner, e.g., by selling their shares. Agency theory predicts that managers will invest in projects that not necessarily maximize shareholder wealth (Jensen and Meckling 1976). While different types of assets are at risk of turning into private benefits, liquid assets are of particular importance. Liquid assets not committed for operating activities are not only the base for future investments but also are under direct control of the management. Thus, these assets are a starting point for wealth transfer at low cost. As a consequence, shareholders valuation of cash assets reflects the expected use of these funds (Huang and Zhang 2012). Therefore, we examine the influence of implementing a higher reporting frequency using a cash-based framework. Our results support the notion that shareholders benefit from more frequent disclosure in general and in particular if the need for frequent disclosure is high. Accordingly, better shareholder monitoring due to frequent disclosure leads to a reduction of agency costs. In this vein, our results provide additional insights with regard to the ongoing discussion on the optimal disclosure frequency. Besides regulatory interventions, companies are confronted with changing information demands of shareholders and stakeholders. Historically, financial accounting focused on financial disclosures. However, since 1987 sustainable development and sustainable business practices have been an increasingly important goal at different levels of the society (WECD 1987). As a consequence, companies increasingly integrate social business practices as part of their overall business strategy. As shareholder and other stakeholders groups are interested in non-financial information, e.g., for investment decisions, companies often publish additional information on non-financial 2

12 topics. In Germany, companies are required to publish non-financial information as part of the group management reporting (Lackmann and Stich 2013). In addition, many German companies voluntarily publish sustainability reports. However, due to the different types of disclosure, it is far from clear whether companies provide a uniform picture on financial and non-financial aspects or rather focus on the different groups of addressees. Thus, the second paper of this dissertation ( Key Figures in German Sustainability Reports One Company, two Faces ) provides insights on disclosure practices on financial and non-financial information in annual reports and sustainability reports of German H-DAX companies. We particularly focus on Key Figures because this tabular overview provides a comprehensive overview on financial and non-financial key figures from a management perspective. If sustainable business practices are integrated elements of the overall business strategy, we expect to find a high level of conformity between annual and corporate social responsibility reports. The results of the study support the notion that companies take non-financial information into account but there are still considerable differences between both reports due to a focus on different report addressees. Overall, we contribute to the growing literature on the integration of sustainability in corporate disclosures and business strategies. In addition to financial and non-financial disclosures, audits are of particular importance for addressees of financial statements and corporate social responsibility reports. In general, auditing contributes to capital market efficiency by ensuring reliability of published information (Simnett et al. 2009). Therefore, a high level of audit quality is of particular importance for shareholders and other stakeholder groups. In Germany, audits are required only for annual financial statements of companies that fulfill certain size criteria. Audits of interim financial statements and corporate social responsibility reports are voluntary ( 316 HGB; Simnett et al. 2009). The third and fourth paper of this dissertation examine determinants of audit quality in Germany. Prior research on the auditing profession provides evidence that differences between large and small audit firms as well as 3

13 differences across audit offices have a significant influence on audit quality (DeFond and Zhang 2014). However, validity of these studies is limited as financial audits are conducted by teams of individual auditors. Thus, individual characteristics of auditors might influence audit quality beyond the influence of audit offices or audit firms. Only in recent years a new stream of literature evolved focusing on the influence of individual auditor characteristics on audit outcomes (e.g., Zerni 2012; Gul et al. 2013). As noted by DeFond and Zhang (2014) [ ] auditor competency encompasses many other dimensions, which are currently under-researched. Going forward, we encourage more research on these other dimensions, such as the traits of individual auditors [ ] One reason for the lack of research is attributable to the lack of publicly available data as most countries do not prescribe disclosure of the primarily responsible auditors. In Germany, names, demographic information, and audit firms of all certified public accountants are disclosed in the register of the Chamber of Public Accountants. In addition, lead auditor and cosigner of all engagements are disclosed as part of the auditor s report ( 322 No. 7 HGB). Beyond that using social network data (i.e., XING) we are able to derive additional information. The third paper of this dissertation ( Who Makes it to the Top? Determinants of Career Success in the Auditing Profession ) provides insights on the influence of individual characteristics on career success in Big 4 audit firms. Financial audits are often coordinated by high-level auditors. Accordingly, high-level auditors have a considerable influence on audit quality. As a consequence, promotion decisions are important to ensure audit quality in the long run. Prior research focuses on consequences of the up-or-out promotion system (e.g., Kornberger et al. 2011). If an auditor does not get promoted within a fixed period of time, he or she leaves the audit firm. To avoid the departure of experienced auditors, a new career level director or non-equity partner was implemented. Directors are not any more part of the up-or-out systems but the likelihood of a promotion to partner level is low. Beyond that 4

14 prior research (e.g., Carter and Spence 2014) provides evidence that promotions to partner level are rather influenced by economic incentives of an audit firm whereas technical experts are rather promoted to director level. I argue, based on sociologic theory, that different individual characteristics as well as audit and non-audit related attributes might have an influence on career success. I find that auditors often leave the auditing profession at the manager level due to a low likelihood of promotion to partner level. Further, I find significant differences with respect to individual characteristics (e.g., competition incentives) between partner and non-partner. Finally, I show that promotion decisions are rather based on expected benefits resulting from client management abilities than on academic qualifications or non-audit experiences. These results contribute to the research on the influence of individual auditor characteristics by providing evidence that characteristics which are more related to economic incentives of an audit firm and less related to audit quality influence career success. The fourth paper of this dissertation ( Reviewing a Friend The Role of Social Ties and Similarities in Influencing Review Work in Auditing ) provides insights on the influence of social ties and similarities in the selection of cosigner-lead auditor pairs. Audit teams are hierarchically structured with the superior evaluating the work of the subordinate. It can be seen as a kind of team decision-making where the superior assesses work of the subordinate and provides guidance (e.g., Nelson and Tan 2005). At the highest level of an audit team, cosigner and lead auditor are responsible for an engagement. Lead auditors coordinate audit procedures and cosigners are responsible for quality assurance and report critique. Surprisingly little is known about the pairing of reviewer (cosigner) and reviewee (lead auditor) in the auditing profession. From a theoretical perspective, such control mechanisms work best in case of objectivity and independence of both involved parties. However, prior research in sociology supports the notion that social ties and similarities have an influence on pairing decisions, so called social homophily, and on the performance of teams (McPherson et al. 2001; Engelberg et al. 2012). Thereby, social ties and similarities do not necessarily lead to negative outcomes. We find that working in the same office and originating from the same region have 5

15 a positive influence on the likelihood of forming a pair. In addition, reviewerreviewee pairs formed based on similarities provide a better audit quality. In this vein, we contribute to the growing research on the influence of individual characteristics by providing evidence that social ties and similarities might have a positive effect, even in a hierarchically organized setting. However, in some cases, auditors are unable to reveal all material accounting misstatements. This might be attributable to a lack of professional skepticism or deliberate deception by the client. Accounting scandals like Enron, ComROAD, or FlowTex highlight that such cases can have serious economic consequences for all involved parties (e.g., Weber et al. 2008). Among others, as a consequence of accounting scandals European countries implemented new enforcement mechanisms or extended existing mechanisms, in the last years. In Germany, a two-tier mechanism, consisting of the Financial Reporting Enforcement Panel (Deutsche Prüfstelle für Rechnungslegung) and the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) was implemented. This enforcement institution conducts investigations of financial statements of listed companies since 2005 (Hitz et al. 2012). Prior research focuses on determinants of material accounting misstatements and consequences of enforcement investigations for companies and auditors (e.g., Feroz et al. 1991; Dechow et al. 1996; Palmrose et al. 2004; Dechow et al. 2011; Hitz et al. 2012; Gul et al. 2013). Though, as enforcement investigations often last up to two years, little is known about the influence of the scope and extent of pending enforcement investigations. The fifth paper ( IFRS Enforcers at Work Unintended Consequences of Pending Enforcement Investigations ) provides insights on the consequences of pending enforcement investigations on firms accrual based earnings management and real activities manipulation. Extensive accrual-based earnings management often leads to accounting misstatements due to reversals of prior accrual-based earnings management and limitations based on the number of accounting issues (e.g., Dechow et al. 2011). As a consequence, some firms use accounting practices that are not consistent with generally 6

16 accepted accounting principles. One intention of the enforcement institution is to prevent further misstatements and to reduce earnings management in the short and long run (CESR 2003, Principle 1 and 2). We discuss different rationales that influence managerial behavior during pending enforcement investigations resulting from the direct attendance of an oversight institution, appeasement incentives, and moral reasoning. We show that firms compensate for increased monitoring and time-pressure by using lower levels of accrual-based earnings management and higher levels of real activities manipulation. Thus, we find that even enforcement investigations itself have an influence on firms earnings management behavior. However, our results indicate that enforcement investigations do not lead to lower levels of earnings management due to substitution of accrual-based earnings management and real activities manipulation. This result is of particular importance for enforcers in considering the frequency and scope of enforcement investigations due to potentially unintended side-effects. The remainder of this thesis proceeds as follows: Section 1.2 summarizes the five individual papers and their publication details. Sections 2 to 6 present the papers in all detail Summary and publications details The Doctoral Thesis at hand is a cumulative work consisting of five individual papers related to disclosure regulation and application, social ties in the auditing profession, and enforcement investigations. This section provides a brief summary of each of the individual papers. Moreover, co-authors are named and publication details are given. Please note that the individual papers are or soon will be in the review process of international or national journals. Therefore, it is likely that adaptations will be made to the versions presented in this Doctoral Thesis. Later versions of the papers will be available in the respective journals or at scientific platforms after publication. Thus, please make sure to only cite the latest versions of the papers. 7

17 Paper 1: The Monitoring Effect of More Frequent Disclosure Abstract: This paper examines the role of higher reporting frequency in monitoring managers from a shareholder perspective. While previous literature focuses on the monitoring effects of disclosure quantity and quality, we investigate the effect of disclosure frequency and thus the timeliness of information. For our analyses, we use a quasi-experiment in the European Union (EU) in which reporting frequency requirements differed across and within countries before being harmonized by a directive requiring the implementation of quarterly disclosure. We investigate how both crosssectional differences in reporting frequency and their harmonization affect shareholders ability to monitor managers. To gauge monitoring effects, we use shareholders valuation of cash assets. We find that semi-annual reporters exhibit lower cash valuation than quarterly reporters. Using a difference-indifferences approach, we show that these differences recede after the implementation of higher reporting frequency by semi-annual reporters. Our results are consistent with the notion that more frequent disclosure reduces agency conflicts by providing shareholders with the opportunity for timelier monitoring to constrain managers from expropriating corporate resources. In additional analyses, we find that this monitoring effect is relevant when corporate governance or earnings attributes are weak, the risk of inefficient resource allocation is high, or the need for frequent disclosure is strong. Co-Authors: Prof. Dr. Jürgen Ernstberger, Dr. Benedikt Link Keywords: Disclosure Regulation, Quarterly Reporting, Monitoring, Market Value of Cash JEL-Classification: M41, M48 Publication details: Revise and resubmit (2 nd review round) at Contemporary Accounting Research. Previous versions of this paper were presented at the 35 th Annual Congress of the European Accounting Association in Ljubljana (Slovenia), May 2012, and at the 37 th Annual Congress of the European Accounting Association in Tallinn (Estonia), May The idea of the paper 8

18 is based on my master thesis submitted at the Chair of Accounting and Auditing (Ruhr-University Bochum), July Paper 2: Die Unternehmenseckdaten in deutschen Nachhaltigkeitsberichten. Ein Unternehmen zwei Gesichter Zusammenfassung: Es sind die Herausforderungen wie Klimawandel, Ressourcenknappheit und demografischer Wandel, die das Thema nachhaltiges Wirtschaften in den vergangenen Jahren für Unternehmen immer bedeutsamer gemacht haben. Entsprechend hat sich auch das Informationsbedürfnis der verschiedenen Stakeholder verändert. Um diesem gerecht zu werden, veröffentlichen viele Unternehmen zusätzlich zum Geschäfts- auch einen eigenständigen Nachhaltigkeitsbericht, in dem sie ihre Nachhaltigkeitsleistung darstellen. Am Beginn dieser Berichte steht häufig eine tabellarische Übersicht mit wichtigen Unternehmenskennzahlen und Leistungsindikatoren: die Unternehmenseckdaten. Aufgrund der hohen Komplexität und des Umfangs der Berichte liefern die Unternehmenseckdaten mit den dort dargestellten Leistungsindikatoren einen wichtigen Beitrag zum Verständnis der Nachhaltigkeitsleistung. Vor diesem Hintergrund wurde in diesem Beitrag die aktuelle Berichterstattungspraxis zu Unternehmenseckdaten in deutschen Nachhaltigkeitsberichten der HDAX- Unternehmen untersucht. Insgesamt lässt sich festhalten, dass Unternehmen in ihren Eckdaten durchschnittlich 17 Leistungsindikatoren angeben. Im Durchschnitt wird dabei mehr als 50 % der Unternehmensleistung durch nichtfinanzielle Indikatoren erklärt. In immer mehr Unternehmen hat der Aspekt der Nachhaltigkeit auch Auswirkungen auf die strategische Ausrichtung. Auch zielt der Leitgedanke einer integrierten Berichterstattung auf einen ganzheitlich strategischen Ansatz ab, der sämtliche finanziellen und nichtfinanziellen Sachverhalte eines Unternehmens so verknüpft, dass sie in ihrer Gesamtschau betrachtet und gesteuert werden können. Um der Frage nachzugehen, inwiefern sich dieser Trend bereits in den Eckdaten der untersuchten Berichte niederschlägt wurden die im Geschäftsbericht dargestellten Unternehmenseckdaten mit denen im Nachhaltigkeitsbericht verglichen. Dabei hat sich gezeigt, dass viele Unternehmen ihre Unternehmensleistung in den Eckdaten ihrer Berichte sehr unterschiedlich 9

19 präsentieren. Zwar werden in den Geschäfts- und Nachhaltigkeitsberichten annähernd gleich viele Leistungsindikatoren offengelegt, aber im Geschäftsbericht beziehen sich nur ca. 13 % der Leistungsindikatoren auf nicht-finanzielle Aspekte, während das Verhältnis in Nachhaltigkeitsberichten deutlich ausgeglichener ausfällt. Das daraus abgeleitete Fazit: Sofern Unternehmen Nachhaltigkeitsziele tatsächlich auch ernsthaft verfolgen, sollte eine einheitliche Darstellung der Leistungsindikatoren in den verschiedenen Unternehmenseckdaten stattfinden. Dies würde entsprechend die Entscheidungsnützlichkeit der Unternehmenseckdaten verbessern und wäre so im Sinne aller Stakeholder. Koautor: Dr. Katharina Sikora Stichwörter: Integrierte Berichterstattung, Unternehmenseckdaten, finanzielle Leistungsindikatoren, nicht-finanzielle Leistungsindikatoren Publikationsdetails: Veröffentlicht in: Zeitschrift für internationale und kapitalmarktorientierte Rechnungslegung 14 (10): Paper 3: Who Makes it to the Top? Determinants of Career Success in the Auditing Profession Abstract: This study examines determinants of career success in the auditing profession. Building on sociologic theory, I argue that not only individual characteristics but also job specific attributes influence career success. Previous literature focuses on selected determinants of promotions using data from interviews, surveys, or field-studies, I analyze promotions using a comprehensive framework and archival data from a business-oriented social networking service. I examine both characteristics of auditors at different career levels and determinants of partner promotions in Big 4 audit firms. I find that most auditors leave the auditing profession at the manager level. In addition, I provide evidence that partners are more likely to be male and competitive, earn more audit fees and audit more prestigious clients compared to non-partners. I also show that networking and client management skills are important for partner promotions. In contrast, I find little evidence that academic, foreign-, and non-audit experience influence career success. 10

20 Keywords: Promotion, Partner, Career Success, Up-or-Out, Individual Characteristics JEL-Classification: M42, M51 Publication details: Working Paper. Previous versions of this paper were presented at the 8 th Symposium on Audit Research in Potsdam, June 2014, at the Research Seminar of TU Dortmund and Ruhr-University Bochum, April 2014, at the Research Seminar of Johannes Gutenberg University Mainz and Technische Universität München, March 2015, and at the 38 th Annual Congress of the European Accounting Association in Glasgow (Scotland), April Paper 4: Reviewing a Friend The Role of Social Ties and Similarities in Influencing Review Work in Auditing Abstract: Hierarchically structured review work is a pervasive element in many professional work settings including auditing. The German auditing setting provides a unique opportunity to empirically investigate review work at the highest hierarchical level. We use this setting to investigate the role of social ties and similarities in the selection of reviewer-reviewee pairs and their consequences for the quality of the work. We find that social ties and similarities influence the pairing of cosigners and lead auditors. More specifically, we provide evidence that social ties between lead auditor and cosigner forged by working in the same office and similarities between them concerning their birth region play a significant role in the selection process. Even when controlling for selection effects we find that social ties between the lead auditor and the cosigner positively influence audit quality. We argue that social ties and similarities might facilitate the communication between both auditors and hence improve their work. Our findings inform regulators, audit firms and also audit clients interested in understanding the drivers of audit team composition and their effect on audit quality. Co-Authors: Prof. Dr. Jürgen Ernstberger, Prof. Dr. Christopher Koch Keywords: Social Ties, Homophily, Lead auditor, Selection 11

21 JEL-Classification: M42 Publication details: Working Paper. Previous versions of this paper were presented at University of Mannheim, February 2013, at University of Toronto (Canada), March 2013, at Goethe University Frankfurt, December 2013, at the 37 th Annual Congress of the European Accounting Association in Tallinn (Estonia), May 2014, at the International Symposium on Audit Research (ISAR) in Maastricht (The Netherlands), June 2014, at Johannes Gutenberg University Mainz, May 2015, and at Georg-August University Göttingen, June Paper 5: IFRS Enforcers at Work Unintended Consequences of Pending Enforcement Investigations Abstract: This paper examines the unintended consequences of pending IFRS enforcement investigations. While previous literature focuses on the determinants and consequences of accounting misstatements, we analyze a firm s earnings management behavior during IFRS enforcement investigations. We argue that a firm uses real activities manipulations when the flexibility to conduct accrual-based earnings management is temporarily constrained due to the attendance of an enforcement authority. Such an effect would point to unintended consequences of pending IFRS enforcement investigations. In our empirical analyses, we focus on the German setting where detailed information on the course of IFRS enforcement investigations is available. Using a sample of firms censured by the enforcement authority matched to a sample of non-censured firms, our findings show that incomeincreasing real activities manipulations, in particular overproduction, increase during enforcement investigations. In addition, we find that this effect is driven by an increase in the level of monitoring, appeasement efforts against the enforcement authority, and individual moral incentives of executives in charge of the misstatement. Co-Authors: Prof. Dr. Jürgen Ernstberger, Prof. Dr. Michael Stich Keywords: IFRS enforcement; public oversight; unintended consequence; earnings management; real activities manipulation 12

22 JEL-Classification: M41, M42, M48 Publication details: Under review at Journal of International Accounting Research. Previous versions of this paper were presented at the 28 th Doctoral Colloquium of the European Accounting Association in Bled (Slovenia), May 2012, at the 3 rd WHU Doctoral Summer Program in Accounting Research (SPAR) in Vallendar, July 2012, and at the 37 th Annual Congress of the European Accounting Association in Tallinn (Estonia), May

23 2. The Monitoring Effect of More Frequent Disclosure 2.1. Introduction This paper examines the effect of more frequent disclosure from a shareholder perspective. Although a large stream of literature investigates the role of corporate governance mechanisms, such as ownership structure, shareholder rights, or board characteristics, in mitigating agency costs (e.g., Shleifer and Wolfenzon 2002; Pinkowitz et al. 2006; Dittmar and Mahrt-Smith 2007; Bebchuk and Weisbach 2010), relatively little is known about how disclosure facilitates shareholder monitoring to mitigate managerial expropriation of corporate resources. Prior literature on the monitoring effect of disclosure is confined to disclosure quantity and disclosure quality in terms of earnings attributes. Recent studies show that detailed and conservative accounting practices improve shareholder monitoring (e.g., Huang and Zhang 2012; Louis et al. 2012). The goal of this paper is to investigate the potential monitoring effect of disclosure frequency. Van Buskirk (2012) defines disclosure frequency as [ ] a greater number of discrete information events within a period. Disclosure quantity and quality pertain to the scope and precision of information, whereas disclosure frequency is related to the timeliness of information provided to shareholders. Because of discussions concerning the advantages and drawbacks of higher disclosure frequency, it is important to examine a potential advantage of more frequent disclosure from a shareholder perspective. For example, Robert Litan (2002), the former co-director of the AEI Brookings Joint Center on Regulatory Studies, suggests that [ ] if in an age of computers and the internet, companies have the ability to publish their financial statements more frequently than every quarter, why should not public policy encourage that result? Prior research on the effects of disclosure frequency (regulation) provides mixed evidence. Frequent disclosure has been criticized for preempting other information sources (Healy and Palepu 2001), decreasing the amount of information available due to less voluntary disclosure (Gigler and Hemmer 14

24 1998), increasing costs resulting from the publication of proprietary information (Hayes and Lundholm 1996), and leading to short-sighted investment decisions (Gigler et al. 2014). However, research findings indicate that more frequent disclosure can complement firms information environment (Bhushan 1989a, b), increase earnings timeliness (Butler et al. 2007), reduce cost of capital (Fu et al. 2012), decrease earnings surprises at annual earnings announcements (McNichols and Manegold 1983), and reduce shareholders uncertainty with regard to firms expected performance (Barry and Brown 1985). 1 We add to this stream of research by examining the monitoring effects of more frequent disclosure from a shareholder perspective. Prior studies on the role of disclosure as a corporate governance mechanism are complicated by endogeneity. Inferences from association or voluntary disclosure studies may be confounded by omitted variables or self-selection. Moreover, agency costs may influence managers disclosure choice involving reverse causality. To alleviate these concerns, we focus on a setting in the European Union (EU) which allows us to examine the reaction of shareholders to an exogenous increase in reporting frequency. Despite harmonized disclosure requirements in the EU, reporting frequency requirements differed across and within countries until the EU s Transparency Directive (TD) was implemented by EU countries, staggered at different times between 2007 and The directive requires all EU firms to publish at least Interim Management Statements (IMSs) for the first and third quarters, in addition to annual and semi-annual financial statements. 3 Thus, this setting exhibits crosssectional disclosure frequency variations that are harmonized at different points in time. 1 We refer to Leuz and Wysocki (2008) and Beyer et al. (2010) for a comprehensive review of the costs and benefits of disclosure frequency (regulation). 2 A directive is a legislative act of the European Union. Member states of the EU have a certain period of time to enact national laws that implement the requirements of a directive (or even stricter rules). 3 An IMS shall comprise explanations of material events and transactions that have occurred within the relevant period. In addition, the issuer shall provide a general description of the financial position and performance of the firm (EU 2004, Article 6 No. 1). By contrast, a quarterly report based on IAS 34 comprises the same elements as an annual financial statement but in a condensed form. 15

25 In the absence of frequent disclosure and strong monitoring mechanisms, managers can opportunistically use firm resources in ways that are not in the interest of shareholders (Jensen and Meckling 1976). In line with the stewardship function of accounting, financial disclosure shall enable shareholders to control and evaluate the past decisions of the management to prevent expropriation of corporate resources (Gjesdal 1981). Bushman and Smith (2001) note that financial disclosure has a disciplinary effect on project selection apart from facilitating project identification and reducing information asymmetries. Kanodia and Lee (1998) use an analytical model to show that periodic performance reports discipline managerial investment choices and allow for better shareholder predictions. Our study focuses on this disciplinary effect by investigating whether IMS reporting contributes to shareholders monitoring of managers beyond existing governance and control mechanisms. To gauge monitoring effects, we follow prior literature by relying on a cashbased framework (e.g., Huang and Zhang 2012; Louis et al. 2012; Chen, Harford, and Lin 2015). While different types of assets are at risk of turning into private benefits, liquid assets are of particular importance (Myers and Rajan 1998). Liquid assets are under the direct control of management because these assets are not (fully) committed to operating activities (Fresard and Salva 2010). Due to their liquidity, these assets have a higher value at short notice than other assets (Myers and Rajan 1998). Further, cash assets are of critical importance from a shareholder perspective because they account for a substantial proportion of firm value (e.g., McDonald 2006). We use the market value of cash as a proxy for changes in agency costs arising from monitoring managers (Pinkowitz et al. 2006) for the following reasons. First, cash assets are more (less) influenced by the monitoring (information) role of disclosure than other types of assets due to a higher risk of turning into private benefits (Myers and Majluf 1984, Myers and Rajan 1998, Huang and Zhang 2012). Thus, we are able to isolate the monitoring and information effect of more frequent disclosure. Second, prior research indicates that the market value of cash serves as a proxy of the managerial expropriation of 16

