Kosi and Sievers focus on the financial markets and investigate how corporate transparency affects decision-making by capital providers. A specific focus is the role of intangible assets and green bonds as well as the role of institutional investors in processing information. The project uses equity and debt market settings as well as settings with institutional and non-institutional investors. In addition, this work will extend the global collection of financial restatements to measure their impact on voluntary and mandatory disclosures, use textual measures of transparency in annual reports to improve accounting quality measures, and study spillovers from bond prospectuses to the equity market.
Resulting from the merger with A03 and B09, the repositioned B05 will be well-situated to work with other measurement-related projects such, as A08 and B10, to study how firm transparency can be assessed by capital-market measures and how it affects the efficiency of financial markets.
How do capital providers make their investment decisions based on the information provided by firms via regulated or unregulated, financial or nonfinancial reporting?
Investors need to process the information provided to them by analyzing financial reports. Here understanding and measuring financial reporting transparency is a key challenge from the perspective of regulators (such as the IASB, the FASB, the European Commission, and the recently established ISSB) and the perspective of firms, given that firms can choose to supplement mandatory disclosure with voluntary disclosure.
In the second funding period, we will continue our path by focusing more on the integration of the equity and debt markets. In particular, we will extend the global financial restatement database. We will employ machine learning to investigate the processing of textual information that investors obtain from annual reports and bond prospectuses and analyze the implications for firms’ financing decisions. We will also broaden our research on intangible assets to pricing effects in the bond market and investigate whether and to what extent intangible assets are used as collateral in debt contracts. Finally, we will investigate financial markets from a sustainability perspective and study the impact of firm transparency on so-called green bonds.
We believe that our research contributes to a better understanding of the effects of firm transparency and regulatory transparency in financial markets. In this way, we hope to provide support for evidence-based regulatory processes.