Essays on Disclosures

This thesis examines disclosures related to firms. The first chapter “Disclosures Surrounding Cyber Attacks” (solo-authored) investigates whether how US-domiciled firms disclose (i.e. filing choice and content) a cyber-attack incident is associated with differential stock market reaction surrounding the first disclosure made to the U.S. Securities and Exchange Commission (SEC). The first chapter uses empirical archival data to illustrate disclosure choice and content is associated with differential stock market reactions. The first chapter also provides evidence that cybersecurity risk factor disclosures reflect cybersecurity risk, as textual properties of these risk factor disclosures change following a cyber-attack incident when benchmarked with a control firm that did not disclose a cyber-attack incident in the same period. The results of the first chapter may help guide the SEC's ongoing task of improving cybersecurity-related disclosures.
The second chapter “Seeing is Believing: The Effect of R&D as a Separate Income Statement Line Item on Financial Statement Users’ Judgement” (co-authored with Jeppe Christoffersen and Thomas Plenborg) investigates the flexibility permitted under International Accounting Standard 1 (IAS 1), where firms can report the income statement using either the by function or by nature format. Specifically, the second chapter investigates the effect of (not) reporting research and development (R&D) expenses as a separate line item on the income statement. The second chapter uses an experimental setting to investigate if this (non) disclosure affects the users’ perception of the firm’s level of innovativeness and future profitability. The results suggest that the (non) disclosure does lead to differential perception, despite the final net income being held constant. The results of the second chapter may contribute to the ongoing debate related to the presentation format flexibility permitted under IAS 1.
The third chapter “How Similar are CAMs and KAMs? Evidence from Twin Audit Matters” (co-authored with Brian Burnett and Bjørn Jørgensen) examines the similarity between Critical Audit Matters (CAMs) and Key Audit Matters (KAMs). CAMs and KAMs are recent disclosure requirements that are part of the expanded auditor report disclosure initiative that aims to increase audit transparency in the US and EU, respectively. Auditors of firms listed in the US are required to disclose CAMs whereas those listed on a European Union (EU) regulated stock exchange are required to disclose KAMs. The third chapter exploits a unique set of EU-domiciled firms that for the same fiscal year, have both CAMs and KAMs disclosures. Furthermore, this chapter exploits a subset of firms that disclose financial statements under both IFRS and US GAAP for the same fiscal year. Therefore, the two sets of firms allow for a difference-in-differences analysis to isolate the effect(s) of accounting standards on audit matters. The results of the third chapter may help guide the Public Company Accounting Oversight Board (PCAOB)’s ongoing task of evaluating audit matter disclosures.