26 corporate resources. Cash is not necessarily valued at face value if it is more likely that cash is wasted because of, for example, excessive risk taking by management or internal cross-financing (Liu and Mauer 2011; Tong 2011). Rather, cash is valued at a premium if efficient governance and monitoring mechanisms are in place (e.g., Dittmar and Mahrt-Smith 2007, Chen et al. 2015). However, a cash-based framework relies only on an external (shareholder) perspective by focusing on the expected use of their invested funds. Thus, changes in cash valuation do not necessarily indicate changes in the expropriation of corporate resources. Further, if managers are aware of shareholder monitoring, they might focus on other types of assets for wealth expropriation. Thus, relying on cash provides insights on only one specific type of asset. In contrast, other measures of agency costs that focus on managements internal resource utilization capture both the disciplinary effect of more frequent disclosure on managers project selection and the effect of a better identification of investment opportunities by managers. 4 Using the cash-based framework for our setting is corroborated by prior studies on the impact of disclosure quality and quantity on agency costs. Examining disclosure quantity, Huang and Zhang (2012) provide evidence that detailed disclosure, as measured by the AIMR disclosure ranking, improves the valuation of cash resources. By contrast, opaque disclosure practices adversely affect acquisitions and capital expenditures because of empire building incentives. Louis et al. (2012) find a positive association between the market value of cash and accounting conservatism, which is consistent with the notion that disclosure quality decreases agency costs. They conclude that conservatism increases incentives for ex-ante efficient investment decisions and improves the ex-post evaluation of managerial decisions. Thus, conservatism serves as a substitute for external monitoring. In our study, we analyze the influence of reporting frequency on the market value of cash. First, we regress the annual excess stock return on a dummy variable indicating the reporting frequency of a firm and on firm 4 We also test the monitoring effect of more frequent disclosure using different kinds of assets as well as alternative measures of agency costs that focus on resource utilization. Overall, we find corroborating results. 17

27 characteristics proxying for changes in profitability, investment policy, and financing policy. We find that semi-annual reporters exhibit lower cash valuations than quarterly reporters. Second, we conduct a difference-indifferences analysis to examine the effect of higher reporting frequency by semi-annual reporters. We use semi-annual (mandatory quarterly) reporters as a treatment (benchmark) group. This allows us to isolate the impact of reporting frequency on the market value of cash because the obligation to additionally publish IMSs is an exogenous shock to previously semi-annual reporters. We find that the publication of IMSs reduces cash valuation differences between semi-annual and quarterly reporting firms. The valuation difference between quarterly and semi-annual reporters is also economically significant, amounting to $0.40 prior to the implementation of IMS reporting and subsequently decreasing by $ Both results are consistent with a reduction in agency costs due to more frequent disclosure. In addition, we investigate whether the results differ for the valuation of non-cash assets. We find a significant but economically lower effect for non-cash compared with cash assets. This result is consistent with a stronger monitoring effect for noncash assets and thus a lower risk of wealth appropriation (Pinkowitz et al. 2006; Huang and Zhang 2012). Because financial disclosure complements existing governance and control mechanisms (Bushman and Smith 2001), we examine whether the benefits of more frequent disclosure depend on firms corporate governance and countries supervisory power. Consistent with Dittmar and Mahrt-Smith (2007), we find a significant influence of reporting frequency only for a subsample of low corporate governance firms because shareholders of these firms cannot rely on the monitoring effect of corporate governance. Consistent with Christensen et al. (2014) and Daske et al. (2008), our results suggest that shareholders do (not) expect positive benefits from IMS reporting in the case of strong (weak) supervisory power. This finding supports the notion that the 5 Huang and Zhang (2012) provide evidence that detailed disclosures increase the market value of cash by up to $0.60. Louis et al. (2012) find an increase of up to $0.43 for firms with more conservative accounting practices. 18

28 expected benefits of more frequent disclosure depend on the strength of the institutional environment in enforcing shareholder rights. We also examine whether earnings attributes influence the effect of more frequent monitoring. In line with Bushman and Smith 2001 and Louis et al. 2012, we find that that more frequent disclosure has a significant positive (no) effect if earnings quality or conservatism is low (high) because shareholders cannot (can) rely on the benefits of these earnings attributes. We also examine whether the benefits of more frequent disclosure are influenced by firms financial resources in terms of financial constraints and available resources (e.g., Faulkender and Wang 2006; Tong 2011; Chen et al. 2015). We find that more frequent disclosure has a positive (no) effect if the risk of inefficient investment decisions is high (low). To validate the importance of frequent disclosure from a shareholder perspective, we test whether the effect of more frequent disclosure is influenced by specific firm characteristics. Our results support the notion that shareholders expect (do not expect) additional benefits from IMS reporting by semi-annual reporters for long (short) operating cycles, a high (low) risk of insolvency, and less (more) complex firms. We additionally test alternative measures of the change in cash (Faulkender and Wang 2006; Huang and Zhang 2012), a cash level approach (Pinkowitz et al. 2006; Dittmar and Mahrt-Smith 2007), and measures of agency costs that focus on an internal company perspective (Ang et al. 2000; Singh and Davidson 2003) to examine the generalizability of our results. We also test the robustness of our event date definition using shifted event dates, different lengths of pre- and post-periods, early adopters, and placebo regressions (Christensen et al. 2014; Hail et al. 2014). Finally, we conduct a battery of tests to examine the sensitivity of our results to the sample composition and confounding events. Among others, we use different benchmark groups, we use different matching techniques, we control for contemporaneous policy changes, and we control for the influence of the financial crisis. Overall, we find that our results are not driven by the methodology or the specification of our tests. 19

29 This study contributes to the literature on the costs and benefits of mandating a high reporting frequency. We provide evidence of the monitoring effect of more frequent and timelier disclosure. Using a cash-based framework, we are able to isolate the monitoring and information effect of more frequent disclosure. Thus, we provide insights into the benefits of requiring higher disclosure frequency from a shareholder perspective, in contrast to other studies that focus on firm-specific or capital market aspects (e.g., Beyer et al for a comprehensive review). Moreover, we provide new indications for the monitoring effect of financial disclosure in general (Bushman and Smith 2001) and of higher disclosure frequency in particular. Prior empirical research on the monitoring benefits of financial disclosure is sparse and focused on disclosure quantity and earnings properties (e.g., Huang and Zhang 2012; Louis et al. 2012). We show that both the amount of information available and the disclosure frequency improve shareholder monitoring. This finding indicates that frequent and timely disclosure reduces shareholders uncertainty about the expected use of their invested funds. The remainder of the paper is organized as follows. Section 2.2 develops the hypotheses. Section 2.3 presents the data and methodology. Section 2.4 presents the descriptive and multivariate results. Section 2.5 concludes Hypothesis development Agency theory predicts that managers will invest in projects that do not necessarily maximize shareholder wealth because of the separation of ownership and control (Jensen and Meckling 1976; Kothari et al. 2010). Without efficient monitoring, contracting, and corporate governance in place, these agency conflicts lead to inefficient resource allocation and wealth transfers (Dittmar and Mahrt-Smith 2007; Liu and Mauer 2011; Kim et al. 2015). We define wealth transfers as the investment of liquid assets in projects that do not necessarily maximize shareholder wealth, such as pet projects, empire building, or negative net present value projects (e.g., Easterbrook and Fischel 1984; Bushman and Smith 2001; Bens and Monahan 2004; Leuz and Wysocki 2008). 20

30 Efficient corporate governance is one mechanism for reducing agency conflicts between managers and shareholders (e.g., Leuz and Wysocki 2008). Prior research provides evidence that transparency, in terms of information quantity and quality and other corporate governance mechanisms, leads to higher firm value due to better identification of investment projects, lower risk premia demanded by shareholders, and less managerial wealth transfer (e.g., Bushman and Smith 2001; Shleifer and Wolfenzon 2002). Thus, the quantity and quality of financial disclosure complement existing governance mechanisms by mitigating agency conflicts (Mahoney 1995; Bushman and Smith 2001; Lambert et al. 2007). Bushman and Smith (2001) outline three distinct channels through which financial accounting information influences the economic performance of a firm: (1) better identification of investment opportunities, (2) disciplinary effect on project selection by managers (monitoring effect), and (3) reduction of information asymmetries among investors. To fulfill the intended goals of financial accounting information, not only the quantity or quality of financial reports but also the publication frequency contributes to an efficient resource allocation (Kothari et al. 2010). We focus on the second channel to examine the monitoring effects of more frequent disclosure. More frequent disclosure improves the ability of shareholders to monitor management in various ways (Kanodia and Lee 1998; Hermalin and Weisbach 2012). Dou et al. (2015) emphasize two primary strategies for monitoring management: voice and exit. The voice strategy includes (class action) lawsuits, shareholder proposals, and voting on management turnover. Exit refers to the disposal of shares. Disposals not only negatively influence stock prices but also incorporate new information into the market. More frequent disclosure reduces monitoring costs because of the provision of previously private information. As a result of higher reporting frequency, shareholders are able to intervene ( voice ) in a timelier manner by speaking to the board or even pursuing legal action, which curbs the incentives of managers to expropriate corporate resources. In addition, a higher reporting frequency increases the reliability of prior voluntarily published information 21

31 from a shareholder perspective (Kanodia and Lee 1998). Thus, shareholders are better able to assess firm performance and evaluate past decisions of management, which in turn reduces shareholder uncertainty (Barry and Brown 1985; Bushman and Smith 2001). 6 More frequent disclosure also allows shareholders to use the exit strategy in a timelier manner. Consequently, managers are more focused on the interests of shareholders to avoid largescale share disposals. This increase in monitoring decreases shareholder skepticism about future performance because of the more direct and more frequent monitoring of management (Dye and Sunder 2001; Huang and Zhang 2012). Thus, frequent disclosure serves as a mechanism of investor protection. Because shareholders are interested in maximizing shareholder value, one of their concerns is the expected use of shareholder funds (Faulkender and Wang 2006). Prior research provides evidence that large cash reserves lead to inefficient or excessive investment behavior by managers (e.g., Blanchard et al. 1994; Harford 1999; Pinkowitz et al. 2006). Liquid assets are of special interest because they not only are the base for future investments but also account for a substantial portion of firm value (McDonald 2006). Cash not committed to operations is at the direct disposal of management and is thus a starting point for wealth transfers at lower costs compared with other assets (Myers and Rajan 1998). Hence, the value of cash serves as a proxy of managerial wealth transfers (Pinkowitz et al. 2006). Prior research provides evidence that cash is not necessarily valued at face value if it is likely that cash is wasted because of internal cross-financing or excessive risk taking by management (Tong 2010, 2011). Instead, cash is valued at a premium if a firm has efficient governance and monitoring mechanisms in place (Dittmar and Mahrt-Smith 2007; Tong 2011; Chen et al. 2015; Kim et al. 2015). Thus, managerial wealth extraction leads to cash that is valued at a discount because a portion of the value is reduced by the appropriation of private benefits (Huang and Zhang 2012). In line with previous research on cash valuation 6 In contrast to US GAAP (APB Opinion No. 29), IFRS interim reports are prepared on a rather discrete basis (IAS ). Thus, interim financial data are less biased because of the revision of estimates compared with US GAAP. However, these reports are less suitable for predictions because of seasonal factors (Mensah and Werner 2008). Consequently, quarterly earnings are more volatile and might negatively affect the risk perceptions of shareholders. 22

32 (e.g., Dittmar and Mahrt-Smith 2007), we suggest that the positive effects of more frequent disclosure can lead to cash valued at a discount for companies with a low reporting frequency because of the appropriation of private benefits. More frequent disclosure can also influence the information environment and the efficiency of other information sources (e.g., Bhushan 1989a, b; Lang and Lundholm 1993; Healy and Palepu 2001). It is unclear if a higher reporting frequency increases the amount of information available because disclosure regulation reduces the benefit of additional disclosures and thus decreases managers incentives to voluntarily publish additional information (Gigler and Hemmer 1998; Butler et al. 2007). 7 Thus, disclosure regulation could substitute for voluntary disclosure and influence the signaling effect of voluntary disclosure (Cheng et al. 2013). Furthermore, the publication and dissemination of information are associated with firm-specific costs and lead to the publication of proprietary information (Hayes and Lundholm 1996; Leuz and Wysocki 2008). In addition, more frequent disclosure could foster short-sighted investment decisions (e.g., Bhojraj and Libby 2005; Graham et al. 2005; Gigler et al. 2014). These antagonistic effects may result in a weaker or non-existing effect of more frequent disclosure because of a decrease in available information, increased costs, and managerial short-termism. Given that shareholders typically support a higher reporting frequency (Litan 2002; Global Finance 2005), we expect that a higher reporting frequency reduces agency conflicts between shareholders and management as a result of more frequent external monitoring. Hence, consistent with the monitoring hypothesis (Healy and Palepu 2001), a higher risk of managerial expropriation of corporate resources by semi-annual reporting firms should lead to cash being valued at a discount. This reasoning leads to the following hypothesis: 7 In addition, Wagenhofer (2014) conjectures that the benefits of IMS reporting are small because IMSs provide only qualitative information. By contrast, Ernstberger et al. (2015) examine the content of IMS reports and find that most IMSs also include quantitative information (e.g., earnings figures). 23

33 HYPOTHESIS 1. More frequent disclosure leads to a higher market value of cash Research design Identification strategy Examining disclosure frequency regulation requires a setting of firms exhibiting cross-sectional and inter-temporal variation with respect to disclosure frequency (Van Buskirk 2012). The member states of the EU-15 constitute a natural laboratory in which to investigate the effects of disclosure frequency. These member states have historically had different reporting frequency regimes: in six countries, the national regulator required quarterly reporting; in two countries, stock market operators required quarterly reporting for a particular stock market segment; and in the remaining seven countries (and in other stock market segments), the regulator required only semi-annual reporting. Meanwhile, all EU member states exhibit a high level of harmonization with respect to financial disclosure and reporting regulations. In a proposal, the European Commission favored the introduction of quarterly reporting (similar to the US) to enhance the efficiency of EU capital markets. This proposal was criticized by several member states, and mandatory quarterly reporting was not adopted. Instead, the TD required countries to implement respective national laws for IMS reporting unless the countries had already mandated quarterly reporting. IMSs shall comprise explanations of material events and transactions that have occurred within the relevant period. In addition, the issuer shall provide a general description of the financial position and performance of the firm (EU 2004, Article 6 No. 1). Although countries were required to implement the TD by 2007, Belgium and Luxembourg did not implement it before 2008, and Italy and the Netherlands 24

34 did not implement it before Currently, all companies that are listed on a regulated stock market segment are required to publish IMSs for the first and third quarters, in addition to semi-annual and annual financial statements Sample data Our starting sample comprises all firms in the EU-15 countries included in Thomson Reuters Datastream/Worldscope. Since 2005, all listed firms in European countries have been required to report their consolidated financial statements in accordance with IFRS. Observations prior to 2005 could bias the results because of different national GAAPs. To avoid biases, we choose 2006 as a starting year and cover the period from 2006 to 2013 (46,015 firm-year observations). First, we eliminate firm-years with missing or obviously erroneous information on reporting frequency (e.g., annual reporters) and the length of the fiscal year. Second, we exclude voluntary quarterly reporters and firms that are cross-listed in the US to avoid self-selection biases. Third, following Faulkender and Wang (2006), we exclude financial firms and utility firms (SIC codes between 6000 and 6999 and between 4900 and 4999, respectively). Finally, we exclude firm-years in financial distress (negative common equity) and missing observations for our main model. To control for differences in the firm characteristics and shareholder expectations of subsamples of quarterly and semi-annual reporting firms, we match each quarterly-reporting firm to a semi-annual reporting firm using propensity score matching. For each firm, we require at least one observation prior to and after the TD. For each industry, using Fama and French (2008) 12-industry definition, we match firms based on firm size (total assets), performance (return on assets), and growth expectations (market-to-book ratio) using average values prior to the TD to avoid a potential influence of 8 For our difference-in-difference analysis, we use the fiscal year following the implementation date as the first year of application. Regulators in Italy and Spain have officially adopted the lower reporting requirements outlined in the TD (Link 2012). However, both regulators still strongly recommend adhering to previous reporting practices. We classify Italy and Spain as voluntary quarterly reporting countries in the years following the TD. Our results remain robust if we continuously classify Italy and Spain as mandatory quarterly reporting countries. 9 Due to a recent amendment of the TD, EU countries are basically no longer allowed to mandate quarterly reporting as of November 2015 (EU 2013). 25

35 the TD on our matching criteria. 10 Our final matched sample comprises 8,844 firm-year observations from 1,376 unique firms (688 semi-annual and 688 quarterly-reporting firms). Table 1 reports the sample distribution by country. The countries with the highest number of observations are Germany, UK, and France. Germany, Austria, Italy, and Spain have both quarterly and semi-annual observations because of specific disclosure requirements. 11 Table 1: Reporting frequency distribution by country Quarterly Reporters Semi-Annual Reporters Total Austria Belgium Denmark Finland France Germany Greece Ireland Italy Luxembourg The Netherlands Portugal Spain Sweden United Kingdom Number of firm-year obs. Number of unique firms ,590 1,590 1, , , , ,617 1,617 4,629 4,215 8, ,376 Notes: This table presents the sample composition by country. 10 Because disclosure frequency regulation varies at the country level in most cases, we match across countries and control for country differences using a panel approach with country fixed effects. Alternative matching procedures lead to results that are qualitatively unchanged. Using all observations without any matching and controlling for country and industry effects, firm size, performance, and growth expectations, we find robust but weaker results. 11 E.g., in Germany, quarterly reporting requirements depend on the stock market segment. Because some firms changed reporting frequency after the directive (e.g., a change in stock exchange segment), we replicate our main analysis using only firms that continuously report on a semi-annual (quarterly) basis. This leads to virtually unchanged results. 26

36 Methodology Our study is based on the model introduced by Faulkender and Wang (2006). The authors refine the firm valuation model of Fama and French (1998a) to calculate the value of an additional dollar of cash for a firm. 12 This approach is akin to a long-run event study, which enables us to examine the effect of a particular event on the stock performance of firms. The event is defined as the change in cash over the entire fiscal year (DELTACASH). Consistent with prior literature, we measure abnormal stock performance (ABNORMAL) as the difference between the annual stock return and an annual benchmark return based on the 25 size and book-to-market clusters introduced by Fama and French (1993). We focus on (abnormal) stock returns because they reflect shareholders assessment of an increase in disclosure frequency. By contrast, using total firm value reflects assessments by shareholder and debtholders (Liu et al. 2014). 13 We calculate size and book-to-market clusters as well as the value-weighted returns for each portfolio using our underlying European data. 14 To measure the effect of reporting frequency on the market value of cash, we use binary variables that indicate the reporting frequency of a firm (HY) and the periods following the implementation of the TD (POST). Because the disclosure frequency requirements of the TD affect only semi-annual reporting firms, we use semi-annual reporters as the treatment group and mandatory quarterly reporters as the benchmark group. Reporting frequency information is derived from Datastream/Worldscope. We set HY to one if a 12 Because not all European countries use the euro as their local currency, we use US dollar values based on exchange rates provided by Thomson Reuters Datastream/Worldscope. 13 As debtholders rely on financial disclosures for contracting purposes (e.g., Bharath et al. 2008; Minnis 2011), we also use a value regression (Dittmar and Mahrt-Smith 2007), based on total firm value (total equity plus total debt) and levels of and changes in determinants of firm value. Our results are similar using a value regression approach. 14 Fama and French (1998b) show that the book-to-market portfolios originally tested in the US also hold when calculated using international data. We note that using a multi-country setting assumes that stock markets are efficient and that investor expectations are homogeneous across countries. In line with this notion, prior literature indicates that the integration of European stock markets has increased over the last decades (e.g., Bekaert et al. 2009). We also use abnormal returns calculated at the country-industry-year level and find virtually unchanged results. In doing so, we also alleviate concerns that market-to-book is likely endogenous (Masulis et al. 2009; Chen et al. 2015). Using 15-months returns (Louis et al. 2012) or equal weighted returns (Campbell et al. 2014) leads to similar results. 27

37 company publishes two financial statements each year and zero otherwise. Information regarding the implementation date of the TD is derived from Christensen et al. (2014). We set POST to one for all firm-year combinations in the years following the entry-into-force date (because the majority of countries implemented the TD requirements during that year) and zero otherwise. To examine the marginal effect of IMS reporting, we interact the respective variables with the change in cash. Following H1, we expect a negative (positive) coefficient for the interaction DELTACASH*HY (DELTACASH*HY*POST). We interpret the coefficient of the interaction DELTACASH*HY as the discount resulting from fewer possibilities to monitor managerial behavior and thus higher agency costs. The interaction DELTACASH*HY*POST indicates the change in cash valuation due to IMS reporting by semi-annual reporters. To analyze the influence of reporting frequency on the market value of cash, we estimate the following model based on Faulkender and Wang (2006): ABNORMAL = β0 + β1deltacash*hy + β2deltacash*post + β3deltacash* HY*POST + β4deltacash + β5deltacash*lev + β6deltacash*cash + β7post + β8hy*post + β9-16controls + Country Fixed Effects + ε (1) where all variables are explained in Table 2. All control variables are based on those used in the prior literature (e.g., Dittmar and Mahrt-Smith 2007; Huang and Zhang 2012). Faulkender and Wang (2006) regress the annual abnormal stock return on changes in firm characteristics that influence the return of a company. These characteristics include changes in profitability, investment policy, and financing policy. One implicit assumption of this method is that every firm has an optimal cash level. For each period, the optimal cash level is defined as the cash level at the end of the previous year. Therefore, the change in cash over the fiscal year represents the unexpected change in cash. 15 To control for firms profitability, investment policy, and financing policy, we include the 15 The use of alternative definitions of the change in cash based on Faulkender and Wang (2006) and Huang and Zhang (2012) provides qualitatively similar results. 28

38 change in earnings before extraordinary items of company i in year t (DELTAEARNINGS), 16 the change in non-cash assets of company i in year t (DELTANA), and the change in R&D expenditures of company i in year t (DELTARD). We replace missing R&D observations with the industry-year median. 17 Furthermore, we include the change in interest expense of company i in year t (DELTAINTEREST), the net change in common equity and total debt of company i in year t (NF), and the change in cash dividends paid by company i in year t (DELTADIV). Consistent with previous studies (Faulkender and Wang 2006), we include cash reserves at the beginning of the year (CASH), market leverage (LEV) 18, and interactions with the change in cash to control for systematic cash valuation differences. All continuous variables, except for leverage, are scaled by one-year lagged market value of equity. Because the stock return is the change in market value of equity over the fiscal year divided by previous year s market value of equity, this standardization enables us to interpret the coefficients as the US dollar change in shareholder value resulting from a one-dollar change in the amount of cash held by a firm (Faulkender and Wang 2006). To reduce the impact of outliers, we winsorize all continuous variables at the 1st and 99th percentiles. 19 Because we are matching across countries, we also include country fixed effects for all analyses. In addition, we draw our inferences based on standard errors clustered by country because our main variable of interest (reporting frequency) varies at the country level in most cases (Christensen et al. 2014) Untabulated results indicate that our results are robust if we additionally include one-year lagged earnings scaled by one-year lagged market value of equity (Louis et al. 2012). 17 Our results are robust if we replace missing values with zero (see Faulkender and Wang 2006; Huang and Zhang 2012). 18 Using market leverage at the beginning of the year (Louis et al. 2012) leads to similar results. 19 Because reporting frequency regulation varies at the country level in most cases, including HY and country fixed effects leads to multicollinearity problems. Thus, we suppress the reporting frequency dummy (HY). We thank an anonymous reviewer for this suggestion. Replicating our analysis including HY and country fixed effects yields virtually unchanged results. 20 We find virtually unchanged results using standard errors clustered at the firm level. However, clustering at the firm level does not account for the fact that our main variable of interest varies at the country level in most cases. We refer to Christensen et al. (2014) for a discussion of the implications of using different clustering approaches. 29

