Context-Based Disclosure Incentives

Firm-level incentives also shape the voluntary financial disclosures of firms. Ebert and Simons aim to understand how disclosure strategies of firms and other organizations depend on the context of disclosure. To this end, the project models sender-receiver-interactions within different contexts as strategic games, identifies equilibria, and analyzes how these equilibria depend on contextual variables. With this work, it provides theories about disclosure behavior that serve as the basis for empirical hypotheses and eventually for regulatory action. The project will focus on the not-for profit setting, providing insights on an increasingly important form of economic activity. The work of A06 complements the insights of A02. Its findings can help predict financial reporting disclosure behavior, which shapes corporate transparency.

  • Research Question

    How do optimal disclosure strategies of firms and other organizations depend on the context of disclosure?

  • Research Motivation

    In the second funding period, we will focus more on nonprofit organizations (NPOs), because of their societal and economic importance as well as their comparatively weak reporting regulations. Nonprofits fulfill a wide range of roles in society, for example, as political actors, as care providers, as educators, and as experts in the field of economic cooperation and development. According to Deutsches Zentralinstitut für soziale Fragen (DZI) (2020), total charitable donations in Germany in 2020 (last available data) were €11.7 billion. This amounts to almost five times the 2022 budget of the Federal Ministry for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection; half the budget of the Federal Ministry of Education and Research; or the total budget of the Federal Ministry for Economic Affairs and Climate Action. Due to the scant reporting requirements, nonprofits rely mainly on voluntary disclosures as a means for communication with their stakeholders.

  • Research Program

    Nonprofits often provide public rather than private goods and they usually do not offer a financial return on investment to their capital providers (donors). If donors base their funding decision on some measure of performance, we expect nonprofits to disclose performance-related information. Our hand-collected data reveals considerable cross-sectional variation in performance-related disclosures. While reporting about inputs (e.g., resources spent on building schools) is relatively common, disclosures about outcomes (e.g., number of students enrolled in these schools) or impact (e.g., increase in literacy and average income) are rare. We want to understand whether this is a strategic choice or purely circumstantial. In this endeavor, we build upon the lack of comprehensible reporting regulation for nonprofits in Germany, which makes NPO disclosure predominantly voluntary. Among other things, reporting regulation establishes a common language between senders and receivers. Thus, in the context of nonprofits, we ask: Could rational expectations lead to a convergence of voluntary disclosures toward an informal standard? We will further analyze whether fundraisers, such as Red Nose Day, ZDF Spendengala, or Aktion Deutschland hilft, play a role as information mediators, implying lower information processing costs for potential donors, or a role as reputation lenders that substitute for nonprofit transparency in the acquisition of donations.

  • Research Contribution

    In a sender-receiver-framework (see Röhner and Schütz, 2020) senders, such as nonprofits, disclose information to affect the beliefs of receivers, such as donors. The sender defines properties of the signal, such as the amount of disclosed information, its accuracy, and clarity; the receiver decodes the received signal in light of prior knowledge. Their communication is affected by contextual variables, such as regulation, the socio-economic environment, and situational factors, all of which interact in complex ways. Our project contributes to the understanding of transparency by developing descriptive models that identify first-order effects of the context on disclosure decisions. It furthers our understanding by analyzing the generation, distribution, and reception of information. Our analyses complement research on information provision in financial, managerial, and tax contexts and provide theoretical foundations for hypothesis development in empirical research.

Participating Institutions

TRR 266‘s main locations are Paderborn University (Coordinating University), HU Berlin, and University of Mannheim. All three locations have been centers for accounting and tax research for many years. They are joined by researchers from LMU Munich, Frankfurt School of Finance and Management, Goethe University Frankfurt, WHU – Otto Beisheim School of Management and University of Cologne who share the same research agenda.

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