Report of Nonfinancial Main indicators

(2012)’s article, “Corporate reporting of nonfinancial leading indicators of economic performance and sustainability” to examine how the leading indicators influence the economic performance, but we choose the 50 public firms from five different industries during 2010, not 2004. According to our results, the sample firms pay more attention on market share and innovation. Other nonfinancial leading indicators also mention, but they are broadly. Next, mandatory filings and corporate websites are the most prevail disclosure venues to disclose the most of the information. Also, market share has the positive relationship with firm size. Thus, it’s not accurate for investors and auditors when they use the balance sheet to make a decision. On the other hand, many intangible assets are not recorded as assets (Bragg 2018).

Instead, any expenditures are recorded as expense immediately. It’s a problem to underestimate the value of companies. Also, traditional financial reporting has no predictive value (Bragg 2018). We pick up the similar sample used by Cohen et al (2012), which are among the first 50 United States firms on exchange. Also, we give the same six leading indicators: market share, quality rankings, turnover, innovation, customer satisfaction and employee satisfaction in the same seven different type of disclosure venues: mandatory filings, website, CSR report, press release, governance document, product fact sheet and other documents which are not included in the six primary types. Then, we also make up four research questions. The first one is which disclosures are made, then, which venues are used, and the third and fourth are the effect of size and industry about leading indicators.

Finally, we go through the results and give some conclusions. In the next part, we will discuss related literature review and mention our four research questions. Then we will talk about our research design. Next, we will analysis and talk about our results. The final section is our conclusion. ANALYSIS AND HYPOTHESES Financial reporting and analysis is an essential way for investors, auditors, and creditors to know the depiction of a company’s finances. This is one of the reason why companies start to combine nonfinancial information with financial information, and this reduces information asymmetry between stakeholders and management. From the perspective of Adam (2012) there are various benefits of combining financial and nonfinancial reporting metrics and this help to give a better reflection of the company strategy.

Similarly, Hofmann (2001) also argue that nonfinancial information is used to measured performance evaluation. Traditional reporting can not often reflect the manager’s contribution to the firm’s total value. Therefore, company needs nonfinancial performance to show the firm’s long-term performance. Moreover, Cohen et al. (2012) said, nonfinancial information can affect management behavior. External users can use nonfinancial metrics like market share data to evaluate the performance of the management. Also, nonfinancial information affects investment decisions (Cohen et al. Investors can make their own decisions through many nonfinancial metrics like quality rankings. (2012) report, we also want to use these venues to analysis nonfinancial information. In Cohen et al. (2012) paper, they use the data base in 2004. We want to make a change, using the data during 2010 to see if the result is change or not.

To sum up, following the prior studies, especially Cohen et al (2012) article, nonfinancial information improves the quality of traditional reporting, and give more clear pictures for external users. As for industry, they use sample from the publicly traded U. S. firms listed on Compustat. They divide industry into five sections. The first section is manufacturing (simple), which in the sample is represented as manufactures of surgical equipment. Because we choose the data during 2010, some firms which are mentioned in Cohen et al. (2012) article, we could not find report during 2010, hence, we change some companies into other companies. We change Foodarama Supermarkets, Wild Oats Markets Inc. , Pathmark Stores Inc. into Target Corporation, Amazon com. , LCI Industries, and Clorox Co. As for oil part, we change Kestrel Energy Inc.

, and Aspen Exploration into Exxon Mobil Corp and Chevron Corp. Then, we change Med Gen Inc. , Genelabs Technologies Inc. Inc. , Intuit Inc. , and Vmware Inc. More details see Table 1 for the sample firms with industry and size as follow. As we can see in Table 1, in grocery industry, the smallest size firm is Ingles Markets Inc. 125 million. The biggest size firm is Exxon Mobile corporation, which has total assets for 302510. 000 million. For pharmaceuticals industry, the smallest size company is Targeted Medical Pharma Inc. , it has 8. In fact, different industries have their own revenue standards. Cohen et al. (2012) think independent press coverage, like providing by the Wall Street Journal cannot be considered as a disclosure made by a firm. They give the new technique term as “information bursts” to represent continuous type of information.

Following their survey, we look at each report, press release, company website to find the information bursts. 000 5 Walmart Inc. 000 Manufacturing: 1 Bioject Medical Technol 3. 670 3 Align Technol Inc. 943 1 Patrick Industries Inc. 817 4 Thor Industries Inc. 000 2 Petroquest Energy Inc. 517 4 Occidental Petroleum Corp 52432. 000 2 W&T Offshore Inc. 094 5 Chevron Corp 184769. 000 3 ATP Oil & Gas Corp 3290. 904 5 Pfizer Inc. 000 Software: 1 Peerless Systems Corp 14. 560 3 Intuit Inc. 000 1 Simulations Plus Inc. 660 4 Adobe Inc. Generally, a Likert scale is a rating system, used in questionnaires, measuring people’s attitudes or opinions. When choosing a specific question, typically, the responses include “strongly agree”, “agree”, “neutral”, “disagree” and “strongly disagree”. Each answer represents value. At the end, each value will be added up and to see the whole results (Jamieson 2009). According to Holder-Webb in their work of 2008 and Cohen 2012 in order to get density score, the information disclosing certain concept (X) at every level of the coding scale by Y and you finally sum up all the products.