39 Table 2: Definition of variables Variable Definition Main Dependent Variable ABNORMAL Abnormal annual stock return of company i in period t less a benchmark return in period t. Benchmark returns are calculated based on Fama and French (1993) 25 size and book-to-market portfolios recalculated with EU data. Main Model DELTACASH Change in cash from period t-1 to t scaled by one-year lagged market value of equity. Cash is defined as cash and cash equivalents of company i in period t. HY POST DELTAEARNINGS DELTANA DELTARD DELTAINTEREST Half-yearly reporting is a binary variable indicating semi-annual reporters. POST is a binary variable indicating the years following the implementation of the Transparency Directive. Implementation dates are taken from Christensen et al. (2014). Change in earnings from period t-1 to t scaled by one-year lagged market value of equity. Earnings is defined as net income before extraordinary items of company i in period t. Change in net assets from period t-1 to t scaled by one-year lagged market value of equity. Net assets is defined as total assets less cash and cash equivalents of company i in period t. Change in research and development expenses from period t-1 to t scaled by oneyear lagged market value of equity. Missing research and development expenses are replaced by the industry-year median using the Fama and French (2008) 12-industry definition. Change in interest expenses from period t-1 to t scaled by one-year lagged market value of equity. Interest expense is defined as interest paid on debt of company i in period t. DELTADIV CASH LEV NF CONSTANT Change in dividends from period t-1 to t scaled by one-year lagged market value of equity. Dividends is defined as dividends paid by company i in period t. Level of cash of company i at the beginning of the year scaled by one-year lagged market value of equity. Cash is defined as cash and cash equivalents of company i in period t. Market leverage of company i in period t is defined as total debt divided by the sum of total debt and market value of equity. New financing of company i in period t is defined as the sum of changes in common equity and total debt scaled one-year lagged market value of equity. Constant as calculated in the regression. Table continued on the next page 30

40 Variable Definition Governance and Enforcement Corporate Corporate Governance is defined as the percentage of free-floating shares. Governance Supervisory Power Supervisory Power is a binary variable equal to one if a country complies with all the enforcement principles outlined in CESR Standard No. 1 as assessed by the CESR Peer Review in 2008, and zero otherwise (Christensen et al. 2014). Earnings Attributes Earnings Quality Conservatism Earnings Quality is defined as the absolute residuals of a performance adjusted modified Jones model (Kothari et al. 2005). We estimate the following regression for each industry-year combination with at least 30 observations using Fama and French (2008) 12-industry definition: TOTAL ACCRUALS = β 0 + β 1 (1/Total Assets t-1 ) + β 2 DELTA SALES t + β 3 PPE t + β 4 ROA t. TOTAL ACCRUALS is defined net income before extraordinary items of period t less cash flow from operations of period t divided by one-year lagged total assets. DELTA SALES is defined as the annual change in sales less the annual change in receivables divided by one-year lagged total assets. PPE is defined as property, plant, and equipment of company i in period t divided by one-year lagged total assets. ROA is defined as the net income before extraordinary items in period t divided by one-year lagged total assets. Conservatism is defined as the market-to-book ratio (Market Value of Equity /Common Equity ) at the beginning of the year. Financial Resources Whited Wu Leverage Deltacash Excess Cash Whited Wu is defined as companies Whited and Wu (2006) index calculated based on Whited and Wu (2006). LEV, see Main Model Variables. DELTACASH, see Main Model Variables. Excess Cash is defined as the difference between the actual level of cash assets scaled by one-year lagged market value of equity and the exponential predicted value of the following regression (Huang and Zhang 2012): ln(cash ) = β 0 +β 1 ln(market Firm Characteristics Operating Cycle Value of Equity t-1 ) + β 2 GROWTH t-1 + β 3 INCOME t-1 + β 4 NWC t-1 + β 5 CAPEX t-1 +β 6 DEBT t-1 + β 7 RD t-1 + β 8 DIV t-1 + Industry and Country Fixed Effects. Positive (negative) values indicate positive (negative) excess cash. GROWTH is defined as the annual sales growth of company i. INCOME is defined as net income before extraordinary items of company i in period t scaled by one-year lagged market value of equity. NWC is defined as working capital net of cash of company i in period t scaled by one-year lagged market value of equity. CAPEX is defined as capital expenditures of company i in period t scaled by one-year lagged market value of equity. DEBT is defined as total debt of company i in period t scaled by one-year lagged market value of equity. RD is defined as research and development expenses of company i in period t scaled by one-year lagged market value of equity. We replace missing values by the industry-year median using Fama and French (2008) 12- industry definition. DIV is a binary variable that takes the value of one if company i paid dividends in period t and zero instead. Operating Cycle is defined as (Receivables /Total Assets )*365 + (Inventories /Cost of Goods Sold )*365. In line with Feng et al. (2011), we use the log of operating cycle. Z-Score Altman (1968) Z-Score is defined as 3.3*(Net Income /Total Assets ) *(Sales /Total Assets ) + 1.4*(Retained Earnings /Total Assets ) + 1.2*(Working Capital /Total Assets ) + 0.6*(Market Value of Equity /Total Debt ). Complexity Complexity is defined as the number of industries that a company operates in based on Fama and French (2008) 12-industry definition. Table continued on the next page 31

41 Variable Definition Alternative Measures of the Change in Cash and Cash Valuation ALTCASH Alternative change in cash refers to our alternative measures of the change in cash: Portfolio Average, Abnormal Change, or Excess Cash. Portfolio Average Abnormal Change Excess Cash Level Cash Level Excess Cash V E E t E t+2 NA t NA t+2 RD RD t Portfolio Average is defined as the the actual change in cash holdings (DELTACASH) less the mean change in cash holdings of the respective size and bookto-market cluster (Faulkender and Wang 2006). Abnormal Change is defined as the residuals of a regression of DELTACASH on variables that indicate sources and uses of cash: DELTACASH = β 0 + β 1 OCF t-1 + β 2 Tobin's Q t-1 + β 3 Market Value of Equity t-1 estimated separately for each industry based on Fama and French (2008) 12-industry definition (Almeida et al. 2004; Faulkender and Wang 2006). OCF is defined as cash flow from operations of company i in period t scaled by market value of equity. Tobin's Q is defined as market value of equity in period t plus total assets in period t less total debt in period t divided by total assets in period t. Excess Cash, see Financial Resources Variables. Level Cash of company i is defined as cash and cash equivalents in period t scaled by total assets net of cash in period t. Level Excess Cash is defined as the difference between the level of cash assets scaled by total assets net of cash and the optimal cash level based on the following regression (Dittmar and Mahrt-Smith 2006): ln(cash ) = β 0 + β 1 ln(na t ) + β 2 INCOME t + β 3 SIGMA t + β 4 GROWTH t + β 5 RD t + Country Fixed Effects. CASH is the defined as cash assets of company i in period t scaled by total assets net of cash in period t. NA is defined as total assets net of cash of company in period t. INCOME is defined as net income before extraordinary items of company i in period t scaled by total assets net of cash in period t. SIGMA is defined as standard deviation of operating cash flows scaled by total assets net of assets for each industryyear using Fama and French (2008) 12-industry definition. GROWTH is defined as annual sales growth of company i. RD is defined as research and development expenses of company i in period t scaled by total assets net of cash in period t. Firm value of company i is defined as market value of equity plus total debt in period t scaled by total assets net of cash in period t. Earnings of company i is defined as net income before extraordinary items in period t scaled by total assets net of cash in period t. Change in earnings of company i is defined as the change of net income before extraordinary items from period t-2 to t scaled by total assets net of cash in period t. Future change in earnings of company i is defined as the change of net income before extraordinary items from period t to t+2 scaled by total assets net of cash in period t. Change in net assets of company i is defined as change of total assets net of cash from period t-2 to t scaled by total assets net of cash in period t. Future change in net assets of company i is defined as change of total assets net of cash from period t to t+2 scaled by total assets net of cash in period t. Research and development expenses of company i is defined as research and development expenses in period t scaled by total assets net of cash in period t. We replace missing values of reasearch and development expenses by the industry-year median using Fama and French (2008) 12-industry definition. Change in research and development expenses of company i is defined as change in research and development expenses from period t-2 to t scaled by total assets net of cash in period t. Table continued on the next page 32

42 Variable RD t+2 I I t I t+2 D D t D t+2 V t+2 Definition Future change in research and development expenses of company i is defined as change in research and development expenses from period t to t+2 scaled by total assets net of cash in period t. Interest expense of company i is defined as interest expenses in period t scaled by total assets net of cash in period t. Change in interest expense of company i is defined as change of interest expense from period t-2 to t scaled by total assets net of cash in period t. Future change in interest expense of company i is defined as change of interest expense from period t to t+2 scaled by total assets net of cash in period t. Dividends of company i is defined as cash dividends paid in period t scaled by total assets net of cash in period t. Change in dividends of company i is defined as change in cash dividends paid from period t-2 to t scaled by total assets net of cash in period t. Future change in dividends of company i is defined as change in cash dividends paid from period t to t+2 scaled by total assets net of cash in period t. Future change in company value of company i is defined as change in market value of equity plus total debt from period t to t+2 scaled by total assets net of cash in period t. Alternative Measures of Agency Costs SG&A_TURN SG&A turnover ratio is defined as selling, general, and administrative expenses in period t divided by total sales in period t. ASSET_TURN Asset turnover ratio is defined as total sales of period t divided by total assets of period t. OWNERSHIP Ownership structure is defined as percentage of closely held shares in period t. SIZE Firm size is defined as logarithm of total sales in period t. FIN_LEVERAGE Financial leverage is defined as total debt of period t divided by total assets of AGE Firm age is defined as years since incorporation in period t. Notes: This table defines all variables used in this study. 33

43 2.4. Results Descriptive statistics Panel A of Table 3 reports descriptive statistics for all continuous variables used in the regression analyses. The mean (median) firm has an abnormal stock return of 0.8 (-3.8) percent. Overall, the distribution of our dependent variable is right skewed. Prior research shows variation in the mean level of cash holdings ranging from approximately 2 to 41 percent (Dittmar et al. 2003; Dittmar and Mahrt-Smith 2007). The mean (median) level of cash holdings of our sample firms is 22.9 (13.9) percent of the market value of equity at the beginning of the year. Differentiating by country leads to mean values ranging from 6.8 to 37.3 percent. The high level of cash reserves as a percentage of the market value of equity highlights the relevance of this measure because cash accounts for a substantial part of firm value. Panel B of Table 3 reports correlations for all continuous variables used in the regression analyses. The correlation between DELTACASH and CASH is significantly negative (ρ = -0.21). This negative correlation, along with the mean and median cash levels above zero, indicates the existence of an optimal cash level (Opler et al. 1999). With the exception of the correlation between DELTANA and NF, we do not observe any extreme correlations. By definition, DELTANA is strongly correlated with numerous other variables that correspond to changes in assets Untabulated results indicate that the results are robust if we exclude DELTANA. 34

44 Table 3: Descriptive statistics and correlations Panel A: Descriptive Statistics Variables No. Obs. Mean 1st Quartile Median 3rd Quartile Std. Dev. ABNORMAL 8,844 DELTACASH 8,844 CASH 8,844 DELTAEARNINGS 8,844 DELTANA 8,844 DELTARD 8,844 DELTAINTEREST 8,844 DELTADIV 8,844 LEV 8,844 NF 8, Panel B: Correlations (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) ABNORMAL (1) DELTACASH (2) CASH (3) DELTAEARNINGS (4) DELTANA (5) DELTARD (6) DELTAINTEREST (7) DELTADIV (8) LEV (9) NF (10) Notes: This table presents descriptive statistics (Panel A) as well as Pearson (below) and Spearman (above the diagonal) correlations for all continuous variables. Bold figures in Panel B indicate statistically significant correlations that are at least at the 10 percent level. Variable definitions are presented in Table 2. All continuous variables are winsorized at the 1 st and 99 th percentiles. 35

45 Main results Table 4 presents the results of our main analysis examining the effect of increased reporting frequency on the market value of cash. Column (1) refers to a cross-sectional estimation examining valuation differences depending on reporting frequency. We find a statistically significant coefficient for the interaction between DELTACASH and the reporting frequency HY (DELTACASH*HY) (coef.: $-0.149, p < 0.05). This coefficient is also economically meaningful because it indicates that a lower reporting frequency is associated with a valuation discount of $ The discount is comparable to the discount associated with a one-standard-deviation increase in market leverage for an average firm ($0.161). This result is consistent with the notion of less frequent disclosure increasing agency costs as a result of fewer possibilities for monitoring managerial decisions. With the exception of DELTARD, all control variables have the expected sign. The coefficient estimates for our variables are lower than those in other studies examining the US. We attribute this effect to the lower importance of capital markets in Europe compared with the US (Leuz et al. 2003; Gassen and Skaife 2008). 22 In line with prior literature (e.g., Louis et al. 2012), the explanatory power of the model is approximately 15.3 percent. Column (2) presents the results of our main model testing whether implementing IMS reporting decreases agency costs. Again, the coefficient of the interaction term DELTACASH*HY is significantly negative, indicating that semi-annual reporting firms exhibit significantly lower cash valuations compared with quarterly reporting firms. The interaction term DELTACASH*HY*POST is significantly positive, indicating that IMS reporting by semi-annual reporters decreases agency costs. After the implementation of the TD, the valuation difference between semi-annual and quarterly reporters decreases by 81.7 percent to $0.074 ($0.405 minus $0.331), which is consistent with the notion that more frequent disclosure leads to a 22 We replicate the original model of Faulkender and Wang (2006) without our variables of interest to test for differences between our European setting and their US setting. The results (untabulated) results indicate that the coefficient estimates for our European setting are lower but remain highly significant for most of the control variables. 36

46 decrease in the managerial expropriation of corporate resources as a result of more frequent shareholder monitoring. 23 The remaining difference can be attributed to the less detailed disclosures provided by IMS reports compared with quarterly reports. Figure 1 illustrates these valuation differences between quarterly and semi-annual reporters prior to and after the obligation to issue IMSs. Column (3) of Table 4 shows the results for a cross-sectional model examining the monitoring effect on non-cash assets. Non-cash assets (DELTANA) are less subject to managerial misapplication than cash assets. However, the monitoring effect of more frequent disclosure may not be limited to cash assets (Huang and Zhang 2012). Using DELTANA instead of DELTACASH, we provide evidence that the monitoring effect of more frequent disclosure is not limited to cash assets. However, the effect of a low reporting frequency (DELTANA*HY) is considerably lower (coef.: $-0.048, p < 0.05). Column (4) of Table 4 shows the results for our main model examining the agency cost effect of IMS reporting on non-cash assets. The coefficients for our variables of interest are considerably lower but still economically important (DELTANA*HY: $-0.142, DELTANA*HY*POST: $0.129). This finding supports the notion that non-cash assets are less subject to managerial misapplication (Pinkowitz et al. 2006; Huang and Zhang 2012). 23 To account for structural differences in the baseline cash valuation, we include DELTACASH variables by country in our main regression (untabulated). The inclusion of these variables leads to virtually unchanged results. With the exception of Portugal ($0.776) and Luxembourg ($2.018), the baseline cash valuation ranges between $0.942 and $ Excluding Portugal and Luxembourg leads to virtually unchanged results. 37

47 Table 4: The effect of disclosure frequency on the market value of cash Variables of Interest DELTACASH (DELTANA) * HY ** *** ** ** DELTACASH (DELTANA) * POST * *** DELTACASH (DELTANA) * HY * POST *** * Baseline Variables DELTACASH *** *** *** *** DELTACASH*LEV *** *** *** *** DELTCASH*CASH POST ** *** HY*POST Control Variables DELTAEARNINGS *** *** *** *** DELTANA *** *** *** *** DELTARD DELTAINTEREST DELTADIV CASH *** *** *** *** LEV *** *** *** *** NF CONSTANT *** *** ** Fixed Effects Adjusted R² Number of Obs. Coeff. Coeff. Coeff. Coeff. (1) (2) (3) (4) Country Country Country Country 15.29% 15.95% 15.30% 16.84% 8,844 8,844 8,844 8,844 Notes: This table presents the results of regression analyses examining the effect of higher reporting frequency on the market value of cash. Model 1 refers to the cross-sectional analysis examining the effect of reporting frequency on the market value of cash. Model 2 refers to our main specification using a difference-in-differences approach to examine the effect of IMS reporting by semi-annual reporters on the market value of cash. Model 3 refers to the cross-sectional analysis examining the effect of reporting frequency on non-cash assets (DELTANA) (Huang and Zhang 2012). Model 4 refers to our main specification examining the effect of IMS reporting by semi-annual reporters on non-cash assets (DELTANA) using a difference-in-differences approach. Variable definitions are presented in Table 2. All continuous variables are winsorized at the 1 st and 99 th percentiles. ***, **, and * indicate significance at 0.01, 0.05, and 0.1 levels, respectively, using a two-tailed test. All standard errors are clustered by country (Christensen et al. 2014). 38

48 Figure 1: Cash valuation differences prior to and after the implementation of the transparency directive Notes: This figure presents the change in cash valuation between quarterly and semi-annual reporters after the staggered implementation of the Transparency Directive (TD). Because of the implementation of the TD, all companies that are listed on a regulated stock market segment are required to publish at least Interim Management Statements (IMSs) for the first and third quarters in addition to semi-annual and annual financial statements. IMSs shall include explanations of material events and transactions that have occurred within the respective period. In addition, the issuer shall provide a general description of the financial position and performance of the firm (EU 2004, Article 6 No. 1). In contrast, a quarterly report based on IAS 34 comprises the same elements as an annual financial statement (IAS 34.5). All values are derived from Table 4, column 2. Overall, we find a significant negative coefficient for the effect of low reporting frequency (DELTACASH*HY) and a significant positive coefficient for the marginal effect of implementing IMS reporting by semi-annual reporting firms (DELTACASH*HY*POST). This finding supports the notion that more frequent disclosure reduces agency costs due to more frequent monitoring. 39

49 Moderating effect of corporate governance and supervisory power Prior research (e.g., Dittmar and Mahrt-Smith 2007; Chen et al. 2015) provides evidence that corporate governance is a driver of the market value of cash. Because financial disclosure supports existing control and governance mechanisms (Bushman and Smith 2001), we examine whether the effect of more frequent disclosure is influenced by firms governance mechanisms. 24 In line with Dittmar and Mahrt-Smith (2007), we use the percentage of freefloating shares as a proxy for corporate governance because lower values indicate more direct oversight due to block holder influence and, thus, less managerial expropriation. 25 For each year, we split the sample at the median. 26 Values below (above or equal to) the median indicate high (low) corporate governance. If corporate governance and disclosure together provide additional positive benefits, then we expect the effect of IMS reporting to be higher in the high corporate governance sample. In contrast, if disclosure substitutes for corporate governance then the disclosure frequency effect should be higher in the low corporate governance sample. In addition, prior research on disclosure regulation provides evidence that the effect of a regulation depends on its implementation and enforcement (e.g., Daske et al. 2008; Christensen et al. 2014). Thus, we also examine whether the benefits of higher reporting frequency are influenced by the extent of countries supervisory power. Following Christensen et al. (2014), we measure the strength of TD implementation using a binary variable indicating whether a country implemented enforcement requirements of the EU. If the effect of new regulation depends on the strength of the regulator, we expect 24 We refer to Armstrong et al. (2010) for a comprehensive review of prior literature on the interaction between disclosure and corporate governance. 25 Alternative governance measures provided by Dittmar and Mahrt-Smith (2007), such as pension fund holdings, the Gompers index, and the Bebchuck index are not available for European companies. In addition, we examine the monitoring effect of financial analysts. In line with the notion that analysts constrain the expropriation of corporate resources (Chen et al. 2015), untabulated results indicate that more frequent disclosure has a significant (insignificant) positive effect on agency costs in the case of low (high) analyst coverage. 26 In line with prior research, such as Faulkender and Wang (2006) and Tong (2011), we split the sample for all further analyses. 40

50 lower (higher) coefficients for our variables in regimes with low (high) supervisory power. Columns (1) and (2) of Table 5 present the results for estimating our main regression for high and low corporate governance firms. We find a significant (insignificant) negative coefficient for the effect of low reporting frequency on the market value of cash (DELTACASH*HY) in the low (high) corporate governance sample. In addition, we find a significant (insignificant) positive coefficient for the effect of IMS reporting by semi-annual reporters (DELTACASH*HY*POST) in the low (high) corporate governance sample. These results support the notion that disclosure and corporate governance do not lead to additional positive effects on agency costs. Due to better corporate governance, shareholders can rely on the monitoring effect of corporate governance to discipline managerial behavior. By contrast, the disclosure effect is more pronounced in the low corporate governance sample, as shareholders are unable to rely on the monitoring effect of other corporate governance mechanisms. Columns (3) and (4) of Table 5 present the results of our supervisory power analysis. We find an insignificant (significant) negative effect of low reporting frequency on the market value of cash (DELTACASH*HY) and a significant (insignificant) positive effect of IMS reporting by semi-annual reporters on the market value of cash (DELTACASH*HY*POST) in the high (low) supervisory power sample. We conclude that shareholders in the high supervisory power sample benefit from additional monitoring through legal enforcement. By contrast, the low supervisory power sample is dominated by shareholders skepticism due to less possibilities to enforce shareholder rights. With respect to the implementation of IMS reporting by semi-annual reporters, we conclude that without adequate implementation and enforcement, shareholders do not expect benefits from IMS reporting. This finding supports 41

51 the notion that the institutional environment contributes to the efficient application of a new directive (Christensen et al. 2014). 27 Table 5: The moderating effect of governance and supervisory power Variables of Interest DELTACASH*HY *** ** DELTACASH*POST DELTACASH*HY*POST *** * Baseline Variables DELTACASH *** *** *** *** DELTACASH*LEV *** *** *** ** DELTCASH*CASH ** POST *** * * HY*POST * Control Variables DELTAEARNINGS *** *** *** *** DELTANA *** *** *** ** DELTARD DELTAINTEREST DELTADIV *** *** CASH *** *** *** ** LEV *** *** *** *** NF CONSTANT Fixed Effects Adjusted R² Number of Obs. HIGH (1) Governance LOW (2) Country Country Country 14.97% 17.48% 15.32% 4,276 4,433 4,562 Supervisory Power HIGH (5) LOW (6) Country 17.43% 4,282 Notes: This table presents the results of regression analyses examining the effect of IMS reporting by semi-annual reporters on the market value of cash depending on firms corporate governance and countries supervisory power. We measure firm governance using the percentage of free floating shares (Dittmar and Mahrt-Smith 2007). For each year, we split the sample at the annual median. Values below (above or equal to) the median indicate a high (low) level of firm governance. In line with Christensen et al. (2014) we measure the strength of TD implementation using a binary variable indicating whether a country implemented enforcement requirements of the EU. Variable definitions are presented in Table 2. All continuous variables are winsorized at the 1 st and 99 th percentiles. ***, **, and * indicate significance at 0.01, 0.05, and 0.1 levels, respectively, using a two-tailed test. All standard errors are clustered by country (Christensen et al. 2014). 27 In addition, we use the annual asymmetric timeliness for each country to control for the institutional environment. Bushman and Piotroski (2006) provide evidence that different institutional determinants influence managerial reporting incentives that lead to more or less conservative earnings. We estimate asymmetric timeliness for each country-year with at least 50 observations. Untabulated results support the notion that frequent disclosure has an insignificant (significant) influence on the market value of cash in a strong (weak) institutional environment. 42

