Key Research Publications

 

Does Sustainability Assurance Improve Managerial Investment Decisions?

Team: Maria Steinmeier (TUM) and Michael Stich

Publication: European Accounting Review, 2019

This study analyzes the effect of sustainability assurance on managerial investment decisions in terms of sustainability investment efficiency. We hypothesize that sustainability assurance improves the set of information available for managerial decision making, resulting in higher sustainability investment efficiency. Further, we argue that sustainability assurance reduces information asymmetry between managers and investors, which enables investors to more effectively monitor a firm’s management, thus again leading to higher sustainability investment efficiency. Empirical findings for an international sample support these links. Moreover, we find weak evidence that sustainability assurance provided by an auditor is associated with a stronger effect on sustainability investment efficiency. In additional analyses, we find weak evidence that the association of sustainability assurance and sustainability investment efficiency is more pronounced if the sustainability assurance is provided on a higher scope, on a higher level, and if other governance mechanisms are weak.

 

Economic Consequences of Accounting Enforcement Reforms

Team: Juergen Ernstberger (TUM), Michael Stich, and Oliver Vogler (Ledvance GmbH)

Publication: European Accounting Review, 2012

This study investigates recent reforms in financial reporting enforcement in Germany. The objective of these reforms was to promote a consistent and faithful application of accounting standards. Using a difference-in-differences approach, we find some evidence of a decrease in earnings management, an increase in stock liquidity, and, to a limited extent, an increase in market valuation for companies that fall under the new enforcement regime. Our results also provide some support for the notion that companies characterized by an overall low level of enforcement through other internal and external mechanisms are particularly affected by these reforms. The results are largely robust in several sensitivity analyses, but the results must be interpreted with caution because we cannot completely rule out the possibility of other explanations.

 

Enforcement of Accounting Standards in Europe: Capital-Market-Based Evidence for the Two-Tier Mechanism in Germany

Team: Joerg-Markus Hitz (Georg-August-Universitaet Goettingen), Juergen Ernstberger (TUM), and Michael Stich

Publication: European Accounting Review, 2012

On the background of regulatory initiatives that mandate the establishment of comparable enforcement systems in EU jurisdictions to ascertain consistent and faithful application of IFRS, this paper provides capital-market-based evidence on investor reactions for one specific institutional set-up: the two-tier enforcement system in Germany. In operation since 2005, the German enforcement mechanism consists of a private body, the DPR, which investigates compliance of published financial reports of firms listed on a regulated market segment and, upon error findings, involves the German securities regulator BaFin, which on a second level enforces disclosure of these findings to establish adverse disclosure (‘name and shame’). For a sample of error findings published in the period 2005–2009, we investigate short- and long-term market reactions to error announcements. Results for abnormal returns, abnormal trading volumes and abnormal bid-ask spreads indicate that these announcements represent new, negative information and suggest that, despite an enforcement environment that is categorised as weak in the extant literature, the activities of the DPR/BaFin seem to penalise infringing firms and thus provide potential deterrence. Multivariate analyses yield weak evidence that the magnitude of the market value discount is positively associated with the severity of the errors, with the threat of subsequent litigation and with cases in which firms disagreed with the error findings of the DPR.

 

Market Reactions to Increased Reliability of Sustainability Information

Team: Julia Lackmann (Westfaelische Hochschule), Juergen Ernstberger (TUM), and Michael Stich

Publication: Journal of Business Ethics, 2012

This article investigates whether investors consider the reliability of companies’ sustainability information when determining the companies’ market value. Specifically, we examine market reactions (in terms of abnormal returns) to events that increase the reliability of companies’ sustainability information but do not provide markets with additional sustainability information. Controlling for competing effects, we regard companies’ additions to an internationally important sustainability index as such events and consider possible determinants for market reactions. Our results suggest that first, investors take into account the reliability of sustainability information when determining the market value of a company and second, the benefits of increased reliability of sustainability information vary cross-sectionally. More specifically, companies that carry higher risks for investors (e.g., higher systematic investment risk, higher financial leverage, and higher levels of opportunistic management behavior) react more strongly to an increase in the reliability of sustainability information. Finally, we show that the benefits of an increase in the reliability of sustainability information are higher in times of economic uncertainty (e.g., during economic downturns and generally high stock price volatilities).

 

The Real Effects of Mandatory Quarterly Reporting

Team: Juergen Ernstberger (TUM), Benedikt Link (Projekt Fundraising GmbH), Michael Stich, and Oliver Vogler (Ledvance GmbH)

Publication: The Accounting Review, 2017

This paper examines how mandatory quarterly reporting affects managers’ business decisions in terms of real activities manipulations. For our analyses, we use the setting of the European Union, where the reporting frequency was increased with the introduction of a mandate to issue Interim Management Statements (IMSs) on a quarterly basis. Controlling for accrual-based earnings management, we find an increase in real activities manipulations for firms mandated to switch from semiannual to quarterly IMS reporting, relative to matched control firms. This finding is in line with the notion of higher managerial short-termism resulting from increased reporting frequency requirements. Further, we provide evidence that reporting frequency-induced real activities manipulations are more pronounced if the price pressure from investors is high and if the informativeness of IMS disclosure is low. We also document that reporting frequency-induced real activities manipulations are followed by a short-term increase and then a decrease in firms’ operating performance.

 

 

Selection of Practitioner-Oriented Research Publications

 

Investitionsstrategien auf Basis des CO₂-Ausstosses

Team: Michael Stich

Publication: Oekologisches Wirtschaften

 

Nachhaltigkeitsberichterstattung in Deutschland – In puncto Assurance alles andere als weltmeisterlich!

Team: Maria Steinmeier (TUM) and Michael Stich

Publication: Die Wirtschaftspruefung

 

Nicht-finanzielle Leistungsindikatoren und Aspekte der Nachhaltigkeit bei der Anwendung von DRS 20

Team: Julia Lackmann (Westfälische Hochschule) and Michael Stich

Publication: Zeitschrift fuer Internationale und Kapitalmarktorientierte Rechnungslegung

 

Restatements in der Nachhaltigkeitsberichterstattung

Team: Maria Steinmeier (TUM) and Michael Stich

Publication: Zeitschrift fuer Internationale und Kapitalmarktorientierte Rechnungslegung

 

Status Quo der Chancen- und Risikoberichterstattung gemaess DRS 20 – Eine kritische Diskussion der Berichtspraxis der DAX 30-Unternehmen

Team: Julia Lackmann (Westfälische Hochschule), Maria Steinmeier (TUM), and Michael Stich

Publication: Zeitschrift fuer Internationale und Kapitalmarktorientierte Rechnungslegung