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On the Relationship between Voluntary Disclosure, Earnings Smoothing and the Value-Relevance of Earnings: The Case of Switzerland

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  • Pascale Lapointe-Antunes
  • Denis Cormier
  • Michel Magnan
  • Sophie Gay-Angers

Abstract

This paper examines whether voluntary disclosure by Swiss firms constrains the use of discretionary accruals to smooth earnings, and explores the effect of voluntary disclosure on the value relevance of earnings. We focus on Swiss firms because Switzerland's financial reporting system provides managers with extensive discretion in corporate disclosure, and there are important variations in the level of information provided in their annual reports. We consider that managers can choose two different ways to voluntarily convey information, either through the quality and quantity of annual report disclosure or, through compliance with International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS) or US Generally Accepted Accounting Principles (GAAP). Relying on a simultaneous equations approach, our results suggest that Swiss firms use discretionary accruals to smooth earnings. However, this relation is reduced for firms that voluntarily disclose more information in their annual report or comply with IAS/IFRS or US GAAP. Moreover, we show that discretionary accruals of high disclosers or of firms voluntarily complying with IAS/IFRS or US GAAP receive a lower valuation weight.

Suggested Citation

  • Pascale Lapointe-Antunes & Denis Cormier & Michel Magnan & Sophie Gay-Angers, 2006. "On the Relationship between Voluntary Disclosure, Earnings Smoothing and the Value-Relevance of Earnings: The Case of Switzerland," European Accounting Review, Taylor & Francis Journals, vol. 15(4), pages 465-505.
    • Handle: RePEc:taf:euract:v:15:y:2006:i:4:p:465-505
    DOI: 10.1080/09638180601102040
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    1. Imran Abbas Jadoon & Akhter Ali & Usman Ayub & Muhammad Tahir & Raheel Mumtaz, 2021. "The impact of sustainability reporting quality on the value relevance of corporate sustainability performance," Sustainable Development, John Wiley & Sons, Ltd., vol. 29(1), pages 155-175, January.
    2. Jason Miller & Beth Davis‐Sramek & Brian S. Fugate & Mark Pagell & Barbara B. Flynn, 2021. "Editorial Commentary: Addressing Confusion in the Diffusion of Archival Data Research," Journal of Supply Chain Management, Institute for Supply Management, vol. 57(3), pages 130-146, July.
    3. Nooraisah Katmon & Omar Al Farooque, 2017. "Exploring the Impact of Internal Corporate Governance on the Relation Between Disclosure Quality and Earnings Management in the UK Listed Companies," Journal of Business Ethics, Springer, vol. 142(2), pages 345-367, May.
    4. Nooraisah Katmon & Omar Al-Farooque, 2019. "The Reciprocal Relationship Between Earnings Management, Disclosure Quality and Board Independence: UK Evidence," Research in World Economy, Research in World Economy, Sciedu Press, vol. 10(5), pages 63-80, December.
    5. Pier Luigi Marchini & Tatiana Mazza & Alice Medioli, 2018. "The impact of related party transactions on earnings management: some insights from the Italian context," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 22(4), pages 981-1014, December.
    6. Joonhyun Kim & Yunkyeong Lee, 2023. "Association between Earnings Announcement Behaviors and ESG Performances," Sustainability, MDPI, vol. 15(9), pages 1-16, May.
    7. Vasiliki Athanasakou & Khaled Hussainey, 2014. "The perceived credibility of forward-looking performance disclosures," Accounting and Business Research, Taylor & Francis Journals, vol. 44(3), pages 227-259, June.
    8. Ozili, Peterson K, 2017. "Earnings Management in Interconnected Networks: A Perspective," MPRA Paper 92647, University Library of Munich, Germany.
    9. Senteney, David L. & Bazaz, Mohammad S. & Senteney, Michael H., 2016. "Cross-market information transfers of ADR firms: An investigation of emerging market economies," Research in International Business and Finance, Elsevier, vol. 37(C), pages 655-677.
    10. Andrea Cardoni & Evgeniia Kiseleva & Simona Arduini & Simone Terzani, 2024. "From sustainable value to shareholder value: The impact of sustainable governance and anti‐corruption programs on market valuation," Business Strategy and the Environment, Wiley Blackwell, vol. 33(1), pages 19-42, January.
    11. Elshandidy, Tamer, 2014. "Value relevance of accounting information: Evidence from an emerging market," Advances in accounting, Elsevier, vol. 30(1), pages 176-186.
    12. Reguera Alvarado, Nuria & Laffarga Briones, Joaquina & de Fuentes Ruiz, Pilar, 2015. "Modelos de gestión de resultados: un estudio transnacional," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 18(1), pages 11-19.
    13. Selena Aureli & Sabrina Gigli & Renato Medei & Enrico Supino, 2020. "The value relevance of environmental, social, and governance disclosure: Evidence from Dow Jones Sustainability World Index listed companies," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(1), pages 43-52, January.
    14. Concetta Carnevale & Maria Mazzuca & Sergio Venturini, 2012. "Corporate Social Reporting in European Banks: The Effects on a Firm's Market Value," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 19(3), pages 159-177, May.
    15. Samudhram, Ananda & Stewart, Errol & Wickramanayake, Jayasinghe & Sinnakkannu, Jothee, 2014. "Value relevance of human capital based disclosures: Moderating effects of labor productivity, investor sentiment, analyst coverage and audit quality," Advances in accounting, Elsevier, vol. 30(2), pages 338-353.
    16. Beata Dratwińska-Kania & Aleksandra Ferens & Piotr Kania, 2023. "Transparent Reporting on Financial Assets as a Determinant of a Company’s Value—A Stakeholder’s Perspective during the SARS-CoV-2 Pandemic and beyond," Sustainability, MDPI, vol. 15(3), pages 1-20, January.
    17. Samira Demaria & Denis Cormier & Robert Teller, 2008. "Incidence des choix d'exemptions comptables sur la valorisation boursière des sociétés françaises lors de la première application du référentiel IFRS," Post-Print halshs-00266117, HAL.
    18. Jihene Chedlia Soussi, 2012. "Impact of Voluntary Disclosure on the Relevance of Accounting Information," Journal of Education and Vocational Research, AMH International, vol. 3(5), pages 138-153.

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