52 Moderating effect of earnings attributes Besides external monitoring mechanisms, internal reporting decisions also influence the extent of agency conflicts between management and shareholders (e.g., Louis et al. 2012). Prior research provides evidence that earnings quality and conservatism mitigate these conflicts and improve the investment decisions of management (e.g., Bushman and Smith 2001; Biddle et al. 2009; Louis et al. 2012). Because disclosure frequency and reporting decisions are interrelated, we examine whether high or low levels of earnings quality (conservatism) influence the effect of higher reporting frequency. We proxy for earnings quality using the absolute discretionary accruals of a performance-adjusted modified Jones model (Kothari et al. 2005). 28 We estimate the model for each industry-year with at least 30 observations. For each year, we split the sample at the median. Values below (above or equal to) the median indicate high (low) earnings quality. We proxy for accounting conservatism using the market-to-book ratio at the beginning of the year (Louis et al. 2012). 29 For each year, we split the sample at the median. Values above or equal to (below) the median indicate a high (low) level of conservatism. If accounting quality (conservatism) and disclosure frequency together provide additional benefits with respect to the monitoring effect, then we expect that the benefits should be higher in a sample with high accounting quality than in a sample with low accounting quality (conservatism). If the monitoring mechanisms are distinct, then we expect more pronounced effects in a sample with low earnings quality than in a sample with high earnings quality (conservatism). Table 6 presents the results of our earnings attribute analysis. We find a significant (insignificant) coefficient for low reporting frequency (DELTACASH*HY) and for IMS reporting by semi-annual reporters (DELTACASH*HY*POST) in the low (high) earnings quality and the low (high) conservatism sample. We conclude that in the case of higher accounting 28 The results are virtually unchanged if we use a modified Jones model (Dechow et al. 1995). 29 We are aware that the market-to-book ratio also proxies for overvaluation or growth. However, because of the short time series and difference-in-differences approach, we are unable to use other metrics (e.g., cumulated non-operating accruals). 43

53 quality (conservatism), shareholders rely on the monitoring effect of higher accounting quality (conservatism). This supports the notion that earnings attributes and disclosure frequency are rather distinct mechanisms. Table 6: The moderating effect of earnings attributes Variables of Interest DELTACASH*HY ** ** DELTACASH*POST *** DELTACASH*HY*POST ** ** Baseline Variables DELTACASH *** *** *** *** DELTACASH*LEV *** *** *** *** DELTACASH*CASH ** POST ** ** *** ** HY*POST Control Variables DELTAEARNINGS *** *** *** *** DELTANA ** *** *** *** DELTARD DELTAINTEREST DELTADIV * CASH *** *** *** *** LEV *** *** *** *** NF CONSTANT * * *** Fixed Effects Adjusted R² Number of Obs. Earnings Quality HIGH (1) 15.61% 4,418 LOW (4) Country Country Country Country 16.99% 4,415 LOW (2) HIGH (3) 14.77% 4,423 Conservatism 18.14% 4,421 Notes: This table presents results of the regression analyses examining the effect of IMS reporting by semi-annual reporters on the market value of cash depending on firms earnings attributes. We measure earnings quality using absolute discretionary accruals from a performance-adjusted modified Jones model (Kothari et al. 2005). For each year, we split the sample at the annual median. Values below (above or equal to) the median indicate high (low) earnings quality. We proxy for accounting conservatism using the market-to-book ratio at the beginning of the year (Louis et al. 2012). For each year, we split the sample at the median. Values above or equal to (below) the median indicate a high (low) level of conservatism. Variable definitions are presented in Table 2. All continuous variables are winsorized at the 1 st and 99 th percentiles. ***, **, and * indicate significance at 0.01, 0.05, and 0.1 levels, respectively, using a two-tailed test. All standard errors are clustered by country (Christensen et al. 2014). 44

54 Moderating effect of financial resources Prior research provides evidence (e.g., Almeida et al. 2004; Faulkender and Wang 2006; Tong 2011; Liu et al. 2014) that financially constrained firms are more cautious in their use of funds because wasting liquid funds increases the risk of insolvency. By contrast, firms with more financial resources tend to conduct value-decreasing projects (e.g., Blanchard et al. 1994; Harford 1999; Chen et al. 2015). Overall, financial constraints (higher financial reserves) lead to cash being valued at a premium (discount) due to a more (less) focused choice of value-increasing projects (Denis and Sibilkov 2010). We proxy for financial constraints using the Whited and Wu (2006) index and market leverage. A firm is financially constrained if the annual Whited and Wu (2006) index (market leverage) is above or equal to the annual median. 30 We proxy for financial resources using the change in cash holdings and excess cash (Huang and Zhang 2012; Chen et al. 2015). 31 The risk of value-decreasing investments is higher if the change in cash holdings (excess cash) is positive. Table 7 presents the results of our financial resources analysis. In columns (1) to (4), we find that the effects of low reporting frequency (DELTCASH*HY) and IMS reporting by semi-annual reporters (DELTACASH*HY*POST) are statistically significant (insignificant) in the unconstrained (constrained) sample. We conclude that frequent disclosure does (not) provide additional positive benefits if a firm is financially unconstrained (constrained). Thus, financial constraints serve as an internal disciplinary mechanism that reduces the expropriation of corporate resources and decreases the need for frequent disclosure. In columns (5) to (8), we find that the effects of low reporting frequency and IMS reporting by semi-annual reporting are statistically significant (insignificant) for firms with more (less) financial resources. We 30 Using changes in dividend payout ratio, we find a significant effect of low reporting frequency and of IMS reporting by semi-annual reporters for firms with positive and negative or no changes in their dividend payout ratio. Supporting the notion that dividends are an indicator of financial constraints, the effect is more pronounced for firms with increasing dividend payout ratios. 31 We define excess cash as the difference between the current level of cash and the predicted value of a regression of cash on size, sales growth, net income, net working capital, capital expenditures, market leverage, research and development expense, a dividend indicator, and industry and country fixed effects (Huang and Zhang 2012). See Table 2 for detailed explanations of the measurement. 45

55 conclude that more frequent disclosure reduces the risk of inefficient resource allocation due to additional monitoring of managerial behavior. 32 This corroborates our previous finding that frequent disclosure reduces managerial expropriation of corporate resources. 32 Supporting this notion, we find a significant (insignificant) effect of reporting frequency for firms with low (high) investment efficiency, as defined by Biddle et al. (2009). 46

56 Table 7: The moderating effect of financial resources Whited Wu Leverage Deltacash Con. Uncon. Con. Uncon. Positive Negativ Excess Cash (1) (2) (3) (4) (5) (6) (7) (8) Variables of Interest DELTACASH*HY *** ** *** *** DELTACASH*POST ** *** DELTACASH*HY*POST ** ** ** *** Baseline Variables DELTACASH *** *** *** *** *** *** *** * DELTACASH*LEV *** ** *** ** *** *** DELTCASH*CASH *** *** POST *** * * *** ** *** HY*POST Control Variables DELTAEARNINGS *** *** *** *** *** *** *** *** DELTANA *** ** *** *** *** *** *** ** DELTARD * * DELTAINTEREST *** DELTADIV ** * ** CASH *** *** *** *** *** ** *** Table continued on the next page Positive Negativ 47

57 LEV *** *** *** *** *** *** *** NF CONSTANT *** *** *** *** * Fixed Effects Country Country Country Country Country Country Country Country Adjusted R² 16.28% 16.97% 17.15% 11.87% 17.57% 11.67% 16.73% 12.25% Number of Obs. 4,388 4,383 4,423 4,421 4,822 4,022 4,822 3,824 Notes: This table presents the results of regression analyses examining the effect of IMS reporting by semi-annual reporters depending on financial resources. We measure financial constraints using the Whited and Wu (2006) index and firms market leverage. We define firms as financially constrained if the Whited and Wu (2006) index (market leverage) is above or equal to the annual median. We measure financial resources using the change in cash holdings and excess cash (Huang and Zhang 2012). The risk of value-decreasing investments is higher if the change in cash holdings (excess cash) is positive. Variable definitions are presented in Table 2. All continuous variables are winsorized at the 1 st and 99 th percentiles. ***, **, and * indicate significance at 0.01, 0.05, and 0.1 levels, respectively, using a two-tailed test. All standard errors are clustered by country (Christensen et al. 2014). 48

58 Moderating effect of firm characteristics Prior literature shows that the expectations of shareholders regarding future performance are influenced by (among others) expected cash in-flows (e.g., Chen et al. 2013), the risk of insolvency (e.g., Campbell et al. 2008), and the complexity of a firm (Tong 2011). Thus, we examine whether the expected benefits of more frequent disclosure differ depending on firm-specific characteristics. Specifically, we test whether the effect of more frequent disclosure depends on the operating cycle, insolvency risk, and complexity of a firm. In the case of a long operating cycle, cash inflow defaults have a negative effect on future investments. Thus, frequent disclosure improves shareholder monitoring and decreases negative surprises at the end of the year. We measure the length of the operating cycle using the definition of Feng et al. (2011). For each year, we split the sample at the median. Columns (1) and (2) of Table 8 present the results examining the role of the operating cycle. Supporting the notion that a long operating cycle increases the demand for more frequent disclosure because of an increase in uncertainty regarding future investments, we find a significant (insignificant) influence of low reporting frequency and IMS reporting by semi-annual reporters in a long (short) operating cycle sample. Second, we differentiate between high and low insolvency-risk firms using the Altman (1968) Z-Score at the beginning of the year. We argue that a high risk of insolvency increases shareholders information demand because of severe agency conflicts due to the risk of losing the invested funds. 33 For each year, we split the sample at the median. Values below the median indicate a high risk of insolvency. Columns (3) and (4) of Table 8 present the results of the insolvency risk analysis. We find significant negative effects of low reporting frequency for both high and low insolvency risk firms. With respect to the effect of more frequent disclosure, we find a significant (insignificant) positive effect of IMS reporting by semi-annual reporters in the high (low) insolvency 33 In contrast to insolvency risk, financial constraints are an indicator of investment limitations that hinder firm growth but do not necessarily lead to insolvency. 49

59 risk sample. This result is consistent with the notion that closeness to insolvency increases shareholders demand for more frequent disclosure because of severe agency conflicts. Third, Tong (2011) provides evidence that firm complexity increases agency costs because of internal cross-financing and, therefore, less efficient internal capital markets. It is an open question whether higher reporting frequency reduces managerial discretion and allows for better shareholder monitoring in the case of complex firm structures. We test for complexity using the number of industries that a firm operates in based on the Fama and French (2008) 12- industry definition. For each year, we split the sample at the median. Values above or equal to (below) the median indicate high (low) levels of complexity. Columns (5) and (6) of Table 8 present the results of the complexity analysis. We find a significant negative effect of low reporting frequency for both high and low complexity firms as well as a significant (insignificant) positive effect of IMS reporting by semi-annual reporting firms for low (high) complexity firms. This may be attributable to the fact that the content and scope of IMS still allows for managerial discretion (e.g., Wagenhofer 2014) for high complexity firms. 50

60 Table 8: The moderating effect of firm characteristics Operating Cycle Z-Score Complexity LONG SHORT HIGH LOW HIGH LOW (1) (2) (3) (4) (5) (6) Variables of Interest DELTACASH*HY *** ** ** ** *** DELTACASH*POST * *** DELTACASH*HY*POST ** ** *** Baseline Variables DELTACASH *** *** *** *** *** *** DELTACASH*LEV *** ** *** *** *** ** DELTCASH*CASH * POST *** ** ** *** HY*POST Control Variables DELTAEARNINGS *** *** *** *** *** *** DELTANA *** *** ** *** *** *** DELTARD ** * DELTAINTEREST *** * * DELTADIV * CASH *** *** ** *** *** *** Table continued on the next page 51

61 LEV *** *** *** *** *** *** NF CONSTANT *** ** * Fixed Effects Adjusted R² Number of Obs. Country Country Country Country Country Country 15.37% 18.20% 16.89% 23.82% 16.31% 15.96% 4,303 4,299 3,932 3,930 5,319 3,525 Notes: This table presents the results of regression analyses examining the monitoring effect of IMS reporting by semi-annual reporters for samples that are characterized by a higher (lower) need for information. We measure the length of the operating cycle using the definition of Feng et al. (2011), the risk of insolvency using the Altman (1968) Z-Score at the beginning of the year, and firm complexity using number of industries that a firm operates in based on the Fama and French (2008) 12-industry definition (Tong 2011). For each determinant, we split the sample at the annual median. Values below (above or equal to) the median indicate a short (long) operating cycle, a high (low) risk of insolvency, and a low (high) level of complexity. Variable definitions are presented in Table 2. All continuous variables are winsorized at the 1 st and 99 th percentiles. ***, **, and * indicate significance at 0.01, 0.05, and 0.1 levels, respectively, using a two-tailed test. All standard errors are clustered by country (Christensen et al. 2014). 52

62 Alternative measures of the change in cash and cash valuation Thus far, our analyses indicate that high reporting frequency improves shareholder monitoring by lowering the discount that is placed on a marginal dollar of cash. However, our results rely on the ability of the Faulkender and Wang (2006) framework to measure agency costs. To address this concern, we conduct two sets of analyses. First, we test the Faulkender and Wang (2006) framework using alternative definitions of the change in cash. Second, we use a cash valuation framework that focuses on the level of cash instead of the change in cash. First, we use the portfolio average as our measure of the unexpected change in cash (Faulkender and Wang 2006). The normal change in cash is defined as the average change in cash for each size and book-to-market cluster. The unexpected change in cash is defined as the difference between the actual change in cash and the normal change in cash. Our second measure is derived from Almeida et al. (2004) and Faulkender and Wang (2006). We regress the change in cash on factors that represent the sources and uses of cash: oneperiod lagged cash flow from operations, one-period lagged Tobin s Q, and one-period lagged market value of equity. We use the residuals of this regression as our second measure of the unexpected change in cash. 34 Our last measure is derived from Huang and Zhang (2012). Excess cash is defined as the difference between the actual level of cash and the predicted value of cash. We refer to Table 1 for detailed explanations on the measurement. Because the valuation of excess cash differs for firms with positive and negative excess cash firms, we estimate our model separately for positive and negative excess cash firms (Huang and Zhang 2012). 35 Table 9 presents the results from estimating our main model using the alternative measures of the change in cash and excess cash (ALTCASH). Column (1) refers to the portfolio average (Faulkender and Wang 2006), and Column (2) refers to the abnormal change (Almeida et al. 2004; Faulkender 34 In line with Faulkender and Wang (2006), we estimate the expected change in cash at the industry level. Our results are robust using the pooled sample. 35 Using a modified version of the change in excess cash measure developed by Louis et al. (2012) leads to virtually unchanged results. 53

63 and Wang 2006). We find supporting evidence that a low reporting frequency leads to cash being valued at a discount because of less monitoring of management. Furthermore, we provide evidence that IMS reporting by semiannual reporters significantly reduces agency costs because of improved shareholder monitoring. Columns (3) and (4) refer to the excess cash definition by Huang and Zhang (2012). In line with Huang and Zhang (2012), we find a significant (insignificant) influence of low reporting frequency and IMS reporting by semi-annual reporters on the value of excess cash for firms with positive (negative) excess cash due to a higher risk of managerial expropriation of corporate resources. Overall, these results corroborate our findings. 54

64 Table 9: Alternative measures of the change in cash holdings (1) (2) Variables of Interest ALTCASH*HY *** *** *** ALTCASH*POST ** ** ALTCASH*HY*POST *** *** * Baseline Variables ALTCASH *** *** *** * ALTCASH*LEV *** *** ALTCASH*CASH POST ** ** ** HY*POST * Control Variables DELTAEARNINGS *** *** *** *** DELTANA *** ** *** ** DELTARD DELTAINTEREST DELTADIV * CASH *** *** ** * LEV *** *** *** *** NF *** CONSTANT * * *** ** Fixed Effects Adjusted R² Number of Obs. Portfolio Average Abnormal Change Positive Excess Cash (3) Negative Excess Cash (4) Country Country Country Country 15.54% 14.02% 15.46% 12.34% 8,844 8,840 4,822 3,824 Notes: This table presents the results of regression analyses examining the effect of IMS reporting by semi-annual reporters using alternative definitions of the change in cash holdings and excess cash (ALTCASH). Portfolio Average (Column 1) and Abnormal Change (Column 2) are derived from Faulkender and Wang (2006). Excess Cash (Column 3 and 4) is derived from Huang and Zhang (2012). Variable definitions are presented in Table 2. All continuous variables are winsorized at the 1 st and 99 th percentiles. ***, **, and * indicate significance at 0.01, 0.05, and 0.1 levels, respectively, using a two-tailed test. All standard errors are clustered by country (Christensen et al. 2014). 55

65 Second, we use a valuation framework that focuses on the level of firm value and levels of and changes in determinants of firm value (e.g., Fama and French 1993; Dittmar and Mahrt-Smith 2007; Fresard and Salva 2010) to determine the value of cash holdings. By contrast, Faulkender and Wang (2006) examine changes in firm value based on changes in firm characteristics. Thus, the level specification serves as an alternative framework to examine the influence of reporting frequency on the value of cash holdings. In addition, using firm value leads to a net value of cash that reflects assessments by equityholders and debtholders (Liu et al. 2014). 36 Following Fama and French (1993), we regress firm value defined as market value of equity plus total debt, on sources of value within a firm and additionally control for changes in cash valuation using a difference-in-differences approach. Control variables include determinants that affect investors expectations of future cash flows. In line with Fama and French (1993), we include past changes, future changes, and current levels of net income before extraordinary items, R&D expenses, cash dividends paid, interest expenses, past and future changes in total assets net of cash, and future changes in firm value. All variables are scaled by total assets net of cash. We estimate the model using the level of cash and level of excess cash (XCASH) (Pinkowitz et al. 2006; Dittmar and Mahrt-Smith 2007). 37 Table 10 presents the results from estimating our difference-in-differences approach using a cash-value regression. We find a significant negative effect of low reporting frequency on the value of cash (excess cash) (XCASH*HY) and a significant positive effect of IMS reporting by semi-annual reporting firms on the value of cash (excess cash) (XCASH*HY*POST). This result corroborates our prior findings that more frequent disclosure leads to lower agency costs due to more frequent monitoring. This is reflected in a higher valuation of cash holdings. 36 For our main analyses, we follow Faulkender and Wang (2006) because we are interested in the benefits of more frequent disclosure from a shareholder perspective. 37 Following prior research (Dittmar and Mahrt-Smith 2007; Fresard and Salva 2010), we estimate the level of excess cash regression for all firms with positive excess cash. To ensure consistency in the measurement, we measure excess cash in line with Dittmar and Mahrt- Smith (2007). Our results are robust using excess cash as defined by Huang and Zhang (2012). 56

66 Table 10: Variables of Interest Alternative measures of cash valuation XCASH * HY *** *** XCASH * POST *** *** XCASH * HY * POST ** *** Baseline Variables XCASH *** *** POST HY*POST Control Variables E ** ** E t ** *** E t * NA t *** *** NA t *** *** R&D ** *** RD t * RD t *** *** I *** * I t ** I t D *** *** D t D t *** *** V t *** *** CONSTANT *** *** Fixed Effects Adjusted R² LEVEL CASH Country, Year LEVEL EXCESS CASH (1) (2) 64.36% Country, Year 65.77% Number of Obs. 4,696 2,760 Notes: This table presents the results of regression analyses examining the effect of IMS reporting by semi-annual reporters using a cash level regression. Following Fama and French (1993), we regress firm value on sources of value within a firm. Control variables include past changes ( X t = X t - X t-2), future changes ( X t+2 = X t+2 - X t), and current levels of net income before extraordinary items, R&D expenses, cash dividends paid, interest expenses, past and future changes in total assets net of cash, and future changes in firm value. All variables are scaled by total assets net of cash. XCASH refers to our measure of cash level level of cash and level of excess cash, respectively. Variable definitions are presented in Table 2. All continuous variables are winsorized at the 1 st and 99 th percentiles. ***, **, and * indicate significance at 0.01, 0.05, and 0.1 levels, respectively, using a two-tailed test. All standard errors are clustered by country (Christensen et al. 2014). 57

67 Alternative measures of agency costs So far, we provide evidence that more frequent disclosure leads to a higher cash valuation. A cash-based framework, however, only takes an external shareholder perspective. To corroborate our results, we use alternative measures of agency costs. We focus on efficiency ratios (asset turnover ratio, SG&A expense ratio) that are used to measure managerial resource utilization (e.g., Ang et al. 2000; Singh and Davidson 2003). This approach provides additional insights as it focuses on an internal company perspective instead of on an external shareholder perspective. Our first measure, the asset turnover ratio, measures management s asset utilization. A high turnover ratio indicates a large amount of sales for a given level of assets. A low ratio indicates asset deployment due to projects that do not generate a large amount of cash flows. Our second measure, the SG&A expense ratio, reflects managerial perquisite consumption. SG&A expenses include costs related to management actions (e.g., salaries) and the sale of products. In addition, management might also use advertising and selling expenses to conceal unprofitable investments. Thus, higher SG&A expenses are associated with higher agency conflicts (Singh and Davidson 2003). In line with prior literature (e.g., Ang et al. 2000), we regress the asset turnover ratio (SG&A expense ratio) on our differences-in-differences variables and control for firm size (logarithm of total sales), financial leverage (total debt to total assets), ownership (percentage of closely held shares), firm age (years since incorporation), and industry and country fixed effects. Table 11 shows the results of this analysis. We find a significant increase (decrease) in asset turnover (SG&A expenses) for IMS reporting by semi-annual reporters. This result supports the notion that more frequent disclosure reduces managerial expropriation of corporate resources We examine whether IMS reporting by semi-annual reporters has an influence on the predictability of yearly earnings. We find a significant increase in earnings predictability for semi-annual reporting firms compared with mandatory quarterly reporting firms after the implementation of the TD. 58

68 Table 11: Alternative measures of agency costs SG&A_TURN ASSET_TURN (1) (3) Variables of Interest HY * POST * ** POST ** Control Variables OWNERSHIP *** ** SIZE *** *** FIN_LEVERAGE ** *** AGE CONSTANT *** Fixed Effects Country, Country, Industry Industry Adjusted R² Number of Obs % 1, % 2,166 Notes: This table presents the results of regression analyses examining the effect of IMS reporting by semi-annual reporters using measures of resource utilization (SG&A_TURN, ASSET_TURN) to proxy for agency costs. Variable definitions are presented in Table 2. All continuous variables are winsorized at the 1st and 99th percentiles. ***, **, and * indicate significance at 0.01, 0.05, and 0.1 levels, respectively, using a two-tailed test. Standard errors are clustered by country (Christensen et al. 2014) Timing of the event date The conclusions drawn from the previous analyses rely on the assumption that our difference-in-differences approach correctly identifies changes in firms reporting frequency. Because the event definition is crucial to the examination of regulatory changes, we conduct tests derived from Hail et al. (2014) and Christensen et al. (2014) to assess the robustness of our results. Starting from the actual event date, we shift the event date one (two) years backward to test for anticipation effects of the TD and one (two) years ahead to test for application effects of the TD. In untabulated analyses, we find insignificant (significant) coefficients for the effect of IMS reporting by semi-annual reporters if we shift the actual event backward (ahead). These results support the notion that shareholders did not expect any benefits prior to the actual introduction of the TD. To test whether our results reflect first-time application effects or a continuous reduction of agency costs, we split the post period to examine differences in cash valuation over time. Comparing the first year of IMS reporting (POST1) with subsequent years (POST2), we find a 59

69 significant effect of IMS reporting by semi-annual reporters for both periods (DELTACASH*HY*POST1: $0.417, p < 0.01; DELTACASH*HY*POST2: $0.359, p < 0.01; F-test: p = 0.596). Further, we randomly assign event years and conduct 1,000 bootstrap replications using these alternative dates. This placebo analysis could indicate whether our findings are driven by spurious effects. The results (untabulated) show that randomly assigned event dates do not lead to a significant influence of IMS reporting on the market value of cash. This result indicates that our findings do not occur by chance. Next, we focus on the first year of application for countries that implemented the TD in 2007 ( early adopter ) to rule out effects of staggered implementation. Untabulated results for the subsample period support the notion that high reporting frequency and IMS reporting by semi-annual reporters lead to a higher market value of cash. Finally, we use only one (two) years of data prior to and after the TD to account for the divergent lengths of the pre- and post-periods. Overall, our results remain robust Sample composition and confounding events We conduct several tests to alleviate concerns that our results may be driven by the sample composition and confounding events. First, we control for the influence of cross-country matching using the following alternative benchmark groups to examine within-county effects for semi-annual reporting countries: (1) voluntary quarterly reporters, (2) firms cross-listed in the US, and (3) firms reflecting a combination of (1) and (2) called self-selected quarterly reporters. 39 In untabulated analyses, we find a significant influence of reporting frequency and IMS reporting by semi-annual reporters when using cross-listed firms or all self-selected quarterly reporters as alternative benchmark groups. We do not find a significant effect using voluntary quarterly reporters as an alternative benchmark group. We argue that from a 39 Because of the lower number of self-selected quarterly reporters, we use all observations (mandatory semi-annual reporting and self-selected quarterly reporters) with data for at least one period prior to and after the TD and include industry fixed effects as well as our matching variables. We control for voluntary quarterly reporting using the selection model developed by Link (2012) for alternative benchmark groups (1) and (3) and include the inverse Mills ratio as an additional control variable. The selection model of Link (2012) is based on Butler et al. (2007) and additionally controls for institutional and monitoring differences across firms and countries. For benchmark group (2), we use a selection model based on Bailey et al. (2006) and include the inverse Mills ratio as an additional control variable. 60

