Fr

Reflections about Italian academic life in Economia Aziendale and its evolution

Applicants for habilitation to Associate and Full professor in Economia Aziendale has during two years been evaluated by a commission, containing four Italian professors and one international professor. Me, being the international evaluator, present here some of my observations and impressions from the evaluation and present some reflections about the evolution of the Italian academic system and the subject, Economia Aziendale. My main conclusion, that the tradition of the subject is, at least in the short run, at threat due to the push towards internationalisation, could be regarded as rather pessimistic. But it is also a call for governed development, which should benefit all of us in the area, the whole international community.

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Keywords: Research evaluation, academic career, economia aziendale, scientific journals.

Fr

Acquisition-type or merger-type accounting? Further insights on transactions involving businesses governed by the same party(-ies)

[Dialogue with standard setters]

This paper – aiming at encouraging a fruitful debate – intends to highlight the discontinuous evolution of the accounting solutions explored by notable bodies (Efrag-Oic, Iasb, Fasb, Kasb, etc.) with reference to transactions involving businesses under common control. The work finally recompose them in two basic categories (discussing their pros/cons as well), here analyzed: acquisition-type accounting, which emphasizes fair value (emergence of exchange or current amounts) vs. merger-type accounting, linked to historical costs (continuity values approach). The first cluster includes the pure-acquisition and the fresh-start method, whereas the second the predecessor basis and the pooling of interests techniques. The concrete identification of the proper methodology, in this regard, essentially requires the profound understanding of the underlying economics, architecture and key elements of a specific transaction shedding light on the most relevant and reliable information useful to stakeholders.

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Keywords: Common control, consolidation, financial reporting, acquisition accounting, fresh start, predecessor basis, pooling of interests, IAS/IFRS

Fr

Managerial discretion in authorising open market share repurchases: empirical evidence from the Italian context

This paper contributes to existing literature on open market share repurchases in Italy by studying authorisations that the board of directors needs to obtain from the shareholders’ general meeting in order to acquire company’s own shares. In such a context, I investigate whether the buyback purpose that managers disclose in their report affects number of shares to be repurchased. Particularly, since managers could potentially benefit from share repurchase programmes carried out in the presence of stock option plans, I explore whether this motivation influences the number of shares they require to include in the buyback programme. In pursuit of my objectives, I analyse reports managers provide shareholders’ meeting to obtain the authorisation to acquire company’s own shares over a 6-year period (2004-2009) in Italian listed companies. Main results suggest that the buyback motivation affects number of shares managers intend repurchasing, highlighting the role of the quality of the board of directors in this issue.

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Keywords: Buyback, stock option plans, management, board quality

Fr

Comprehensive Income: which potential effects on firms’ performance evaluation and users’ decision process?

The reporting of comprehensive income is becoming increasingly important. After the introduction of Other Comprehensive Income (OCI) reporting, as required by the 2007 IAS 1-revised, the IASB is currently seeking inputs from investors on the usefulness of unrealized gains and losses and on the role of comprehensive income. This circumstance is of particular relevance in code law countries, as local pre-IFRS accounting models influence financial statement preparers and users. This study aims at investigating the role played by unrealized gains and losses reporting on users’ decision process, by examining the impact of OCI on the Italian listed companies RoE ratio and by surveying a sample of financial analysts, also content analysing their formal reports. The results show that the reporting of comprehensive income does not affect the financial statement users’ decision process, although it statistically affects Italian listed entities’ performance.

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Keywords: Comprehensive income statement, users/investors, International Financial Reporting Standards (IFRS), performance evaluation, analysts’ reaction

Fr

Corporate governance and information asymmetry between shareholders and lenders: an analysis of Italian listed companies

This paper analyzes the information asymmetry between owner/manager and lenders. More specifically, the research investigates the role of corporate governance mechanisms in reducing the agency costs of debt. The findings show that lenders perceive higher agency costs of debt if the controlling shareholder owns a percentage of capital greater than 66%. Results also show that the presence of independent directors elected by minority shareholders on the board mitigates the agency conflicts between borrowers and lenders. In the same way, the audit committee independence reduces the agency costs of debt. Moreover, the study shows that when the audit committee chairman coincides with the board chairman banks perceive more risk and, therefore, a bigger asymmetry. This coincidence increases the concentration of power in the hands of just one person and this enhances the likelihood of opportunistic actions by the management that could damage lenders. This means that it is costly for companies to concede to just one person too much influence over the board activities, because it reduces the effectiveness of the monitoring role played by independent directors, increasing the information asymmetry between borrowers and lenders.

