Market enforcement under different legal regimes: a comparison of France and Canada

Cormier, Denis; Gutiérrez, Luania Gomez; Magnan, Michel

doi:10.1007/s10997-019-09464-2

Cited by 3 publications

(3 citation statements)

References 41 publications

(62 reference statements)

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“…Finally, some prior research suggests that there seems to be greater market enforcement in Canada than in France (Cormier et al , 2020), with institutional investors playing a much larger role, especially in terms of demands for disclosure. The analyst community is another key constituency that underlies demand for non-GAAP information.…”

Section: Background and Research Propositionsmentioning

confidence: 99%

Non-GAAP reporting and capital markets: contrasting France and Canada

Cormier

Demaria

Magnan

2022

JFRA

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Purpose This study aims to assess if the voluntary reporting of adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), a widely used non-generally accepted accounting principles (GAAP) measure, has effects on information asymmetry and value relevance and how the adjustments to GAAP earnings made to derive it contribute to these effects. This study focuses on firms from two countries with contrasting institutional settings, Canada and France. Design/methodology/approach Relying on multivariate analyses and using Heckman’s procedure to address the sample self-selection issue, this study first estimates the likelihood of a firm to report adjusted EBITDA. Then, this study examines if adjusted EBITDA, as well as the adjustments made to GAAP earnings to derive adjusted EBITDA (adjustments), affect a firm’s information asymmetry and its value. These adjustments are essentially GAAP-grounded items that are discarded by management to derive non-GAAP adjusted EBITDA. The dependent variables are share price volatility, as a proxy for information asymmetry, alongside market-to-book and stock market return as indicators of value. Findings In terms of the used sample, results suggest that Canadian firms are much more likely to report adjusted EBITDA than French firms. Chief executive officer (CEO) attributes (CEO power) appears to increase such likelihood. Moreover, for both Canadian and French firms, adjusted EBITDA is associated with reduced stock market volatility, an indication of lower information asymmetry, as well as higher market-to-book and returns, suggesting value relevance. The results also indicate that investors view the adjustments to GAAP earnings made by management to derive adjusted EBITDA as not value relevant (similar to noise). The GAAP-grounded elements that management discard to derive adjusted EBITDA actually increase information asymmetry. Originality/value This study adds to prior research on the interface between a CEO attributes and governance and non-GAAP reporting. This study also provides evidence that, despite very different institutional settings, non-GAAP reporting conveys relevant information to capital markets’ participants in both France and Canada. Hence, a country’s institutional setting may have a differential impact on the disclosure choice but not on the resulting value relevance of such disclosure. Finally, this study extends the non-GAAP literature by examining the value relevance of a widely used yet under-researched measure, adjusted EBITDA.

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Section: Background and Research Propositionsmentioning

confidence: 99%

Non-GAAP reporting and capital markets: contrasting France and Canada

Cormier

Demaria

Magnan

2022

JFRA

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“…The components of the Bloomberg disclosure score have been found to represent different aspects of a firm (Tamimi & Sebastianelli, 2017). This has led to a number of studies using the individual components (Han et al, 2016;Li et al, 2018;Nollet et al, 2016;Taylor et al, 2018;Wang & Sarkis, 2017), including just the governance component (Buallay, 2018;Chauhan & Kumar, 2018;Cormier et al, 2017;Giannarakis et al, 2018;Katarachia et al, 2018;Khan, 2019;Wang & Sarkis, 2017), which has been found to have the highest level of transparency (Tamimi & Sebastianelli, 2017). Consistent with previous literature, we split the Bloomberg disclosure score into its component parts (Baldini et al, 2018;Giannarakis, 2014;Lo & Kwan, 2017;Tarmuji et al, 2016;Yu et al, 2018).…”

Section: Dependent Variable (Corporate Governance Transparency)mentioning

confidence: 65%

Corporate governance transparency: Do firm‐level ethics policies and country‐level investor protections substitute or complement?

Weber

Moghaddam

Lewellyn

et al. 2023

Thunderbird Intl Bus Rev

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This study empirically investigates the direct and interactive effects of firm‐level ethics policies and country‐level investor protection on firm corporate governance transparency. Using data on 9298 firms collected from the Bloomberg Terminal, we find that there is a positive relationship between country‐level investor protection and firm corporate governance transparency. The results also support the argument that firms with existing ethics policies exhibit greater corporate governance transparency. We also find that in countries with weaker investor protection, the impact of firm‐level ethics policies on corporate governance transparency is stronger. This study advances our understanding of the corporate governance transparency determinants, and the empirical evidence supports the notion that firm‐level factors such as ethics policies may compensate for the lack of formal national investor protection regulations.

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“…We believe it is worthwhile to include France and Germany, two code law European countries that show differences in market enforcement compared to Canada and the UK, two common law countries (e.g. Cormier et al. , 2020).…”

Section: Methodsmentioning

confidence: 99%

The relevance of XBRL extensions for stock markets: evidence from cross-listed firms in the US

Cormier

Teller

Dufour

2022

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PurposeThe study investigates the relevance for stock markets of voluntary disclosure of eXtensible Business Reporting Language (XBRL) extensions [based on International Financial Reporting Standards (IFRS) or US-GAAP] for an international sample of US cross-listed firms.Design/methodology/approachThe study examines if the disclosure of XBRL extensions by a firm provides relevant information to market participants. Towards that end, this paper investigates whether this type of disclosure affects the level of information asymmetry between insiders and investors and if it is value relevant. This study measures information asymmetry by bid-ask spread and value relevance by stock price or Tobin's Q.FindingsAfter a certain level of disclosure of XBRL extensions, the impact on stock pricing is negative (creates noise on stock markets). Controlling for that phenomenon, both IFRS and US-GAAP XBRL extensions are value relevant. Second, results indicate that XBRL extensions are positively (negatively) related to stock market value for firms that exhibit positive (negative) earnings. This suggests a complementary effect between earnings and XBRL extensions on their relation with stock price or Tobin's Q. Finally, the results also indicate that both IFRS extensions and US-GAAP extensions are associated with lower information asymmetry (i.e. bid-ask spread).Originality/valueTo the best of the authors’ knowledge, this study is the first to investigate the relevance of XBRL extensions under IFRS for US cross-listed firms since the availability of the IFRS taxonomy for foreign private issuers that prepare financial statements under IFRS standards.

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Market enforcement under different legal regimes: a comparison of France and Canada

Cited by 3 publications

References 41 publications

Non-GAAP reporting and capital markets: contrasting France and Canada

Non-GAAP reporting and capital markets: contrasting France and Canada

Corporate governance transparency: Do firm‐level ethics policies and country‐level investor protections substitute or complement?

The relevance of XBRL extensions for stock markets: evidence from cross-listed firms in the US

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