70 theoretical perspective, it is more difficult to compare semi-annual reporters and voluntary quarterly reporters. Voluntary quarterly reporters have a large amount of discretion in determining the content of a quarterly report because they are not committed to disclosure requirements. By contrast, firms crosslisted in the US commit themselves to additional disclosure requirements and additional institutional monitoring (Fresard and Salva 2010). Thus, disclosures of cross-listed firms are more reliable than disclosures of voluntary quarterly reporters from a shareholder perspective. Overall, using alternative benchmark groups yields similar results than our main analysis. Second, firms listed in quarterly reporting countries might have opted to publish quarterly reports independent of legal requirements. We rely on the approach of Christensen et al. (2007) to test for a potential selection effect for our benchmark sample firms. We use the predicted values of a selection model based on Link (2012), estimated for all countries without quarterly reporting requirements prior to the TD, to determine the likelihood of voluntary quarterly reporting for mandatory quarterly reporters. Excluding mandatory quarterly reporters with a predicted likelihood of voluntary quarterly reporting higher than 50 percent leads to virtually unchanged results. Third, we examine the influence of the matched sample approach on the observed effect because weak matching (Cram et al. 2009) and loss of observations reduce the generalizability of the results. 40 We include our matching variables as additional control variables (Cram et al. 2009). We use all observations prior to the matching (semi-annual reporters and mandatory quarterly reporters) and also include industry fixed effects and our matching variables. We replicate our analysis without requiring data for each firm prior to and after the TD (unbalanced matching). We conduct propensity score matching based on size, performance, and growth expectations for each industry-year, we control for divergent investor expectations by including sales growth or the price-earnings ratio as an additional matching variable, and 40 Comparing the distribution of observations prior to and after matching, we find a lower percentage of observations from UK firms. The decrease is influenced by the requirement of at least two years of data for each firm. Our results are robust if we drop this requirement. 61

71 we use standard industry-year matching based on size as measured by total assets. All analyses yield qualitatively unchanged findings. Fourth, we conduct tests to control for sample biases resulting from our country composition. We exclude all countries with fewer than 100 observations and the country with the most observations (Germany). 41 To reduce the influence of larger countries, we use a random sample comprising 1,000 firm-year observations each from semi-annual and quarterly reporting firms both prior to and after the TD (overall 4,000 observations). Overall, we find virtually unchanged results. Finally, we control for the following events that might confound our measures of cash valuation by excluding the following observations: (1) observations from Greek firms because since 2010 the liquidity crisis has negatively affected the valuation of cash deposits in banks, (2) observations from Sweden and Ireland because these countries implemented new enforcement requirements concurrent with TD implementation, and (3) crisis years because of the temporal overlap of the financial crisis (2008 and 2009) and the implementation of the TD. Untabulated results indicate that our results are robust to all three exclusions Conclusion This study investigates the monitoring effect of more frequent disclosure. Using a matched sample of EU-15 countries for the period, we provide evidence that more frequent disclosure mitigates agency conflicts between shareholders and management. This reduction in agency costs is reflected in a higher market value of cash for quarterly and IMS reporting firms. Because of the separation of ownership and control, managers do not necessarily invest in projects that maximize shareholder value (Jensen and Meckling 1976). Thus, the expected use of invested funds is critical from a shareholder perspective. Following prior research (Huang and Zhang 2012; 41 We replicate our main analysis separately for each of the largest countries by using multivariate pre-post comparisons and find no systematic influence of single countries. 62

72 Louis et al. 2012), we use the market value of cash as a proxy for the agency cost effect of more frequent disclosure. We also find evidence that more frequent disclosure and corporate governance do not provide additional positive benefits. This supports the notion that shareholders benefit the most from disclosure in cases of severe agency conflicts. Further, we find evidence that without adequate implementation, shareholders do not expect IMS reporting by semi-annual reporters to reduce agency costs. In addition, we provide evidence that high-quality earnings attributes are an indicator of efficient internal reporting decisions that reduces the need for frequent disclosure. We also show that frequent disclosure reduces agency costs if firms tend to conduct projects that do not necessarily maximize shareholder wealth or if firms are characterized by severe agency conflicts. We find virtually unchanged results when we use alternative measures of the change in cash, cash valuation, agency costs, and a variety of sensitivity analyses. Overall, our results support the notion that not only reporting quantity but also reporting frequency contribute to efficient resource allocation because of the effects of more frequent external monitoring. More frequent disclosure disciplines managerial investment decisions because of frequent shareholder monitoring. A higher reporting frequency also improves shareholders opportunities to enforce their rights using the voice or exit strategy. These opportunities reduce agency conflicts between shareholders and managers. Our study contributes to the discussion of the potential benefits of more frequent disclosure by documenting the positive monitoring effects of frequent disclosure from a shareholder perspective. However, because of the specific focus on disclosure frequency regulation in terms of IMS reporting, we cannot draw conclusions regarding the overall desirability of disclosure regulation. In addition, because our study is limited to a European setting, it remains an open question whether our inferences hold in other institutional settings. Thus, further research is necessary to provide a deeper understanding of the cost-benefit relationship of disclosure frequency regulation. 63

73 3. Die Unternehmenseckdaten in deutschen Nachhaltigkeitsberichten. Ein Unternehmen - zwei Gesichter 3.1. Einleitung Aktuelle Herausforderungen wie Klimawandel, Ressourcenknappheit und demografischer Wandel machen es für Unternehmen immer wichtiger, sich mit dem Thema Nachhaltiges Wirtschaften auseinanderzusetzen. 42 Auch der Druck von Interessensgruppen (Stakeholdern) 43 auf Unternehmen, Verantwortung für ihr Handeln und dessen Auswirkungen zu übernehmen, steigt. 44 Daraus resultierend hat sich das Informationsbedürfnis der Stakeholder in den vergangenen Jahren verändert. 45 Die stark retrospektive Ausrichtung der Finanzberichterstattung reicht nicht mehr aus, um den langfristigen Erfolg und die Wettbewerbsfähigkeit eines Unternehmens einzuschätzen. 46 Die Finanzberichterstattung allein spiegelt zudem systemische Risiken und tatsächliche Kosten des unternehmerischen Handelns nur bedingt wider. 47 Um den Informationsbedürfnissen der verschiedenen Stakeholder gerecht zu werden, veröffentlichen viele Unternehmen daher zusätzlich zum Geschäftsbericht auch einen separaten Nachhaltigkeitsbericht, in dem sie ihre Nachhaltigkeitsleistung darstellen. 48 Diese Nachhaltigkeitsleistung wird unter anderem anhand von nichtfinanziellen Leistungsindikatoren messbar gemacht 49, die, in Verbindung mit finanziellen Indikatoren, einen ganzheitlichen Blick auf die unternehmerische 42 Vgl. Druckman, WPg 2010 S. 1; Nachhaltigkeit definierte die Brundtland-Kommission wie folgt: Verhalten, das die eigenen Bedürfnisse befriedigt, ohne zu riskieren, dass wiederum kommende Generationen ihre Bedürfnisse nicht mehr befriedigen können, vgl. WECD, Our Common Future. online verfügbar auf: , S. 37 (letzter Abruf: ). 43 Unter Stakeholder sind die Anspruchsgruppen eines Unternehmens zu verstehen, wie bspw. Kunden, Lieferanten, Mitarbeiter und Investoren. 44 Vgl. Link/Beyhs, FAZ 2014 S So fordert eine kritische Öffentlichkeit sowie Analysten und Investoren zunehmend Informationen zu umweltbewussten Handeln und zur gesellschaftlich wahrgenommenen Verantwortung; vgl. Maniora, KoR 2013 S Vgl. Haller/Fuhrmann, KoR 2013 S Vgl. Druckman, WPg 2010 S Vgl. KPMG, The KPMG survey of corporate responsibility reporting 2013, online verfügbar auf: corporate-responsibility/pages/default.aspx, 2013, S. 23 (letzter Abruf: ). 49 Vgl. Haller/Fuhrmann, KoR 2013, S. 243, vgl. Hillmer, KoR 2012 S

74 Leistung ermöglichen. Wie der Geschäftsbericht so fallen auch die Nachhaltigkeitsberichte vieler Unternehmen umfangreich aus. 50 Daher veröffentlichen Unternehmen zu Beginn der Berichte häufig eine tabellarische Übersicht über die Unternehmensleistung: die Unternehmenseckdaten. 51 In den Nachhaltigkeitsberichten sind die Unternehmenseckdaten meist der erste und einzige Gesamtüberblick über die Unternehmensleistung im Bereich der Nachhaltigkeit. Somit trägt die Auswahl der dort veröffentlichten Leistungsindikatoren wesentlich zur Wahrnehmung eines Unternehmens bei. 52 Ziel dieses Beitrags ist es, die aktuelle Berichterstattungspraxis der Unternehmenseckdaten in Nachhaltigkeitsberichten der HDAX-Unternehmen zu untersuchen. Dabei wird analysiert, welche Leistungsindikatoren Unternehmen verwenden, insbesondere um ihr nachhaltiges Wirtschaften darzustellen. Zudem wird untersucht, welche Themen, wie Kunden, Umweltaber auch Arbeitnehmerbelange, als besonders wichtig für die Darstellung der Unternehmensleistung angesehen werden. Aktuell werden Unternehmensinformationen zum Thema Nachhaltigkeit häufig in unterschiedlichen Berichten veröffentlicht wie dem Geschäftsoder dem Nachhaltigkeitsbericht. Den Adressaten wird durch diese Streuung der Informationen ein Gesamtbild über ein Unternehmen erschwert. 53 Zur Verbesserung dieser Situation entwickelte das International Integrated Reporting Council (IIRC) das Konzept der integrierten Berichterstattung. Es sieht vor, dass die Informationen aus dem Geschäftsbericht mit denen des Nachhaltigkeitsberichts zusammengeführt werden. Dabei geht es dem IIRC 50 Vgl. Sikora, KoR 2014 S Ausführungen in den Geschäftsberichten werden immer länger und komplexer; vgl. Beyhs/Barth, DB 2011 S Vgl. Sikora, KoR 2014 S zur Analyse der Unternehmenseckdaten in deutschen Geschäftsberichten. 52 Vgl. ebenda zur Abgrenzung der Begriffe Leistungsindikator und Kennzahl. Danach ist eine Kennzahl eine quantitative Maßgröße, mit der in konzentrierter Form über betriebswirtschaftliche Sachverhalte berichtet wird. Ein Leistungsindikator hingegen ist eine Größe, die der Beurteilung eines Aspekts der Leistung eines Unternehmens dient (DRS 20.11). 53 Vgl. Haller/Fuhrmann, KoR 2013 S Insbesondere Zusammenhänge werden nicht immer deutlich; vgl. Beyhs/Barth, DB 2011 S

75 um mehr als einen gemeinsamen Titel. 54 Es geht vielmehr um eine Neuausrichtung hin zu einer ganzheitlichen Unternehmensstrategie. Sämtliche finanziellen und nicht-finanziellen Sachverhalte des Unternehmens sollten so verknüpft werden, dass die Zusammenhänge deutlicher werden. 55 Es gilt in ihren Augen einen transparenten Bericht zu schaffen, aus dem einerseits die finanzielle Situation sowie der Einfluss nicht-finanzieller Faktoren hervorgeht und andererseits die Einflüsse unternehmerischer Handlungen auf das Umfeld aufgezeigt werden. 56 Damit so der übergeordnete Gedanke des IIRC soll eine Berichterstattung entstehen, die den Bedürfnissen aller Stakeholder gerecht wird. 57 Vor diesem Hintergrund wird in einer zusätzlichen Analyse untersucht, wie einheitlich das Bild ist, das Unternehmen nach außen vermitteln. Untersuchungsgrundlage sind hierbei die Unternehmenseckdaten, die sowohl im Geschäftsbericht als auch im Nachhaltigkeitsbericht veröffentlicht werden. Nachfolgend wird in Kapitel 3.2 der konzeptionelle Rahmen zur Analyse der Unternehmenseckdaten in deutschen Nachhaltigkeitsberichten vorgestellt. Anschließend folgt im Kapitel 3.3 die empirische Analyse der in den Unternehmenseckdaten angegebenen Kennzahlen und Leistungsindikatoren. Hierbei wird untersucht, in welchem Umfang finanzielle und nicht-finanzielle Leistungsindikatoren zur Darstellung der Unternehmensleistung verwendet werden und welche Themen dabei von besonderer Bedeutung sind. Ferner wird untersucht, ob die Branchenzugehörigkeit einen Einfluss auf die Darstellung der Nachhaltigkeitsleistung hat. Aufgrund der wachsenden Bedeutung einer integrierten Darstellung der Unternehmensleistung wird zudem analysiert, inwieweit bereits heute eine einheitliche Darstellung der Unternehmensleistung im Geschäfts- und Nachhaltigkeitsbericht erfolgt. Im 54 Vgl. Arbeitskreis Externe Unternehmensrechnung der Schmalenbach-Gesellschaft für Betriebswirtschaft e. V. (AKEU), BB 2013 S. 875 (887). 55 Vgl. Hillmer, KoR 2012 S Vgl. Haller/Fuhrmann, KoR 2013 S Vgl. IIRC, Press Release: Formation of the International Integrated Reporting Committee, online verfügbar unter: (letzter Abruf: ). 66

76 abschließenden Kapitel 3.4 erfolgen eine Zusammenfassung der Ergebnisse sowie ein Ausblick auf mögliche künftige Entwicklungen Konzeptioneller Rahmen zur Analyse der Unternehmenseckdaten Darstellung nachhaltigen Wirtschaftens anhand von Leistungsindikatoren In der Berichterstattung nehmen Leistungsindikatoren einen hohen Stellenwert ein. Sowohl die Anforderungen an die Konzernlageberichterstattung im Geschäftsbericht als auch an die Berichterstattung in den Nachhaltigkeitsberichten beinhalten die Darstellung der Unternehmensleistung anhand von Leistungsindikatoren. Auch das im Dezember 2013 veröffentlichte Rahmenwerk zur integrierten Berichterstattung nimmt Bezug auf Leistungsindikatoren. 58 Im Folgenden werden daher kurz die jeweiligen Regelungen erläutert. Im Konzernlagebericht als einem der wichtigsten Bestandteile des Geschäftsberichts erfolgt die Darstellung des Geschäftsverlaufs und der Lage eines Unternehmens unter Einbeziehung von finanziellen und nichtfinanziellen Leistungsindikatoren. 59 Zudem wurde durch den neu erlassenen DRS 20 (Deutscher Rechnungslegungs Standard für die Konzernlageberichterstattung) die Bedeutung von nicht-finanziellen Leistungsindikatoren zur Darstellung der unternehmerischen Leistung gestärkt. 60 Dies zeigt sich besonders in der parallelen Gestaltung der Berichtsanforderungen an finanzielle und nicht-finanzielle Leistungsindikatoren. Gemäß der Regelung des DRS sind die bedeutsamsten finanziellen Leistungsindikatoren in die Analyse des 58 Vgl. IIRC, The international framework. Online verfügbar auf: S. 8 (letzter Abruf: ). 59 Vgl. Haller/Fuhrmann, KoR 2012 S Die Pflicht zur Erstellung eines Konzernlageberichts ergibt sich aus 290 Abs. 1 HGB. Der Konzernlagebericht ist ein eigenständiges und für Kapitalgesellschaften (Mutterunternehmen) mit Sitz im Inland verpflichtendes Berichtsinstrument. 60 Der DRS 20 ist verpflichtend anzuwenden für nach dem beginnende Geschäftsjahre. Zur gestiegenen Bedeutung der nicht-finanziellen Leistungsindikatoren vgl. DRS 20.B26, S. 4 67

77 Geschäftsverlaufs und der Lage des Konzerns einzubeziehen, sofern diese für die interne Steuerung verwendet werden. Dies gilt in gleicher Weise für die bedeutsamsten nicht-finanziellen Leistungsindikatoren (DRS ) mit dem Zusatz, dass diese für das Verständnis des Geschäftsverlaufs und der Lage des Konzerns von Bedeutung sind. Tabelle 12 zeigt eine Kategorisierung der Leistungsindikatoren auf Basis des DRS 20 sowie im Standard genannte Beispiele an Leistungsindikatoren Die in die Analyse aufgenommenen Geschäftsberichte wurden noch anhand der alten Regelung DRS 15 erstellt. In Bezug auf eine mögliche Kategorisierung gibt es hier jedoch nur geringfügige Unterschiede. Für eine Gegenüberstellung der Kategorien und Beispiele anhand des DRS 20 und des DRS 15 vgl. Sikora, KoR 2014 S

78 Kategorie Beispiele Ertragslage Auftragseingang/Umsatz Kosten/Aufwendungen Profitabilität Kapitaleffizienz Finanzlage Kapitalstruktur Investitionen Liquidität Vermögenslage Vermögen Kundenbelange Indikatoren zum Kundenstamm Kundenzufriedenheit, etc. Umweltbelange Emissionswerte Energieverbrauch, etc. Arbeitnehmerbelange Indikatoren zur Mitarbeiterfluktuation Forschung und Entwicklung Gesellschaftliche Reputation Mitarbeiterzufriedenheit Betriebszugehörigkeit Fortbildungsmaßnahmen, etc. Indikatoren zu Forschung und Entwicklung (sofern diese Angaben nicht im Forschungs- und Entwicklungsbericht gemäß Tz gemacht werden) Indikatoren zum sozialen und kulturellen Engagement Wahrnehmung gesellschaftlicher Verantwortung, etc. Tabelle 12: Kategorisierung von Leistungsindikatoren in Anlehnung an die Regelungen des DRS 20 69

79 Der von der Global Reporting Initiative (GRI) 2006 veröffentlichte Standard GRI 3.1 beziehungsweise der 2011 veröffentlichte GRI 3.1 gelten als führendes Konzept für die Nachhaltigkeitsberichterstattung. 62 Der Standard gibt vor, dass Leistungsindikatoren als zentraler Bestandteil zur Darstellung der Nachhaltigkeitsleistung dienen. 63 Dabei sollen Angaben zu Leistungsindikatoren in den Kategorien Ökonomie, Ökologie und Gesellschaft/Soziales gemacht werden. 64 Es gilt der Grundsatz der Wesentlichkeit. Das heißt es sollen nur Angaben zu Leistungsindikatoren aufgenommen werden, sofern sie einen bedeutenden ökonomischen, ökologischen und gesellschaftlich/sozialen Einfluss auf das Unternehmen oder auf die Beurteilung der Unternehmensleistung durch die Stakeholder haben könnten. 65 Dabei wird zwischen Kernindikatoren und zusätzlichen Indikatoren unterschieden. 66 Die folgende Tabelle 13 zeigt die Kategorisierung der Leistungsindikatoren im Rahmen der Nachhaltigkeitsberichterstattung. 62 Vgl. KPMG, KPMG-Handbuch zur Nachhaltigkeitsberichterstattung, Update 2011, online verfügbar unter: Nachhaltigkeitsberichterstattung-Update.aspx (letzter Abruf: ); KPMG 2013, The KPMG Survey of Corporate Responsibility Reporting 2013, online verfügbar unter: sibility/pages/default.aspx, 2011, S. 31 (letzter Abruf: ); Dies trifft insbesondere auch auf die DAX-30-Unternehmen zu. 63 Vgl. GRI, Leitfaden zur Nachhaltigkeitsberichterstattung, online verfügbar unter: , S. 24 (letzter Abruf: ); vgl. GRI, 2013, G4-Leitlinien zur Nachhaltigkeitsberichterstattung, online verfügbar unter: org/resourcelibrary/german-g4-part-one.pdf, 2013, S. 42 (letzter Abruf: ), vgl. Stawinoga, 2012, S Vgl. GRI, Leitfaden zur Nachhaltigkeitsberichterstattung, online verfügbar unter: Protocol.pdf, 2011, S. 24 (letzter Abruf: ). 65 Vgl. ebenda, S Vgl. ebenda, S. 26 ff. 70

80 Kategorie Unterkategorien Ökonomie Wirtschaftliche Leistung Marktpräsenz Mittelbare wirtschaftliche Auswirkungen Ökologie Materialien Energie Wasser Biodiversität Emissionen, Abwasser und Abfall Produkte und Dienstleistungen Einhaltung von Rechtsvorschriften Gesellschaft/Soziales Beschäftigung Arbeitnehmer-/Arbeitgeber-Verhältnis Arbeitsschutz Aus- und Weiterbildung Vielfalt und Chancengleichheit Gehalt Frauen und Männer Investitions- und Beschaffungspraktiken Gleichbehandlung Vereinigungsfreiheit und Recht auf Kollektivverhandlung Kinderarbeit Zwangs- und Pflichtarbeit Einhaltung der Menschenrechte Interne Mechanismen Gemeinwesen Korruption Politik Einhaltung von Gesetzesvorschriften Kundengesundheit und -sicherheit Kennzeichnung von Produkten und Dienstleistungen Werbung Tabelle 13: Kategorisierung von Leistungsindikatoren in Anlehnung an die Regelungen des GRI-3.1-Leifadens 71

81 Für jede der genannten Unterkategorien sollte möglichst ein Kernindikator angegeben werden. 67 Im Gegensatz zu den Vorgaben des DRS 20 werden hier konkret Leistungsindikatoren zu den entsprechenden Unterkategorien gefordert. Hierbei ist zu beachten, dass keine konkreten definierten Leistungsindikatoren vorgegeben werden. Damit bleibt die Entscheidung über die Ausgestaltung und Berechnung der Leistungsindikatoren, wie auch nach den Regelungen des DRS 20, den Unternehmen selbst überlassen. Auch der vom GRI am 22. Mai 2013 neu veröffentlichte Leitfaden GRI 4 gibt vor, dass die Angabe von Leistungsindikatoren ein zentraler Bestandteil der Nachhaltigkeitsberichterstattung ist. 68 Der GRI 4 nimmt dabei ebenso wie der GRI 3.1 Bezug auf das Konzept der Wesentlichkeit. Damit sollen nicht relevante Angaben vermieden und ein disziplinierter Umgang zur Bestimmung der Berichtsinhalte gefördert werden. 69 Der GRI 4 bietet zudem die Möglichkeit, zwischen zwei Anwendungsoptionen ( Core-Option oder Comprehensive-Option ) zu wählen. 70 Diese unterscheiden sich im Umfang der zu berichtenden Leistungsindikatoren. Die Core-Option gibt vor, dass für jeden identifizierten wesentlichen Aspekt ein Leistungsindikator veröffentlicht werden muss. Wird die Comprehensive-Option gewählt, müssen alle Leistungsindikatoren für alle wesentlichen Aspekte offengelegt werden. 71 Damit kann festgehalten werden, dass auch im Rahmen der Nachhaltigkeitsberichterstattung Leistungsindikatoren eine zentrale Rolle einnehmen. 67 Aufgrund der Übersichtlichkeit wurde hier auf die Unterkategorien, zu denen ein Kernindikator angegeben werden muss, abgestellt. Zu den weiteren Unterkategorien, für die lediglich zusätzliche Indikatoren angegeben werden können, vgl. GRI, Leitfaden zur Nachhaltigkeitsberichterstattung, online verfügbar unter: reporting.org/resourcelibrary/g3.1-guidelines-incl-technical-protocol.pdf, 2011, S. 26 (39) (letzter Abruf: ). 68 Für Unternehmen, die bereits G3 oder G3.1 angewendet haben, besteht eine Übergangsregelung für zwei weitere Berichtsperioden. Abgesehen davon sind die GRI 4 spätestens ab dem anzuwenden. Vgl. GRI, G4-Leitlinien zur Nachhaltigkeitsberichterstattung, online verfügbar unter: /resourcelibrary/german-g4-part-one.pdf, 2013, S. 12 (14) (letzter Abruf: ). 69 Vgl. Maniora, KoR 2013 S Dabei handelt es sich um eine maßgebliche Modifikation gegenüber der vorherigen Version (GRI 3.1), vgl. Müller/Stawinoga, DB 2013 S. M Vgl. GRI, G4 Leitlinien zur Nachhaltigkeitsberichterstattung, online verfügbar unter: , S. 12 (letzter Abruf: ). 72

