The impact of stakeholder management on restatement disclosure transparency
Review of Accounting and Finance
ISSN: 1475-7702
Article publication date: 28 April 2022
Issue publication date: 1 June 2022
Abstract
Purpose
The purpose of this paper is to explore the impact of a particular firm’s stakeholder orientation, particularly employee orientation, on corporate communications with stakeholders concerning financial irregularities.
Design/methodology/approach
This study explores the impact of a particular firm’s stakeholder orientation, particularly employee orientation, on corporate communications with stakeholders concerning financial irregularities. Using a sample of 762 firm restatements, the authors separate their observations by disclosure transparency (high or low transparency of disclosure) and use logit regressions to examine whether companies with stronger employee orientation make more or less transparent restatement disclosures.
Findings
The findings show that higher levels of investment in employee orientation are associated with less transparent restatement disclosures. Further, examining a subsample of restatements in which managers may have greater discretion over how a restatement is disclosed confirms this finding. However, supplemental tests show that increased external monitoring may mitigate these effects.
Practical implications
The findings provide support that other stakeholders, such as shareholders, should weigh the potential pros/cons of management investments in corporate social responsibility (CSR). These concerns are more important now as firms continue to embrace a stakeholder-focused model of management which allocates resources to numerous stakeholder groups.
Originality/value
This paper extends the growing body of research that assesses the impact of CSR on firm outcomes (Kim et al., 2012; Guo et al., 2016; Hmaittane et al., 2019). Further, this paper contributes to the disclosure transparency literature by finding an association between CSR investment levels and the manner in which a firm discloses a restatement.
Keywords
Acknowledgements
The authors would like to thank the workshop participants and their discussant at the 2018 American Accounting Association Annual Meeting. They would also like to thank Meghan Hess, Drew Hess, and Afshad Irani at Washington and Lee for constructive feedback. Lastly, they would like to thank the editor and both reviewers for providing helpful comments throughout the process.
Data availability: All Compustat, Thomson Reuters, Execucomp, MSCI KLD and Audit Analytics data was downloaded from WRDS. Data on dedicated institutional ownership percentages were obtained thanks to Brian Bushee at the University of Pennsylvania and can be found at https://accounting-faculty.wharton.upenn.edu/bushee/.
Citation
Hogan, B. and Reid, C. (2022), "The impact of stakeholder management on restatement disclosure transparency", Review of Accounting and Finance, Vol. 21 No. 3, pp. 174-203. https://doi.org/10.1108/RAF-04-2021-0112
Publisher
:Emerald Publishing Limited
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