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Keywords: Agency costs of debt, board of directors, audit committee, ownership concentration

Fr

Business Combinations under Common Control: Concerns, Criticisms and Strides

[Dialogue with standard setters]

Although excluded from the scope of IFRS 3, business combinations under common control (BCUCCs) are widespread transactions that take place all over the world in different forms, often as a reorganization or restructuring among related parties. These transactions occur when entities are ultimately – not transiently – controlled by the same party/ies before and after the combination (which is neither a capital market nor an arm’s length transaction and devoid of economic substance: indeed, no change of control is entailed). The scarce and fragmentary literature, not to mention the lack of clear consensus on the topic, contributes to the prevailing concerns on how to account for BCUCCs. In this complex context, the purpose of this work is to assess the possible and various accounting methods and identify the most suitable, accredited and consistent techniques. […]

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Keywords: Common control, consolidation, financial reporting, acquisition accounting, fresh start, predecessor basis, pooling of interests, IAS/IFRS

 

Fr

Graphical Reporting in Italian Annual Reports during the Financial Crisis: Impression Management or Incremental Information?

This paper investigates whether, before and during the global financial crisis, Italian firms have used financial key performance indicators graphs in the annual reports as impression management tools, to portray a more favourable picture of the firm’s performance than is warranted. This study shows that, during the financial crisis, firms have increased the number of graphs and decreased favourable distortions, although graphs continued to be designed inaccurately. The findings could reflect an increased public scrutiny on the firm’s performance, during the financial crisis. As a theoretical implication, this paper contributes to the existent financial reporting literature by showing that graphs are not necessarily used in line with an agency theory-based impression management, which is the dominant perspective to explain the graphs’ usage in the annual reports during periods of performance upturn. Moreover, it shows that the institutional context can affect voluntary disclosure practices at a firm-level. As a practical implication, this study suggests to annual reports’ readers not to necessarily consider managers as self-serving preparers in their graphical reporting strategies. The study also suggests accounting associations, audit firms and other regulatory bodies to create a set of guidelines for a correct graph’s use and design.

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Keywords: Financial crisis, financial key performance indicators graphs, impression management, incremental information

Fr

Disclosures in Local Healthcare Organizations’ Social Reports. ‘What?’ and ‘Why?’ An Empirical Analysis of the Italian National Healthcare System

In recent years, public administration reform and the increase in information requests from citizens has drawn attention to the issue of reporting information (other than ‘financial’). Local healthcare organizations, as well as public administrations, have been affected by these developments. This paper presents the results of content analysis conducted on social reports published by Italian local healthcare organizations from 2009-2013 with the purpose of verifying the actual significance of the elements that according to the literature and standard setters, should define the scope and content of social reporting. The study highlights the fact that the healthcare organizations analysed tend to focus on the type and volume of the services provided, while neglecting the connection between predefined objectives and actual performance – as well as stakeholder engagement in the social reporting process. Social reports have the role therefore of being merely a tool for unidirectional communication by the healthcare organization to its stakeholders.

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Keywords: Social reporting, local healthcare organizations, accountability

Fr

Why Do Firms Write Off Their Goodwill? A Comparison of Different Accounting Systems

Increased comparability of financial statements across adopting countries is one of the main objectives of IFRS adoption. The level of achievement of this objective, however, is still debatable. While some studies have documented that crosscountry comparability of financial statements has increased after IFRS adoption, other studies have found that comparability has actually decreased since 2005. We contribute to this debate by studying whether the motivations for goodwill writeoff are the same or vary across countries with different accounting systems. Although a good deal of research has investigated the motivations for goodwill writeoff, our study is the first to analyze whether these motivations vary across countries with different accounting systems. We find that firms that expect low cash flows in the future are more likely to report goodwill write-offs if they are located in countries with an Anglo-Saxon accounting system than if they are located in countries with a Continental accounting system. These results suggest that IFRS are “interpreted” differently in different countries and that harmonization of financial statements has not been fully achieved yet.

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Keywords: Goodwill, impairment, IFRS, accounting systems

Fr

Directive 2013/34/EU, Article 6 An Analysis and some Implications. A Research Note

[Opinion]

This research note analyses a number of implications of Article 6 of the new EU accounting Directive. Two avenues are explored in some detail. The first is the meaning, or non-meaning, of the measurement basis provisions of the Directive, covered in Article 6 with derogations in Articles 7 and 8, in the context of the previously declared intention to no longer allow the use of current replacement cost. The second relates to the extraordinary flexibility, indeed confusion, relating to the substance/form distinction, both in principle from Article 6, and by example relating to consolidation in Article 22. The Directive is argued to be sufficiently incompetent, ambivalent, and at times internally inconsistent, to allow a considerable degree of de facto carte blanche to Member States. Perhaps it should be called the anti-harmonisation directive.

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Keywords: Directive 2013/34/EU, measurement bases, substance, dis-harmonisation.