82 Als eine wesentliche Weiterentwicklung für die Berichterstattung von Unternehmen wird das Konzept der integrierten Berichterstattung betrachtet. Dabei steht eine ganzheitliche Darstellung sowohl der finanziellen als auch der nicht-finanziellen Leistung eines Unternehmens im Mittelpunkt. 72 Im Dezember 2013 veröffentlichte das IIRC dazu das finale Rahmenkonzept. 73 Danach sollen alle wesentlichen finanziellen und nicht-finanziellen Informationen zur Unternehmensstrategie, -führung, -leistung und - entwicklung miteinander verbunden werden mit dem Ziel die kurz-, mittelund langfristige Unternehmensleistung darzustellen. 74 Dabei gibt das Rahmenkonzept explizit keine anzugebenden Leistungsindikatoren vor. Die Unternehmen sollen sich auch hier am Grundsatz der Wesentlichkeit orientieren. 75 Dennoch empfiehlt das IIRC die Verwendung von Leistungsindikatoren und sieht diese als hilfreich zur Darstellung der Unternehmensleistung an. 76 Daher ist davon auszugehen, dass auch im Rahmen dieser künftigen Berichterstattungsform Leistungsindikatoren einen hohen Stellenwert haben werden. 77 Im folgenden Kapitel wird auf eine mögliche Kategorisierung der berichtenden Leistungsindikatoren in den Unternehmenseckdaten eingegangen. 72 Vgl. Arbeitskreis Externe Unternehmensrechnung der Schmalenbach-Gesellschaft für Betriebswirtschaft e. V. (AKEU), BB 2013 S. 875 (881); vgl. IIRC, Toward, Integrated Reporting Communicating Value in the 21 st Century, online abrufbar unter: , S. 2 (letzter Abruf: ); Unternehmen wie BASF, SAP und Puma geben bereits an, integriert zu berichten. 73 Vgl. Kajüter/Hannen, KoR 2014 S.75 für Anforderungen, Anwendungen und offene Fragen zu diesem Rahmenkonzept. 74 Vgl. IIRC, The international framework. Online verfügbar unter: FRAMEWORK-2-1.pdf., 2013, S. 7 (letzter Abruf: ); vgl. Haller/Zellner, DB 2013 S Vgl. ebenda, S. 5 und Vgl. ebenda, S Dies zeigt sich auch in den bereits veröffentlichen integrierten Berichten. Vgl. integrierte Berichte der Unternehmen BASF [online verfügbar unter: basf.com/2013/de/ueber-diesen-bericht.html (letzter Abruf: )], Puma (online verfügbar unter: (letzter Abruf: )] und SAP [online verfügbar unter: (letzter Abruf: )]. 73

83 Kategorien zur Analyse der Leistungsindikatoren in den Unternehmenseckdaten In den Unternehmenseckdaten veröffentlichen Unternehmen, zu Beginn ihrer Berichte, einen kurzen Überblick über ihre wichtigsten Leistungsindikatoren. Unternehmen sind bei der Auswahl der dort dargestellten Leistungsindikatoren frei. Prinzipiell kommen für eine Analyse der in den Unternehmenseckdaten der Nachhaltigkeitsberichte beziehungsweise Geschäftsberichte dargestellten Leistungsindikatoren zwei mögliche Kategorisierungen in Betracht. Die Leistungsindikatoren können anhand der Kategorien der Konzernlageberichterstattung im Geschäftsbericht (vgl. Tabelle 12) oder anhand der Kategorien Ökonomie, Ökologie und Gesellschaft/Soziales der Nachhaltigkeitsberichterstattung (vgl. Tabelle 13) analysiert werden. Vor der Herausforderung, zwei Konzepte überein zu bringen, stehen auch Unternehmen bei der Integration von Nachhaltigkeits- und Geschäftsbericht; haben diese doch auch eine Auswirkung auf die entsprechende Struktur eines Berichts. 78 Wie Abbildung 2 zeigt, gibt es jedoch bei beiden Konzepten einen sehr hohen Überschneidungsgrad. 78 Konzernlagebericht als auch Nachhaltigkeitsbericht haben eine ähnliche Zielsetzung, da beide auf die Vermittlung entscheidungsnützlicher Informationen ausgerichtet sind. Zudem resultieren aus der zunehmenden Sensibilisierung der Gesellschaft für die Auswirkungen der betrieblichen Tätigkeit als auch den gestiegenen Anforderungen an die Lageberichterstattung, dass Lageberichte zunehmend um nachhaltigkeitsrelevante Themen ergänzt werden. Vgl. Stawinoga, 2012, S

84 Ertragslage Finanzlage Vermögenslage Ökonomie Kundenbelange Ökologie Umweltbelange Gesellschaft/Soziales Arbeitnehmerbelange Forschung und Entwicklung Gesellschaft Abbildung 2: Zusammenhang der Kategorien im Geschäfts- und Nachhaltigkeitsbericht (eigene Darstellung) Die ökonomische Dimension ist in der Nachhaltigkeitsberichterstattung in einem umfassenderen Kontext zu sehen als in einer reinen Darstellung der Unternehmenslage, da ihr Fokus stärker auf dem Beitrag eines Unternehmens zur Nachhaltigkeit eines größeren Wirtschaftssystems liegt. 79 Im Hinblick auf eine Analyse der Unternehmenseckdaten würde eine Zuordnung zu den Kategorien Ökonomie, Ökologie und Gesellschaft/Soziales zu einem sehr hohen Aggregationsniveau führen. Im Gegensatz dazu scheint eine Verwendung der Unterkategorien aufgrund des hohen Detailierungsgrades ebenso wenig geeignet. Zudem zeigt auch die Praxis, dass bei einer Integration von Nachhaltigkeits- und Geschäftsbericht Nachhaltigkeitsinformationen in den Konzernlagebericht des Geschäftsberichts eingebettet werden. So orientieren sich Unternehmen in diesem Fall stärker an den Vorgaben der Konzernlageberichterstattung. Folglich wird in der Analyse der Unternehmenseckdaten auf die Kategorisierung der 79 Vgl. GRI, Leitfaden zur Nachhaltigkeitsberichterstattung, online verfügbar unter: , S. 25 (letzter Abruf: ). 75

85 Konzernlageberichterstattung abgestellt. 80 Zudem ist ein Vergleich der Unternehmenseckdaten der Nachhaltigkeitsberichte mit denen der Geschäftsberichte nur mithilfe einer einheitlichen Vorgehensweise bei der Kategorisierung möglich. Die Abbildung 3 zeigt die für die Analyse der in den Unternehmenseckdaten dargestellten Leistungsindikatoren verwendeten Kategorien. Dabei wird zwischen finanziellen und nicht- finanziellen Leistungsindikatoren unterschieden. 81 Für die finanziellen Leistungsindikatoren erfolgt die Auswahl der Kategorien in Anlehnung an die Darstellung der Lage eines Unternehmens anhand von Ertrags-, Finanz- und Vermögenslage. 82 Aufgrund der hohen Bedeutung von finanziellen Leistungsindikatoren wird hierbei eine detailliertere Betrachtung vorgenommen. Daraus ergeben sich für die finanziellen Leistungsindikatoren die in Abbildung 3 dargestellten Kategorien. Die Kategorienbildung zur Auswertung der nicht-finanziellen Leistungsindikatoren erfolgt ebenso in Anlehnung an die vorgegebenen Kategorien der Konzernlageberichterstattung. 83 Hierzu gehören Kundenbelange, Angaben zu Umweltaspekten, Angaben zu den Belangen der Arbeitnehmer, Forschung und Entwicklung sowie Angaben zur gesellschaftlichen Reputation. Hieraus ergeben sich für die Auswertung der finanziellen Leistungsindikatoren acht, für die nicht-finanziellen Leistungsindikatoren fünf Kategorien. 80 Vgl. zur Eignung des Lageberichts für die Aufnahmen von Nachhaltigkeitsinformationen Stawinoga, 2012, S. 113; zur praktischen Ausgestaltung vgl. Siemens-Jahresbericht 2013 online verfügbar unter: _jb_2013.pdf (letzter Abruf: ). 81 Vgl. Sikora, KoR 2014 zur Kategorienbildung für die Analyse von Unternehmenseckdaten. 82 Vgl. Zusammenfassung des DRS 20. Die dem Konzernlagebericht zugrundeliegenden Regelungen zur Darstellung der Lage eines Unternehmens scheinen als Rahmenkonzept für eine Analyse der in den Unternehmenseckdaten dargestellten Leistungsindikatoren geeignet, insbesondere da auch ein Vergleich mit den in den Geschäftsberichten veröffentlichten Unternehmenseckdaten vorgenommen wird. 83 Diese Kategorien werden sowohl in der Empfehlung des DRS als auch in DRS erläutert. 76

86 Darstellung der Unternehmensleistung Finanzielle Leistungsindikatoren Nicht-finanzielle Leistungsindikatoren Kategorie 1: Auftragseingang/Umsatz Kategorie 9: Kundenbelange Kategorie 2: Kosten/Aufwendungen Kategorie 10: Umweltbelange Kategorie 3: Profitabilität Kategorie 11: Arbeitnehmerbelange Kategorie 4: Kapitaleffizienz Kategorie 12: Forschung und Entwicklung Kategorie 5: Kapitalstruktur Kategorie 13: Gesellschaft Kategorie 6: Investitionen Kategorie 7: Liquidität Kategorie 8: Vermögen Abbildung 3: Kategorien für die Einordnung der finanziellen und nichtfinanziellen Leistungsindikatoren 84 Diese Kategorien dienen als Grundlage zur empirischen Untersuchung der Unternehmenseckdaten der Nachhaltigkeitsberichte ebenso wie für den Vergleich mit den Unternehmenseckdaten der Geschäftsberichte im folgenden Kapitel. 84 Vgl. Sikora, KoR 2014 S

87 3.3. Empirische Analyse der Unternehmenseckdaten in Nachhaltigkeitsberichten Untersuchungsmethodik und zugrunde liegende Daten Zielsetzung und methodische Vorgehensweise Die folgende Analyse hat sich zum Ziel gesetzt, die aktuelle Praxis der Darstellung von Unternehmenseckdaten in Nachhaltigkeitsberichten zu untersuchen. Hierzu wird zunächst die Ausgestaltung der Unternehmenseckdaten im Hinblick auf darin veröffentlichte Kennzahlen untersucht. Nicht alle Kennzahlen, die in den Unternehmenseckdaten angegeben werden, treffen Aussagen über die Leistung eines Unternehmens. Für die weitere Analyse findet deswegen eine Einschränkung auf die tatsächlichen Leistungsindikatoren statt. 85 Hierbei wird untersucht, welche Leistungsindikatoren finanzieller und welche nicht-finanzieller Art in den Unternehmenseckdaten der Nachhaltigkeitsberichte veröffentlicht werden. Ebenso wird analysiert, in welchem Umfang in den verschiedenen Kategorien berichtet wird (vgl. Abbildung 6). Vor dem Hintergrund der zunehmenden Bedeutung von nicht-finanziellen Leistungsindikatoren wird insbesondere untersucht, welche Gewichtung diese bei der Darstellung der Leistung eines Unternehmens in den Unternehmenseckdaten der Nachhaltigkeitsberichte haben. 86 Weiterhin wird untersucht, wie einheitlich das Bild ist, das Unternehmen von sich nach außen präsentieren und inwiefern Unternehmen hierbei eine ganzheitliche Strategie verfolgen. Aufgrund der zunehmenden Integration des Themas Nachhaltigkeit in die Unternehmensstrategie könnte davon ausgegangen werden, dass trotz verschiedener Berichtsformate Unternehmen ein einheitliches Bild zum Thema Unternehmensleistung in den Unternehmenseckdaten zeigen. 87 Um dies entsprechend zu verifizieren oder 85 Für die Auswertung der angegebenen Leistungsindikatoren wird auf die Begriffsdefinition des DRS 20 abgestellt, der einen Leistungsindikator als eine Größe, die der Beurteilung eines Aspekts der Leistung eines Unternehmens dient (DRS 20.11) definiert. Vgl. hierzu auch Sikora, KoR 2014 S In Bezug auf die zunehmende Bedeutung von nicht-finanziellen Leistungsindikatoren vgl. ebenda, S. 194; ferner vgl. Haller/Fuhrmann, KoR 2013 S Zum Thema Integration von Nachhaltigkeit in die Unternehmensstrategie beziehungsweise das Geschäftsmodell eines Unternehmens vgl. Haller/Fuhrmann, KoR 2013 S

88 falsifizieren, werden die Unternehmenseckdaten der Nachhaltigkeitsberichte abschließend mit denen der Geschäftsberichte verglichen. Datenerhebung und Charakterisierung der Stichprobe Die bei der Datenerhebung verwendete Grundgesamtheit beinhaltet die zum 1. September 2013 im HDAX der Deutschen Börse AG notierten 110 Unternehmen, da sie einerseits durch die Notierung im Prime Standard eine hohe Bereitschaft zur transparenten Berichterstattung dokumentieren und andererseits eine gewisse Finanzkraft besitzen. 88 Dabei wurden nur Unternehmen einbezogen, die für die drei Geschäftsjahre 2010 bis 2012 einen Geschäftsbericht online veröffentlicht haben. 89 Um eine mögliche Entwicklung analysieren zu können, wurden in die Auswertung der Unternehmenseckdaten jeweils die letzten drei Berichtsjahre erhoben. Aufgrund der Verwendung der Vorgaben zur Darstellung der Lage des Konzerns als Rahmenkonzept für die Analyse werden zudem Unternehmen, die nicht zur Aufstellung eines Konzernlageberichts nach 315 HGB verpflichtet sind, von der Analyse ausgenommen. 90 Aufgrund der mangelnden Vergleichbarkeit erfolgt zudem ein Ausschluss aller Banken, Versicherungen, Finanzdienstleister und Beteiligungsfirmen, da diese speziellen Rechnungslegungsvorschriften unterliegen. 91 Diese Einschränkungen führen zu einer Untersuchungsgesamtheit von 92 Unternehmen des HDAX. Ausgehend von diesen Unternehmen wurden alle veröffentlichten Nachhaltigkeitsberichte 92 für den Zeitraum erhoben. In diesem Zeitraum wurden insgesamt 91 Nachhaltigkeitsberichte von 41 verschiedenen HDAX-Unternehmen veröffentlicht. 93 Um einen Vergleich der verschiedenen Unternehmenseckdaten zu ermöglichen, wurden im Weiteren nur 88 Vgl. Quick/Knocinski, ZfB 2006, S. 622; vgl. Haller/Fuhrmann, KoR 2013 S Diese Bedingung führt zum Ausschluss eines Unternehmens. 90 Diese Bedingung führt zum Ausschluss von vier Unternehmen mit Sitz im Ausland; vgl. Haller/Fuhrmann, KoR 2013 S Zu dieser Vorgehensweise vgl. Dietsche/Fink, KoR 2008 S Diese Bedingung führt zum Ausschluss von weiteren 13 Unternehmen. 92 Die Stichprobe umfasst sowohl stand-alone-nachhaltigkeitsberichte als auch integrierte Berichte wie z.b. von BASF. Letztere machen allerdings weniger als 10 % der finalen Stichprobe aus. 93 Da Nachhaltigkeitsberichte im Gegensatz zu Geschäftsberichten häufig nur alle zwei Jahre veröffentlicht werden, wurden mehrjährige Nachhaltigkeitsberichte jeweils dem letzten ausgewiesenen Geschäftsjahr zugeordnet. 79

89 Nachhaltigkeitsberichte einbezogen, die über Unternehmenseckdaten verfügten. Dies führte zu einer finalen Stichprobe von 64 Nachhaltigkeitsberichten von 30 Unternehmen. Für eine differenzierte Beurteilung der Ergebnisse werden die Unternehmen sowohl nach ihrer Index- als auch nach ihrer Branchenzugehörigkeit unterschieden. Im Hinblick auf die Indexzugehörigkeit ergibt sich die in Abbildung 4 dargestellte Verteilung. Die Abbildung zeigt, dass Unternehmen aus dem DAX und dem MDAX am stärksten vertreten sind. Von den insgesamt 30 Unternehmen stammen 17 aus dem DAX, zwölf aus dem MDAX und eines aus dem TecDAX. 94 TecDAX 3% MDAX 40% DAX 57% DAX MDAX TecDAX Abbildung 4: Indexverteilung Die Branchenzuordnung der Unternehmen erfolgt anhand des Fama/French- Algorithmus. Bei dieser Zuordnung werden die von Thomson Reuters Datastream vergebenen vierstelligen Standard Industrial Classification (SIC) Codes den zwölf von Fama und French definierten Branchenportfolios zugeordnet. 95 Diese wurden in fünf Branchen zusammengefasst. 96 Die folgende Abbildung 5 gibt einen Überblick über die Branchenverteilung der 94 Aufgrund der Zusammensetzung der Stichprobe wird auf einen Vergleich der Indizes verzichtet, da durch die geringe Anzahl an Berichten aus dem TecDAX keine validen Aussagen möglich sind. 95 Die für die Branchenzuordnung verwendeten zwölf Industry-Portfolios finden sich unter: Fama, online verfügbar unter french/data_library/det_12_ind_port.html, 2013, (letzter Abruf: ); vgl. Fama/French, Journal of Financial Economics 1997 S. 156 und S für die entwickelte Methode der Industrieklassifikationen. 96 Die Zusammenfassung der einzelnen Branchen folgt der Vorgehensweise bei Haller/Fuhrmann, KoR 2013 S

90 untersuchten Stichprobe. Die Branche Telekommunikation, Forschung und Entwicklung, Software und elektronische Medien ist dabei am schwächsten vertreten. Cnsmr (Konsumgüter, Handel und Dienstleistungen) Othr 32% Cnsmr 24% HiTec 4% HiTec (Telekommunikation, Forschung und Entwicklung, Software und elektronische Medien) Hlth (Gesundheitswesen, Medizintechnik sowie Pharmazie) Manuf 20% Hlth 20% Manuf (Produktion, Energie- und Versorgungswirtschaft) Othr (Sonstige) Abbildung 5: Branchenverteilung Untersuchungsergebnisse Veröffentlichung und Inhalt von Unternehmenseckdaten Rund 70 % der 91 erhobenen Nachhaltigkeitsberichte beinhalten Unternehmenseckdaten (18 von 24 in 2010, 21 von 32 in 2011 und 25 von 35 in 2012). 97 Im Gegensatz dazu enthalten über 90 % der im selben Zeitraum veröffentlichen Geschäftsberichte deutscher HDAX-Unternehmen Unternehmenseckdaten. 98 Vor dem Hintergrund, dass auch die Nachhaltigkeitsberichte einen erheblichen Umfang aufweisen und entsprechend immer mehr an Komplexität gewinnen, ist es verwunderlich, 97 Wie in Kapitel dargestellt, basieren alle Auswertungen nur auf solchen Nachhaltigkeitsberichten, die Unternehmenseckdaten mit mindestens einem Leistungsindikator enthielten. 98 Vgl. hierzu Sikora, KoR 2014 S

91 dass der Ausweis von Unternehmenseckdaten derart stark variiert. 99 Insbesondere um einen ersten Eindruck über die ökologische und soziale Ausrichtung eines Unternehmens zu erhalten, sind Berichtsleser somit auf eine vollständige Lektüre des Nachhaltigkeitsberichts angewiesen, wenn keine aggregierte Kurzdarstellung in Form von Unternehmenseckdaten vorliegt. Die Auswertung in Tabelle 14 zeigt, dass die untersuchten Nachhaltigkeitsberichte im Schnitt ,59 Kennzahlen in ihren Unternehmenseckdaten enthielten. Dabei sind deutliche Unterschiede zwischen den Unternehmen erkennbar: So lag beispielsweise die geringste von einem Unternehmen angegebene Anzahl an Kennzahlen bei drei und die Höchste bei 59. Daraus wird ersichtlich, dass das Thema Wesentlichkeit bei der Auswahl von Leistungsindikatoren sehr unterschiedlich interpretiert wird. Ein vergleichbares Bild zeigt sich auch bei einer ausschließlichen Betrachtung der Leistungsindikatoren. Während der Minimalwert der veröffentlichen Leistungsindikatoren lediglich bei zwei liegt, ist der Maximalwert mit 47 fast 24-mal so hoch. Da für die weitere Analyse insbesondere die Darstellung der Unternehmensleistung untersucht wird, wird im Folgenden ausschließlich auf die angegebenen Leistungsindikatoren abgestellt. 99 Die Nachhaltigkeitsberichte der in der Stichprobe enthalten Unternehmen haben im Schnitt einen Umfang von rund 93 Seiten. Zur Problematik eines information overloads vgl. KPMG, Disclosure overload and complexity: hidden in plain sight, online verfügbar unter: /pages/disclosure-overload-complexity.aspx, 2011, S. 2 (letzter Abruf ); Sie folgen damit den Geschäftsberichten, die in den vergangenen Jahren an Komplexität und Seitenvolumen immer mehr gewachsen sind vgl. Beyhs/Barth, DB 2011 S Im Rahmen der Auswertung werden Median, Mittelwert, Minimum und Maximum ausgewiesen. Aufgrund der kleinen Stichprobe, insbesondere bei Analysen auf Jahresebene, kann der Mittelwert leicht durch Ausreißer verzerrt sein. Im Gegensatz dazu ist der Median durch Ausreißer nur gering beeinflusst. Vgl. hierzu Auer/Rottmann 2010, S

92 Kennzahlen Gesamt Median 21,00 15,00 17,00 17,00 Mittelwert 20,50 17,86 20,40 19,59 Minimum 3,00 3,00 3,00 3,00 Maximum 40,00 40,00 59,00 59,00 Davon Leistungsindikatoren Gesamt Median 19,50 15,00 17,00 17,00 Mittelwert 17,72 15,38 17,60 16,91 Minimum 3,00 2,00 3,00 2,00 Maximum 34,00 35,00 47,00 47,00 Tabelle 14: Anzahl der Kennzahlen und Leistungsindikatoren in den Unternehmenseckdaten (NB) 101 Leistungsindikatoren nach Kategorien Ausgehend von der Gesamtbetrachtung wird nun differenziert auf finanzielle beziehungsweise nicht-finanzielle Leistungskategorien sowie die einzelnen Kategorien eingegangen. Nicht in allen untersuchten Unternehmenseckdaten wurden finanzielle Leistungsindikatoren angegeben. Dies überrascht, da gerade finanzielle Leistungsindikatoren in Unternehmenseckdaten deutscher Unternehmen den Großteil der berichteten Leistungsindikatoren ausmachen. 102 Insgesamt ist aber bei der Anzahl der veröffentlichten finanziellen Leistungsindikatoren ein Anstieg erkennbar. Während der Mittelwert 2010 noch bei 7,39 Leistungsindikatoren lag, ist er bis 2012 auf 8,80 angestiegen. Allerdings zeigen sich auch hier bei den untersuchten Unternehmen große Unterschiede im Hinblick auf die Anzahl der 101 Für eine einfachere Unterscheidung werden im Folgenden die Unternehmenseckdaten der Geschäftsberichte mit Unternehmenseckdaten (GB) gekennzeichnet und die Unternehmenseckdaten der Nachhaltigkeitsberichte mit Unternehmenseckdaten (NB). 102 Vgl. hierzu Sikora, KoR 2014 S

93 angegebenen finanziellen Leistungsindikatoren. So ist wie Tabelle 15 zeigt die maximale Anzahl angegebener Leistungsindikatoren einzelner Unternehmen fast drei Mal so hoch wie die mittlere angegebene Anzahl. Finanzielle Leistungsindikatoren Gesamt Median 4,50 6,00 9,00 6,00 Mittelwert 7,39 7,57 8,80 8,00 Minimum 0,00 0,00 0,00 0,00 Maximum 21,00 20,00 20,00 21,00 Tabelle 15: Finanzielle Leistungsindikatoren in den Unternehmenseckdaten (NB) Bei den finanziellen Leistungsindikatoren ist eine klare Konzentration auf einzelne Themenkomplexe erkennbar. Grundsätzlich werden zwar zu jeder Kategorie Leistungsindikatoren offengelegt, jedoch nehmen die Kategorien Profitabilität, Auftragseingang/Umsatz und Kosten/Aufwendungen eine hervorgehobene Stellung ein. Die Profitabilität ist für Unternehmen die wichtigste Kategorie, mit der sie ihre finanzielle Unternehmensleistung im Rahmen eines Nachhaltigkeitsberichts darstellen (vgl. Abbildung 6). Die Mittelwerte von 3,17 in 2010, 3,29 in 2011 und 4,40 in 2012 deuten zudem auf einen ansteigenden Trend hin. In diese Kategorie fallen insbesondere Größen wie EBIT, EBITDA beziehungsweise verschiedene bereinigte Abwandlungen dieser Größen. Folglich sind zwar vergleichbare Informationen vorhanden, jedoch sind die einzelnen Werte aufgrund der zahlreichen Abwandlungen nur bedingt vergleichbar. Die Kategorien Auftragseingang/Umsatz und Kosten/Aufwendungen liegen mit durchschnittlich 1,17 beziehungsweise 1,02 angegebenen Leistungsindikatoren schon deutlich zurück. Im Schnitt werden also doppelt so viele Angaben zur Profitabilität gemacht 103 wie zu den beiden nächst wichtigsten Kategorien. Am unteren Ende der Kategorien sind die Bereiche Kapitaleffizienz und Kapitalstruktur zu finden. 103 Der Durchschnittswert in der Kategorie Profitabilität liegt bei 3,69 für die gesamte Untersuchungsperiode. 84

94 Anzahl Leistungsindikaotren 5,00 4,50 4,00 3,50 3,00 2,50 2,00 1,50 1,00 0,50 0,00 Auftragseingang/ Umsatz Profitabilität Kosten/Aufwendungen Kapitaleffizienz Kapitalstruktur Abbildung 6: Finanzielle Leistungsindikatoren (Mittelwert) nach Kategorie Investitionen Liquidität Vermögen ,17 0,89 3,17 0,44 0,06 0,61 0,78 0, ,90 1,10 3,29 0,14 0,05 0,38 0,48 0, ,80 1,04 4,40 0,16 0,12 0,52 0,48 0,28 85

95 Im Gegensatz dazu haben nicht-finanzielle Leistungsindikatoren im Rahmen der Berichterstattung von Unternehmenseckdaten in Nachhaltigkeitsberichten eine deutlich größere Bedeutung als finanzielle Leistungsindikatoren. Auf den ersten Blick fällt auf, dass im Schnitt mehr nicht-finanzielle als finanzielle Leistungsindikatoren ausgewiesen werden (vgl. Tabelle 16). Darüber hinaus geben einige Unternehmen keine nicht-finanziellen Leistungsindikatoren in den Unternehmenseckdaten ihrer Nachhaltigkeitsberichte an. Gerade vor dem Hintergrund der zentralen Bedeutung von nicht-finanziellen Leistungsindikatoren ist dies durchaus überraschend. 104 Da Unternehmenseckdaten die Unternehmensleistung aggregiert darstellen, tragen sie wesentlich zur Wahrnehmung des Unternehmens bei. 105 Demzufolge sind der Mehrwert und die Aussagekraft von Unternehmenseckdaten eines Nachhaltigkeitsberichts, die keine nichtfinanziellen Leistungsindikatoren ausweisen, in Frage zu stellen. Nicht-finanzielle Leistungsindikatoren Gesamt Median 9,50 8,00 8,00 8,00 Mittelwert 10,33 7,81 8,80 8,91 Minimum 0,00 0,00 0,00 0,00 Maximum 25,00 25,00 28,00 28,00 Tabelle 16: Nicht-finanzielle Leistungsindikatoren Wie bei den finanziellen Leistungsindikatoren lässt sich auch bei nichtfinanziellen Leistungsindikatoren eine Fokussierung auf bestimmte Kategorien erkennen. Wie der Abbildung 7 zu entnehmen ist, wurden mit Abstand die meisten Leistungsindikatoren in der Kategorie Umweltbelange offengelegt. Inhaltlich deckt die Kategorie Umweltbelange insbesondere die Aspekte Ressourceneinsatz und -verbrauch eines Unternehmens ab. Hierzu zählen Angaben zum Energieverbrauch, zu Schadstoffemissionen, angefallenen Abfällen und zum Wasserbrauch im Rahmen der Produktion. Diese Schwerpunktsetzung spiegelt auch eine allgemeine gesellschaftliche 104 Vgl. Sikora, KoR 2014 S vgl. Haller/Fuhrmann, KoR 2013 S Vgl. Sikora, KoR 2014 S

96 und politische Entwicklung wider, die aus neuen Gesetzgebungen 106 und Initiativen im Bereich des Umweltschutzes resultiert. Mit etwas Abstand folgen die Kategorien Arbeitnehmerbelange und Kundenbelange. In der Kategorie Arbeitnehmerbelange wurden unter anderem Leistungsindikatoren wie die Mitarbeiterzufriedenheit, Arbeitsunfälle sowie die Anzahl der Auszubildenden angegeben. Die ausführlichen Angaben in dieser Kategorie spiegeln die Problematik des demografischen Wandels und der Bedeutung von Mitarbeiterzufrieden für den langfristigen Unternehmenserfolg gut wider. Es ist auffällig, dass die Unternehmen gezielt Informationen zur Beschäftigung von Frauen in verschiedenen Bereichen des Unternehmens offenlegen. Hierzu zählen Angaben über Frauen im mittleren und oberen Management. So wird insbesondere die Thematik von Frauen in Führungspositionen direkt adressiert, die sowohl national als auch auf EU- Ebene intensiv diskutiert wird. 107 In der Kategorie Forschung und Entwicklung wurden fast keine Angaben gemacht Wie beispielweise der Vorschlag zur Änderungen der EU-Richtlinie zur Veröffentlichung von nicht-finanziellen Informationen vgl. Europäische Kommission, Vorschlag für eine RICHTLINIE DES EUROPÄISCHEN PARLAMENTS UND DES RATES zur Änderung der Richtlinien 78/660/EWG und 83/349/EWG des Rates im Hinblick auf die Offenlegung nichtfinanzieller und die Diversität betreffender Informationen durch bestimmte große Gesellschaften und Konzerne. online verfügbar unter: DKs0CvgJ! ?uri=CELEX:52013PC0207, 2013, (letzter Abruf: ). ; vgl. dazu auch Lanfermann, BB 2013 S ff.; vgl. Roloff, KoR 2014 S Dies zeigt auch die Empfehlung zur Anwendung des Deutschen Nachhaltigkeitskodex, der vom Rat für Nachhaltige Entwicklung erarbeitet wurde. Dieser Kodex hat zum Ziel, die unternehmerische Verantwortung transparenter darzustellen. vgl. Rat für Nachhaltige Entwicklung, Der Deutsche Nachhaltigkeitskodex, online verfügbar unter: de/uploads/media/rne_der_deutsche_nachhaltigkeitskodex_dnk_texte_nr_41_januar_2 012.pdf, 2012, S. 2 ff. (letzter Abruf: ). 107 Vgl. hierzu Knoll/Lochner, DB 2014 S. 495 f. 108 Hierbei ist zu beachten, dass durch die Einordnung der Leistungsindikatoren Forschungsund Entwicklungsaufwendungen in der Kategorie Kosten/Aufwendungen erfasst werden. 87

97 Anzahl der Leistungsindikatoren 6,00 5,00 4,00 3,00 2,00 1,00 0,00 Arbeitnehmerbelange Kundenbelange Umweltbelange FuE Gesellschaft ,22 5,22 3,33 0,00 0, ,10 4,10 2,33 0,00 0, ,24 4,56 2,60 0,08 0,08 Abbildung 7: Nicht-finanzielle Leistungsindikatoren (Mittelwert) nach Kategorie 88

98 Leistungsindikatoren nach Branchenzugehörigkeit Ergänzend zur differenzierten Betrachtung der einzelnen Kategorie wurde untersucht, ob es im Hinblick auf die Veröffentlichung von Leistungsindikatoren Unterschiede zwischen einzelnen Branchen gibt. Hinsichtlich der absoluten Anzahl an Leistungsindikatoren fällt besonders die Branche Produktion, Energie- und Versorgungswirtschaft (Manuf) auf. In dieser Branche werden durchschnittlich nur 10,63 Leistungsindikatoren veröffentlicht. Im Gegensatz dazu liegt die Bandbreite bei allen übrigen Branchen bei durchschnittlich 16,00 19,67 Leistungsindikatoren. Beim Anteil der finanziellen und nicht-finanziellen Leistungsindikatoren ist zu erwähnen, dass in drei von fünf Branchen (Cnsmr, HiTec, Hlth) mehr als die Hälfte der Leistungsindikatoren dem nicht-finanziellen Bereich zuzuordnen ist. Im Gegensatz dazu dominieren bei den verbleibenden zwei Branchen (Manuf, Othr) die finanziellen Leistungsindikatoren. Ein Unternehmen, zwei Gesichter Gegenüberstellung der Unternehmenseckdaten in Nachhaltigkeitsberichten und Geschäftsberichten Vorbemerkungen Um zu prüfen, inwieweit eine Neuausrichtung beziehungsweise eine Aufgabe des Silodenkens in der externen Berichterstattung stattgefunden hat, wird im Folgenden die Berichterstattung von Unternehmenseckdaten im Nachhaltigkeitsbericht mit der Berichterstattung im Geschäftsbericht verglichen. 109 Eine transparente Berichterstattung setzt voraus, dass die Unternehmensstrategie unabhängig von der Berichtsart einheitlich kommuniziert wird, so dass Leser die Konsequenzen der unternehmerischen Handlungen beurteilen können. Unternehmen betonen immer stärker die Bedeutung des Themas Nachhaltigkeit für ihre Unternehmensstrategie. 110 Ebenso hat der Umfang an Nachhaltigkeitsinformationen in den Geschäftsberichten in den vergangenen Jahren stark zugenommen Bezüglich des Silodenkens in der Berichterstattung vgl. Beyhs/Barth, DB 2011 S Vgl. Haller/Fuhrmann, KoR 2013 S Dies zeigt eine Analyse zum Berichtsumfang an Nachhaltigkeitsthemen in den Geschäftsberichten beziehungsweise integrierten Berichten der DAX-30 Unternehmen. 89

99 Insbesondere vor diesem Hintergrund liegt die Vermutung nahe, dass das Bild, das Unternehmen in ihren Unternehmenseckdaten über ihre Unternehmensleistung darstellen, weitgehend übereinstimmt. Die folgende Analyse soll dies näher untersuchen. Ausgehend von der bisherigen Stichprobe werden daher zusätzlich die Unternehmenseckdaten, die in den jeweiligen Geschäftsberichten publiziert wurden, in die Analyse einbezogen. 112 Gegenüberstellung der Unternehmenseckdaten Bei der Gegenüberstellung der absoluten Anzahl an Leistungsindikatoren (vgl. Abbildung 8) ist erkennbar, dass sowohl im Geschäftsbericht als auch im Nachhaltigkeitsbericht den Unternehmenseckdaten eine vergleichbare Bedeutung zukommt. Im Nachhaltigkeitsbericht werden durchschnittlich 16,91 und im Geschäftsbericht durchschnittlich 15,17 Leistungsindikatoren publiziert. 113 Bei näherer Betrachtung der Berichterstattung von finanziellen und nicht-finanziellen Leistungsindikatoren wird allerdings deutlich, dass die inhaltlichen Schwerpunkte deutlich voneinander abweichen. Während im Geschäftsbericht knapp 87 % der Leistungsindikatoren finanzielle Aspekte abdecken, sind es in den Nachhaltigkeitsberichten lediglich 47 %. Da sich die Unternehmenseckdaten auf dieselben Unternehmen beziehen, wird deutlich, dass Unternehmen ihre Darstellung der wesentlichen Leistungsindikatoren an den Adressaten der jeweiligen Berichte ausrichten und somit weniger ein integriertes und durchgängiges Berichtskonzept verfolgen. Folglich werden im Nachhaltigkeitsbericht mehr nicht-finanzielle Informationen offengelegt, da die typischen Leser von Nachhaltigkeitsberichten stärker an ökologischen und sozialen Folgen von unternehmerischen Handlungen interessiert sind und nicht ausschließlich an ökonomischen Faktoren. Im Lichte einer angestrebten integrierten Berichterstattung bestehen daher noch 112 Für eine ausführliche Analyse der Unternehmenseckdaten vgl. Sikora, KoR Die Differenz der Mittelwerte zwischen beiden Gruppen ist statistisch nicht signifikant (p- Wert >0,1). 90

100 Anzahl der Leistungsindikatoren Verbesserungsmöglichkeiten zur Steigerung der Vergleichbarkeit und des Informationsnutzens ,00 16,00 14,00 12,00 10,00 8,00 6,00 4,00 2,00 0,00 Leistungsindikatoren davon finanzielle Leistungsindikatoren davon nicht-finanzielle Leistungsindikatoren NB 16,91 8,00 8,91 GB 15,17 13,22 1,95 Abbildung 8: Gegenüberstellung der Unternehmenseckdaten Stellt man die Anzahl der angegebenen Leistungsindikatoren der einzelnen Kategorien gegenüber, so werden weitere Differenzen deutlich, die insgesamt eher auf eine adressatenorientierte und weniger auf eine integrierte Berichterstattung hindeuten. Gegenüberstellung der finanziellen Leistungsindikatoren Sowohl im Nachhaltigkeits- als auch im Geschäftsbericht nehmen Leistungsindikatoren zur Profitabilität eine dominante Rolle ein (vgl. Abbildung 9). In beiden Berichten bezieht sich knapp die Hälfte der finanziellen Leistungsindikatoren auf Aspekte der Profitabilität. Bei den weiteren Kategorien finanzieller Leistungsindikatoren ist kein einheitliches Bild erkennbar. Lediglich in der Kategorie Auftragseingang/Umsatz werden von Unternehmen sowohl im Geschäftsbericht als auch im Nachhaltigkeitsbericht annähernd gleich viele Leistungsindikatoren offengelegt. Alle anderen Kategorien weisen deutliche Unterschiede auf. Es zeigt sich, dass insgesamt wesentlich mehr Angaben zu den weiteren finanziellen Kategorien in den Unternehmenseckdaten des Geschäftsberichts gemacht werden als in den Unternehmenseckdaten im Nachhaltigkeitsbericht. Die aufgezeigten Unterschiede lassen sich auch statistisch belegen. Die 114 Vgl. Arbeitskreis Externe Unternehmensrechnung der Schmalenbach-Gesellschaft für Betriebswirtschaft e. V. (AKEU), BB 2013 S. 875 (887). 91

101 Differenzen zwischen den Mittelwerten sind mit Ausnahme der Kategorie Auftragseingang/Umsatz alle statisch signifikant auf dem 1 % Niveau (2- seitiger t-test, p-wert <0,01). 92

102 Anzahl der Leistungsindikatoren 8,00 7,00 6,00 5,00 4,00 3,00 2,00 1,00 0,00 Auftragseingang/ Umsatz Kosten/ Aufwendungen Profitabilität Kapitaleffizienz Kapitalstruktur Investitionen Liquidität Vermögen NB 1,66 1,02 3,69 0,23 0,08 0,50 0,56 0,27 GB 1,69 0,44 6,81 1,00 0,59 1,02 1,61 0,06 Abbildung 9: Gegenüberstellung der Kategorien finanzieller Leistungsindikatoren 93

103 Gegenüberstellung der nicht-finanziellen Leistungsindikatoren Bei der Gegenüberstellung der Kategorien der nicht-finanziellen Leistungsindikatoren bestätigen sich die bisher aufgezeigten Ergebnisse. Wie Abbildung 10 zu entnehmen ist, gibt es einige Unterschiede hinsichtlich des Umfangs der einzelnen Kategorien. Deutsche HDAX-Unternehmen mit einem veröffentlichten Nachhaltigkeitsbericht, veröffentlichen im Schnitt nur zwei nicht-finanzielle Leistungsindikatoren in den Unternehmenseckdaten im Geschäftsbericht und knapp neun nicht-finanzielle Leistungsindikatoren im Nachhaltigkeitsbericht (vgl. Abbildung 8). Entsprechend deutlich fällt daher die Differenz zwischen Geschäftsbericht und Nachhaltigkeitsbericht aus. Beim Umfang an bereitgestellten Informationen ergibt sich in der Kategorie Umweltbelange die größte Differenz. Während durchschnittlich 4,59 Leistungsindikatoren mit Bezug zu umweltrelevanten Aspekten im Nachhaltigkeitsbericht ausgewiesen werden, liegt der Durchschnitt im Geschäftsbericht bei 0,53 Leistungsindikatoren. Weiterhin auffällig ist die Prioritätsreihenfolge der einzelnen Kategorien. Während im Nachhaltigkeitsbericht ein besonderer Fokus auf den Themen Umwelt- und Arbeitnehmerbelange liegt, kann man im Geschäftsbericht eine deutliche Schwerpunktsetzung beim Thema Kundenbelange erkennen. Insgesamt wird aber deutlich, dass in allen Kategorien der nicht-finanziellen Leistungsindikatoren mindestens genauso viele beziehungsweise i.d.r. sogar mehr Informationen veröffentlicht werden als im Geschäftsbericht. Ebenso wie bei den finanziellen Leistungsindikatoren lassen sich auch hier die Differenzen innerhalb der einzelnen Kategorien statistisch belegen. Sowohl in den Bereichen Umweltbelange, Arbeitnehmerbelange und Gesellschaft werden im Nachhaltigkeitsbericht statistisch signifikant mehr nichtfinanzielle Leistungsindikatoren offengelegt (2-seitiger t-test, p-wert < 0,01). Lediglich in der Kategorie Kundenbelange lassen sich keine statistisch signifikanten Differenzen nachweisen. Folglich ist der Bereich Kundenbelange der einzige, der sowohl im Geschäftsbericht als auch im Nachhaltigkeitsbericht für die Unternehmen eine vergleichbar große Rolle spielt und somit am ehesten als integriert anzusehen ist. Die Kategorie 94

104 Anzahl Leistungsindikatoren Forschung und Entwicklung ist insgesamt zu vernachlässigen, da nur sehr wenige Beobachtungen für diese Kategorie vorliegen. 5,00 4,50 4,00 3,50 3,00 2,50 2,00 1,50 1,00 0,50 0,00 Arbeitnehmerbelange Kundenbelange Umweltbelange FuE Gesellschaft NB 1,19 4,59 2,72 0,03 0,38 GB 0,95 0,53 0,39 0,03 0,05 Abbildung 10: Gegenüberstellung der Kategorien nicht-finanzieller Leistungsindikatoren Kategorisierung auf Basis des GRI 3.1 Wie bereits in Kapitel 3.2 diskutiert, wurde für die Analyse eine Klassifizierung in finanzielle und nicht-finanzielle Leistungsindikatoren in Anlehnung an den DRS 20 gewählt. Ergänzend hierzu wurden noch die einzelnen Kategorien aggregiert und den Hauptkategorien des GRI 3.1 zugeordnet. Eine detaillierte Einteilung erscheint aufgrund der Vielzahl der Unterkategorien nicht sinnvoll. Die Einteilung in die drei Hauptkategorien Ökonomie, Ökologie und Gesellschaft/Soziales ermöglicht insbesondere eine neue Perspektive auf die nicht-finanziellen Leistungsindikatoren. Im Gegensatz zur thematischen Kategorisierung in der Detailauswertung können so neue Informationen zur relativen Bedeutung von ökologischen und gesellschaftlichen/sozialen Aspekten zueinander gewonnen werden. Die Kategorie Ökonomie umfasst dabei alle Leistungsindikatoren, die in Bezug zur Vermögens-, Finanz- und Ertragslage stehen. Dies entspricht den Kategorien der finanziellen Leistungsindikatoren. Die Kategorie Ökologie umfasst Angaben zu Umweltbelangen sowie Forschung und Entwicklung. Die Kategorie Gesellschaft/Soziales subsumiert Angaben zu Kunden-, Arbeitnehmerbelangen und Gesellschaft. 95

105 Anteil je Kategorie 100,00% 90,00% 80,00% 9,17% 3,71% 25,32% 70,00% 60,00% 50,00% 40,00% 87,13% 27,36% Gesellschaft/Soziales Ökologie Ökonomie 30,00% 20,00% 47,32% 10,00% 0,00% GB NB Abbildung 11: Anteil je Kategorie basierend auf der Kategorisierung des GRI 3.1. Abbildung 11 zeigt die Ergebnisse der Einteilung auf Basis des GRI 3.1 sowohl für Unternehmenseckdaten in den Geschäfts- als auch in den Nachhaltigkeitsberichten. Wie bereits in der Hauptanalyse dargestellt, besteht insbesondere in den Geschäftsberichten eine erhebliche Divergenz zwischen den finanziellen und nicht-finanziellen Informationen. Durch die neue Kategorisierung wird zudem deutlich, dass im Bereich der nicht-finanziellen Informationen ein klarer Fokus auf dem Bereich Gesellschaft/Soziales liegt. Weniger als 4 % der Leistungsindikatoren im Geschäftsbericht lassen sich dem Bereich Umwelt zuordnen, während immerhin 9,17 % dem Bereich Gesellschaft/Soziales zuzuordnen sind. Im Gegensatz dazu ist in den Nachhaltigkeitsberichten keine herausgehobene Bedeutung einer der beiden Kategorien zu erkennen. 27,36 % der Leistungsindikatoren sind dem Bereich Ökologie zuzuordnen und 25,32 % dem Bereich Gesellschaft/Soziales. Es kann also gefolgert werden, dass in Nachhaltigkeitsberichten nicht nur ein ausgeglicheneres Verhältnis zwischen finanziellen und nicht-finanziellen Informationen besteht, sondern auch ein ausgeglicheneres Verhältnis zwischen unterschiedlichen Themenbereichen von finanziellen Informationen. 96

106 3.4. Zusammenfassung und künftige Entwicklung Aufgrund der hohen Komplexität und des Umfangs der Berichte liefern die Unternehmenseckdaten mit den dort dargestellten Leistungsindikatoren einen wichtigen Beitrag zum Verständnis der Unternehmensleistung. Die vorgestellte empirische Analyse untersuchte die aktuelle Berichterstattungspraxis zu den Unternehmenseckdaten in deutschen Nachhaltigkeitsberichten. Aktuell enthalten 64 der 91 untersuchen Nachhaltigkeitsberichte Unternehmenseckdaten. In diesen werden von Unternehmen durchschnittlich 16,91 Leistungsindikatoren angegeben. Im Durchschnitt wird dabei mehr als 50 % der Unternehmensleistung durch nichtfinanzielle Indikatoren erklärt. Dabei erfolgt eine Schwerpunktsetzung auf die Themen Umwelt- und Arbeitnehmerbelange. Vor dem Hintergrund der wachsenden Bedeutung des Themas Nachhaltigkeit in der Unternehmensstrategie und der Tatsache, dass integrierte Berichterstattung als die Zukunft der Berichterstattung angesehen wird, wurde untersucht, inwiefern sich dies in den Unternehmenseckdaten widerspiegelt. 115 Hierzu wurden die im Geschäftsbericht dargestellten Unternehmenseckdaten mit denen im Nachhaltigkeitsbericht verglichen. Es fällt auf, dass Unternehmen ihre Unternehmensleistung in den Unternehmenseckdaten sehr unterschiedlich präsentieren. Dies wird insbesondere daran deutlich, dass zwar in Geschäfts- und Nachhaltigkeitsbericht annähernd gleich viele Leistungsindikatoren offengelegt werden, aber im Geschäftsbericht nur ca. 13 % der Leistungsindikatoren sich auf nicht-finanzielle Aspekte beziehen, während das Verhältnis in Nachhaltigkeitsberichten deutlich ausgeglichener ausfällt. Mögliche Erklärungsansätze könnten zum einen die noch nicht ausgereiften Berichterstattungsprozesse wie beispielsweise die zeitliche Verfügbarkeit von nicht-finanziellen Leistungsindikatoren sein, zum anderen aber auch immer noch parallel ablaufende Berichterstattungsprozesse in den Unternehmen sein. In Bezug auf die Ausgestaltung der 115 Eine Analyse der Integration von Nachhaltigkeit in das Geschäftsmodell zeigt, dass diese stark zugenommen hat; vgl. Haller/Fuhrmann, KoR 2013 S. 249; Zur wachsenden Bedeutung von integrierter Berichterstattung vgl. Haller/Zellner, DB 2013 S. 1132; vgl. Hillmer, KoR 2012 S Dies zeigt auch die gestiegene Anzahl veröffentlichter integrierter Berichte, auch wenn diese Anzahl im Vergleich zur Gesamtanzahl immer noch sehr gering erscheint. 97

107 Unternehmenseckdaten eines integrierten Berichts ist es besonders wichtig, dass die häufig bestehenden Silostrukturen im Berichterstattungsprozess aber auch in der Unternehmenssteuerung aufgegeben werden und ein zentraler Integrationsgedanke Einzug hält. 116 Sofern die Unternehmensführung Nachhaltigkeitsziele tatsächlich auch ernsthaft verfolgt, sollte eine einheitliche Darstellung der Leistungsindikatoren in den Unternehmenseckdaten im Sinne aller Stakeholder sein. 117 Es lässt sich somit festhalten, dass eine integrierte Darstellung in den Unternehmenseckdaten die Unternehmensleistung in Bezug auf die Nachhaltigkeit widerspiegeln und dabei die Interessen aller Stakeholder berücksichtigen sollte. 116 Vgl. Beyhs/Barth, DB 2011 S f. 117 Vgl. Hüttermann/Unkoff, KoR 2013 S

108 4. Who Makes it to the Top? - Determinants of Career Success in the Auditing Profession 4.1. Introduction I examine if career success in the auditing profession is associated with different individual characteristics (e.g., age, gender, interests, or education) and audit-related aspects (e.g., client management skills, revenue generation, professional ethics, or client portfolio) to shed light on the determinants of promotion decisions as well as on leaving the auditing profession. This study is motivated by two recent developments in the auditing profession. First, as promotion incentives influence auditor decisions and behavior (Knechel et al. 2013a), they are of particular importance not only for audit firms but also for the auditing profession to ensure a high level of audit quality (Francis 2011). However, in recent years promotion decisions seem to be based rather on economic incentives of audit firms than on the quality of audits (e.g., Kornberger et al. 2011). Second, the career path in the auditing profession is based on an up-or-out promotion system. In the last two decades a new career level director, principal or non-equity partner evolved. This position not only softens the up-or-out system but also negatively influences career prospects for partner positions as senior managers are, with increasing frequency, promoted to director than to partner positions (Carter and Spence 2014). This raises the questions which individual characteristics and audit related determinants influence the likelihood of being promoted and of leaving the auditing profession. Prior research on career success focuses on the consequences of the up-or-out promotion system in professional service firms, for example audit firms or law firms (e.g., Coffey 1994; Faulconbridge and Muzio 2008; Galanter and Hendersen 2008; Almer et al. 2011; Kornberger et al. 2011; Carter and Spence 2014). These studies argue that different determinants, e.g., education, gender, job performance, revenue generation, communication skills, or technical skills, influence career success in professional service firms. However, little is known about the interplay of different determinants as prior research relies on small samples from surveys, interviews, or field-studies. Thus, most studies 99

109 are limited to selected determinants without taking interdependences into account. I use a large sample of 2,682 current and former Big 4 auditors CVs retrieved from a business-oriented social networking service to comprehensively investigate determinants of career success in the auditing profession. Building on sociologic theory (Bourdieu 1985) and their application to the auditing profession (Carter and Spence 2014), I argue that not only individual characteristics but also audit-related aspects are important in determining career success. First, demographic factors such as age and gender (e.g., Powell and Butterfield 1994; Ng et al. 2005) are of particular interest attributable to a potential glass ceiling effect. There is some evidence that women are less often promoted to top-level positions (Almer et al. 2011). Second, credentials such as holding a doctoral degree or an additional foreign CPA degree serve as a signal of differentiation between auditors (e.g., Meuwissen 1998, Akers et al. 2014). Third, revenue generation in terms of earning audit-fees, as partner compensation is closely linked to the profit of the audit firm (Knechel et al. 2013b). Fourth, a large professional network, exposure within the firm and client management skills not only increase visibility within an audit firm but also create new job opportunities and possibilities to acquire new clients (Covaleski et al. 1998; Anderson-Gough et al. 2006). Fifth, job-related qualifications like foreign job experience or non-audit experience are indicators of additional skills. Due to divergent tasks at higher compared to lower career levels, additional management and audit-related skills might be of particular importance (e.g., Blanthorne et al. 2005). Last, professional ethics are necessary to ensure high audit quality without loss of independence and professional skepticism. In order to examine determinants of career success in the auditing profession, I use data of German Big 4 auditors for several reasons. In Germany, individual auditors are required to be disclosed in the audit report which allows to identify the lead auditor and the engagement quality reviewer for each audit engagement (independent of the auditees listing status and legal form) and to determine engagement related information. In addition, all 100

110 German certified public accountants are listed in the professional register of the chamber of public accountants. This enables me to identify all Big 4 auditors as well as demographic information and dates of the CPA exam for each auditor. To measure individual auditor characteristics and determine career success, I use information published on the business-oriented social networking service XING. 118 It comprises CVs with information on career levels and affiliations, academic education, memberships in private and job related organizations, pastimes as well as general interests. 119 Based on the professional register, I identify 4,448 German certified public accountants who have worked for a Big 4 firm at some point during the period Matching this sample with XING based on name, age, and audit firm yields a sample of 2,682 CVs. An average auditor in this sample is 41.4 years old, male (75.4 %), and holds a business administration degree (78.7 %). 6.7 % even hold a doctoral degree 121 and 7.6 % hold an additional foreign CPA degree mostly from the US or UK. In addition, an average auditor has 164 professional contacts on XING, speaks 1.5 foreign languages and belongs to 1.7 different organizations (e.g., parties or public-service clubs). With respect to professional experience, the average auditor has 13.1 years of professional experience; thereof 12 years in the auditing profession. 70 % do not have professional experience outside the auditing profession and 46.5 % are still affiliated with their first employer. Using individual career information, I am able to identify 999 (893) promotions within the auditing profession (Big 5 audit firms) covering a period from 1986 to 2014, respectively. To examine the determinants of career success in the auditing profession, I address three distinct research questions. First, I examine determinants of the 118 XING ( is comparable to LinkedIn ( but focused on German professionals. It is the largest business network in Germany, Austria, and Switzerland. 119 In contrast to other social networks, I am able to precisely identify auditors because business-oriented social network users do not use pseudonyms. 120 In this paper, the term auditor refers to certified public accountants. I focus on Big 4 audit firms to ensure comparability of the career path. 121 In contrast to American doctoral degrees, German doctoral studies are rather business oriented and only a small fraction stays in academia (Grottke et al. 2013). 101

111 up-or-out promotion system. Because not all auditors still work in the auditing profession. I examine which individual characteristics influence the likelihood of leaving the auditing profession. Using logistic regression, I test whether measures for socio-demographic and geographic aspects, credentials, networking activities, as well as indicator variables for different career levels influence the likelihood of remaining in the auditing profession. The results support the notion that directors and partners are less likely to leave the auditing profession as they are no longer part of the up-or-out system. In contrast, managers have a higher likelihood of leaving the auditing profession. In addition, I provide evidence that women less likely leave the auditing profession than their male peers. Second, I examine characteristics of auditors at different career levels to provide insights on the skills required at these respective levels. Using different subsamples (e.g. partners versus non-partners, partners versus directors), I regress binary variables indicating different career levels within the auditing profession on measures for socio-demographic and geographic aspects, credentials, revenue generation, networking and client management skills, additional experience, and professional ethics. I consistently find evidence that demographic aspects, revenue generation, and networking and client management skills explain auditor differences at different career levels. I provide evidence that partners earn higher audit fees and audit larger and more prestigious clients. In contrast, I do not find significant differences with respect to credentials, additional experience, and professional ethics. Instead, I find that audit partners are more competitive in terms of endurance sports (marathon) compared to non-partners. Overall, revenue generation, visibility within the audit firm, and the professional network of an auditor are important determinants for career success. Third, I examine which determinants influence the likelihood of a promotion to partner level. Using the exact timing of a promotion I match each promoted partner to a non-promoted auditor which is comparable in terms of birth cohort, gender, and date of CPA exam. This approach enables me to establish an even stronger identification. I find that networking and client management 102

112 skills are of particular importance for partner promotions. With respect to revenue generation, I do not find a significant influence on promotion decisions. I conclude that partner promotions are influenced by expected benefits resulting from networking and client management skills and not by revenue generation prior to the promotion. In addition, I do not find evidence that recently promoted partners have less audit-related knowledge than directors. To substantiate the findings, I test whether individual characteristics influence the promotion speed over auditor careers. I only find little evidence that individual characteristics influence promotion speed. This supports the notion that promotion decisions are based on individual characteristics whereas the timing of a promotion follows a rather strict path. The study contributes to several streams of research. First, by investigating determinants of career success in the auditing profession, I respond to the call for more research on individual auditor characteristics (e.g., Francis 2011; DeFond and Zhang 2014). The study shows that individual and job-specific characteristics of auditors influence the likelihood of career success in the auditing profession. Second, I extend prior research on audit and professional service firms by using a large sample of archival data from a business-oriented social networking service to examine determinants of career success in the auditing profession. Attributable to the advantages of the German setting, I am able to incorporate a comprehensive set of determinants including individual characteristics as well as audit specific information. Third, human capital is an important resource within the auditing profession. Thus, promotion decisions are of particular importance to ensure audit quality and the overall success of audit firms (e.g., Francis 2011; Beck et al. 2013). Thus, I provide insights into an important issue for professional service firms in general and audit firms in particular. The remainder of the paper is organized as follows. Section 4.2 describes characteristics of the promotion system in the auditing profession and discusses determinants of career success. Section 4.3 describes data and research design. Section 4.4 presents descriptive and multivariate results as well as sensitivity analyses. Section 4.5 concludes. 103

113 4.2. Career success in the auditing profession Career success Career success can be operationalized using measures of objective (extrinsic) or subjective (intrinsic) career success. Objective career success refers to externally visible measures like promotions and salary increases (e.g., Gutteridge 1973; Judge et al. 1995). Subjective career success refers to not directly observable measures like job satisfaction and motivation (e.g., London and Stumpf 1982; Judge et al. 1999; Burke 2001). In line with prior research (e.g., Alford et al. 1990), I examine objective measures of career success in the auditing profession, as these information are available for a large sample of auditors. 122 Historically, professional service firms in general and audit firms in particular are built on an up-or-out promotion system (Waldman et al. 1990). This system implies that an employee, who is not promoted within a fixed period of time, is forced to leave the company. Across all Big 4 audit firms career paths are comparable. After passing the CPA exam senior assistants are promoted to (assistant) manager level. After a total of nine (twelve) years of professional experience most managers (senior managers) are promoted to senior manager (partner) level, respectively. Since the mid-1990s a new career level director, principal or non-equity partner evolved to avoid the departure of experienced senior managers who generate revenue and play and important role for the firm s human capital but are not considered as partners (Morris and Pinnington 1998, Galanter and Hendersen 2008) Professional identity of auditors Prior literature on individual characteristics of auditors at different career levels (e.g., Coffey 1994; Anderson-Gough et al. 2005; Faulconbridge and Muzio 2008; Kornberger et al. 2011) supports the notion of a continuous identity transformation during auditors career. As a trainee, professionals are 122 In contrast to Sweden or Belgium (e.g., Knechel et al. 2013b; Dekeyser et al. 2014), compensation or salary data are not publicly available in Germany. I do not use subjective measures of career success, as these measures are difficult to quantify without additional survey or interview data. 104

114 socialized to represent values of the auditing profession in terms of technical knowledge and conduct (e.g., Grey 1998; Anderson-Gough et al. 2000; Westermann et al. 2014). Kornberger et al. (2011) conduct a field-study at one Big 4 audit firm and characterizes the manager level as a rite of passage. As a manager, professionals are forced to transform oneself from guided workers to smart people that have open minds and constantly reinvent themselves (Kornberger et al. 2011, 520). Given the public audit firms increased commercialization, partners identity is focused on business activities, for example acquiring new clients and pursuing new business opportunities (e.g., Covaleski et al. 1998; Gendron and Spira 2010). To examine determinants of career success, Carter and Spence (2014) rely on the sociologic field theory by Bourdieu (1985). 123 From a sociologic perspective, economic, social, cultural, and linguistic capital are important determinants of differentiation within the auditing profession. Interviewing 32 current and former auditors at Canadian Big 5 and non-big 5 audit firms, they find that, due to the increasing importance of revenue generation, director positions are often occupied by former senior managers with more technical knowledge and less managerial knowledge. Instead, partners are characterized as high performers that are more focused on client management and less on audit tasks Determinants of career success With respect to determinants of partner promotions in the auditing profession, prior research focuses on small samples of survey or interview data to investigate specific determinants. However, it is an open question whether these results are influenced by unobserved interdependencies between different determinants. I use a large sample of archival data for Big 4 auditors to comprehensively explore determinants of career success in the auditing profession. 123 In his seminal article, Bourdieu (1985) describes societies as clusters of various social fields. Thereby, each field is characterized by individual rules, values and hierarchies that are not necessarily transferable to and understandable in other fields. 105

115 Socio-demographic factors and location Prior research in labor economics supports the notion that socio-demographic factors like age and gender influence career success (Singh et al. 2002; Ng. et al. 2005; Almer et al. 2011). The influence of age on career success likely has an inverted U-shape (e.g., Ng and Feldman 2008). On the one hand, age is positively associated with experience due to a longer period of professional life. For example in the auditing profession, auditors need a specified number of years of experience to get promoted (e.g., Deloitte 2014). On the other hand, closeness to retirement reduces incentives for high levels of job performance (e.g., Sundgren and Svanström 2014). With respect to diversity, research on top-level promotions argues that women are less often promoted to executive positions due to a glass ceiling effect (e.g., Powell and Butterfield 1994; Almer et al. 2011). To examine socio-demographic factors, I test whether age and gender of an auditor influence career success (Kirchmeyer 2002; Goldberg et al. 2004; Dambrin and Lambert 2008). In addition to demographic factors, the residence of an auditor also might influence career advancement. Beck et al. (2013) provide evidence that citylevel human capital is associated with competition among employees. Supporting this notion, Devaro (2006) argues that competition among employees increases individual performance. Accordingly, I examine whether the auditor s location influences career success, as larger cities offer not only more job opportunities within the auditing profession, due to larger audit offices, but also outside the auditing profession. Credentials As outlined by Bourdieu (1985), one way of differentiation within a field is by accumulating institutionalized cultural capital. This refers to any kind of degree, diploma or credential which is accepted within a field. Meuwissen (1998), Guinn et al. (2004), and Akers et al. (2014) show that academic qualification is associated with career success in the auditing profession. Akers et al. (2014), focusing on CPAs with the highest scores at the US CPA exam, show that these top performers have an average (under-)graduate GPA 106

116 above 3.75 (max 4.00). Guinn et al. (2004) find that CPAs with an advanced degree are promoted to partner level faster comparatively faster. Meuwissen (1998) provides evidence that university educated auditors are more likely to become partner compared to part-time educated auditors. In contrast, advanced academic qualification requires additional years of schooling. Thus, all else equal, higher qualified auditors are older at career entry and, thus, have less audit experience. In this study, I use three binary variables to measure academic qualification. In Germany, doctoral degrees are often pursued by graduates who do not aim at a career in academia but go into practice. Surveying 281 accounting PhD students in Germany, Austria and Switzerland, Grottke et al. (2013) find that only 15% prefer to stay in academia. Doctoral degrees thus serve as a signal of ability which improves career success (Enders and Bornmann 2001). Hence, I include a variable indicating whether and auditor holds a doctoral degree. To proxy for basic knowledge, I use a variable indicating whether an auditor has a major in business administration. Last, I test for the influence of studying at a university compared to studying at a university of applied science or a university of cooperative education. 124 In addition, Bourdieu (1985) categorizes sporting achievements as an additional dimension of credentials. Research in biology and psychology provides evidence that physical activities have a positive effect on cognitive functions and job performance (Colcombe and Kramer 2003; Coe et al. 2006). In addition, individuals with high self-esteem rather face competitive and challenging situations even in leisure time (Korman 1970). Examining the relation between CEO fitness and firm value using US marathon data, Limbach and Sonnenburg (2014) provide evidence for a significant positive association between CEO fitness and firm value. As presented by Carter and Spence (2014), there is increasing pressure to acquire new clients and sell additional services. Thus, in line with Korman s (1970) self-consistency theory, auditors with a high level of competitive incentives are more likely to 124 In Germany, universities ( Universitäten ) impart more sophisticated education and research related knowledge compared to universities of applied science ( Hochschulen ) or universities of cooperative education ( Duale Hochschulen, Hillmert and Kröhnert 2003). 107

117 face such a competition. I measure fitness and competitive incentives using a binary variable indicating whether an auditor lists endurance sports, especially marathon, as one of his or her interest on XING. I focus on marathon as running does not require any sports gear or teammates and can be done virtually everywhere (Limbach and Sonnenburg 2014). Revenue generation According to Bourdieu (1985), economic capital is another channel of differentiation between individuals. Thereby, economic capital not only refers to the possession of money, but also to the generation of revenues within the field. As partners do not only receive a fixed compensation but alsoe a share of the audit firm s profit, recently promoted partners have to generate certain amounts of revenue to avoid dilution of the profit per partner (Huddart and Liang 2005; Knechel et al. 2013b). Thus, a major driver for career success likely is revenue generation (Carter and Spence 2014). I measure revenue generation using total audit fees earned by an auditor during a given year. Networking and management skills Career success and revenue generation require social interactions among individuals, for example to win new clients or to form social ties within a firm (Kornberger et al. 2011). Bourdieu (1985) describes internal and external networks as dimensions of social capital. Social capital refers to relationships and interactions between individuals within a field (Carter and Spence 2014). In general, social capital improves the quantity, frequency and quality of new information and contributes to the socialization of a professional within a firm (Covaleski et al. 1998; Anderson-Gough et al. 2006; Kornberger et al. 2011; Burt 2014). With respect to career success in the auditing profession, social capital is of particular importance. Presenting themselves and knowing the right people improves the likelihood of promotions because top-level promotions are often based on decisions of several persons (Kornberger et al. 2011). Thus, social ties to superiors can increase the likelihood of promotion. To measure networking activities, I use the number of business contacts on XING. As a measure of interconnectedness across different fields, I include 108

118 the number of memberships in clubs and organizations (e.g., service clubs, booster clubs or parties). As outlined by Goffman (1959) or Kornberger et al. (2011), doing a good job is not sufficient for managers to progress. Doing visible or symbolic tasks is part of the required impression management to gain visibility within the firm and towards superiors. I measure exposure using two variables. A binary variable indicating whether an auditor audited a listed client. Prior research provides evidence that task complexity is an indicator for promotion willingness (e.g., DePater et al. 2009; Kornberger et al. 2011). Thus, auditors might choose complex engagements to signal eligibility for more sophisticated tasks. Second, I use the total number of engagements as lead auditor or engagement quality reviewer during a year. A higher number of engagements increase visibility within the firm. Last, acquiring new and retaining current clients requires communication skills (Carter and Spence 2014) to conduct meaningful conversations or sell additional services. In line with Bourdieu s (1985) definition of linguistic capital, communication skills enable an auditor to build and reinforce corporate relationships. I measure linguistic capital using the number of foreign languages an auditor speaks, as foreign languages simplify conversations with international clients. Job experience and professional ethics As outlined, symbolic actions and client-orientated behavior might be of particular importance for career success. However, low audit quality or even audit failures increase (decrease) litigation risk (reputation) of an audit firm (e.g., Chaney and Philipich 2002; Knechel et al. 2013b; Rasso 2014). Thus, the long run survival of an audit firm crucially depends on its auditors job experience and her or his attitude towards professional ethics. In addition, required skills differ depending on the career level (e.g., Blanthorne et al. 2005). Thereby, technical skills are more important at lower compared to higher career levels. Thus, there is an inverse relationship between general audit experience and career success (Carter and Spence 2014). A large portion of audit experience is based on on-the-job-learning (Westermann et al. 2014). In addition, auditors obtain further experiences via secondments or by working 109

119 outside the auditing profession. Thereby, auditors gain additional skills which might be of particular importance at top-level positions, e.g., management skills. I use two variables to measure additional job experience. I measure foreign experiences using a binary variable indicating whether an auditor worked for an audit firm outside of Germany. To measure non-audit experience, I use a binary variable indicating whether an auditor worked for at least one non-audit firm. Moreover, auditors need a certain attitude towards professional ethics to ensure independence and professional skepticism. Incentives to retain feepaying clients might outweigh the necessary professional skepticism and reduce audit quality (Boone et al. 2012). I measure professional ethics using the average audit quality as professional ethics should be associated with higher audit quality Data and methodology To examine determinants of career success in the auditing profession, I rely on data of individual auditors disclosed in the business-oriented social networking service XING. Social networks address the needs of their users by highlighting specific functionalities, for example sharing, groups, or relationships (e.g., Kietzmann et al. 2011). Each network offers specific categories to publish information and content. In terms of career management, business-oriented social networks serve as an enhanced CV, giving employers a quick snapshot of a candidate s skills and experience (Crant 2014). XING is the largest business-oriented social networking service in the Germanspeaking countries. 125 The main functionality of XING is identity, in terms of disclosing subjective and objective career-related information so called selfbranding (Kietzmann et al. 2011). A profile comprises up to eleven different sections: headpiece, haves, wants, professional experience, educational background, languages, qualifications, awards, organizations, interests, and 125 XING has 14 million registered members, of which 7 million come from Germany, Austria, and Switzerland. LinkedIn is the largest international business-oriented social networking service with nearly 300 million users (Statista 2014). LinkedIn highlights the functionalities identity, relationships, and reputation (Kietzmann et al. 2011). I assume equivalent functionalities for LinkedIn and XING. I do not use LinkedIn, as promotion and recruitment decisions are made on a national level. 110

120 personal information. I rely on content published within these categories to identify the professional career and derive measures of individual characteristics. In line with Carter and Spence (2014), I focus on Big 4 audit firms to ensure comparability of career levels and paths across audit firms. 126 For the period , I identify 4,448 distinct auditors using the professional register of the chamber of public accountants. 127 All auditors have been working the entire period or at least a certain time within this period for one of the Big 4 audit firms. Matching auditor data from the professional register with XING profiles based on name, age and audit firm yields a sample of 2,682 profiles (60.3% of all Big 4 auditors). In addition, I use socio-demographic information derived from the professional register and financial data from the Thomson Reuters Datastream database and from the Bureau van Dijk Osiris database. Audit fees are collected from the financial statements of public and private firms in Germany. 128 The research design exploits the advantages of the business-oriented social networking service (Figure 12) which allows me to identify the timing of promotions as well as prior and current employments and career levels. 126 As noted by Knechel et al. (2013b), there are differences across audit firms with respect to partner compensation. Thus, Big 4 audit firms are not identical but homogenous compared to non-big 4 audit firms. 127 The professional register comprises information (e.g., age, appointment date, audit firm) of all certified public accountants in Germany. By construction, the sample only includes auditors who already passed the CPA exam. Data on professionals that did not pass the CPA exam or quit prior to the exam are not publicly available. 128 I would particularly like to thank Jürgen Ernstberger and Christopher Koch for providing audit engagement-related information. 111

121 Figure 12: Promotion and career level identification Notes: Figure 12 illustrates a fictional example of the promotion and career level identification using XING. First, I compare characteristics of auditors that have remained in the auditing profession until the end of my investigation period, and their peers that have left the auditing profession. Thus, I am able to provide insights into determinants that influence the likelihood of leaving the auditing profession. Second, I focus on auditors who are still working at one of the Big 4 audit firms and compare characteristics of auditors at different career levels. For example, I compare partners and directors at Big 4 audit firms. This crosssectional comparison allows me to examine both individual characteristics as well as client- and audit-related aspects. Third, I exploit the unique dataset to provide indications for determinants of promotions. As auditors provide information on their professional career on 112