Stand-alone governance documents are the 21% of all the information bursts. Mandatory fillings are the 18% of all the information bursts. In addition, the rest of disclosure venues, their ratios are not very large. For example, product face sheets are only 5. 5%, CSR reports are only 4%. Mandatory fillings still have important ratio, 21% of all documents containing the information. Product face sheet and press releases are still having necessary but not very important role in disclosure venues. They are 11% and 8. 9% of all documents containing the information, respectively. However, stand-alone governance documents are only 2, compare with the number of 112 sample, which have so small ratio, 1. 00% of disclosure made, and innovation is mentioned in 22. Quality rankings, turnover, and employee satisfaction are very infrequently discussed. Quality rankings and turnover are mentioned in only 4.

00% and 3. 10% of disclosure made, respectively. 10% earned how many benefits in the specified time in certain industry. The more market share a company has, the more revenues it has. Also, higher market share represents higher competitive with competitors. Sometimes, managers always said one of the keys to successful business is to keep operations, products and services fresh (Brooks 2013). In other words, company needs to be able to keep innovation. See Table 3 as follow. As we can see, panel A displays intensity score for entire sample, as panel B shows the intensity score through quantiles and industry intensity score is shown by panel C. To be honest, some statistics are not perfect because our sample size is not big enough. For example, in panel B, Q3, customer satisfaction has higher mean than market share.

However, in most situation, market share and innovation still have the higher score. 43) (10) Quality Rankings 3. 57) (3) Employee Satisfaction 2. 12) (6) Turnover 0. 22) (0) (continued) Panel C: By Industry Intensity Score for Disclosure Type R&D Retail Mfg. Software Oil Disclosure Type Mean Min (SD) (Max) Mean Min (SD) (Max) Mean Min (SD) (Max) Mean Min (SD) (Max) Mean Min (SD) (Max) Market Share 12. Table 4 shows information type by reporting formant. In Table 4, the percentages on the row is a reflection on next disclosure to be founded on the venues. However, the percentage on the columns show disclosure venues to be included in a certain type of information. In addition, row totals and column totals will not sum to 112, because sometimes reporting format may contain multiple disclosure types, and each disclosure type may be reported in different reporting formats.

For row section, we can see, almost 22% of all market share disclosures are made through mandatory fillings. 56 38 Quality Rankings Count Row % Column % 4 30. 11 13 Turnover Count Row % Column % 2 20. 11 10 Employee Satisfaction Count Row % Column % 10 40. 00 25 Other Disclosures Count Row % Column % 15 36. 11 41 Total 23 51 2 12 5 10 9 112 both 30. CSR report and press releases are the same, which likely to disclose the market share and innovation. Through Table 4, we can know, market share and innovation are the most important nonfinancial leading indicators the reporting formats want to disclose. Like Cohen et al. (2011) said, market share and innovation are the two strong index to reflect the current and future performance of a firm. They are linked to the earnings and profits directly. 53% to be disclosed in size quintile 1, and in the size quintile 2, it becomes 13.

68%, and when the intra- TABLE 5 Size Effects among Disclosures Containing Nonfinancial Leading Indicator Information n=112 Panel A: Frequencies of Disclosures, Relative Size Ranks Intra-Industry Size Quintile Disclosure Type 1 2 3 4 5 Total Market Share Count Row % Column % 10 10. 24 95 Innovation Count Row % Column % 9 12. 18 71 Customer satisfaction Count Row % Column % 2 5. 35 38 Quality Rankings Count Row % Column % 2 15. Obviously, market share has the positive relationship with firm size. However, other leading indicators we can not find any relationship with firm size. For example, innovation has the percentage of 12. 68 in the size quintile 1, and has the proposition of 32. 39% in the size quintile 4, but it decreases into 19. 24%, respectively. As for innovation, 75% in size quintile 1, 70. 59% in size quintile 2, and 61. 78% in size quintile 3 to 5. Still, market share and innovation are the two important leading indicators for industry to disclose even in different firm size.

Also, market share and innovation reflect firm’s present and future benefits and revenues directly, therefore, no matter how size firms have, they still prefer to represent more market share and innovation. Industry Effects: RQ4 RQ4 asks if different industry in the sample firm use different leading indicators. Figure 3 shows that the frequency of disclosure by industry. In the chart, we can see that software industry have 25 disclosed for market share and 15 disclosures about innovation, 22 disclosures for customer satisfaction. As for grocery industry, market share still has a big proportion of all the information, about 30 to be disclosed. Software industry also has more disclosure for employee satisfaction because firms need employees to make new idea and employees need to have a good work environment.

Following with Cohen et al. (2012) article, we also make Table 6 to see reporting schedule of choices arranged in terms of leading financial indicators and the industry affected. This time we did not put turnover in it because turnover is infrequently of reporting in any format or by any industry. TABLE 6 Reporting Format Choices by Leading Indicators Type and Industry n=112 Information Type Format Category Pharma. Pharmaceuticals, grocery, manufacturing industry are preferred using mandatory fillings and website to disclose customer satisfaction. However, software industry uses product face sheet more often. In quality rankings, still, all the industries are disclosed through mandatory fillings and website. Furthermore, grocery, software and oil industry are still disclosed employee satisfaction using mandatory fillings and website, but pharmaceuticals and manufacturing industry use CSR report to disclose employee satisfaction.

Based on the prior study (Holder-Webb et al. One company may use first-in, first-out for the inventory calculations, another may like to use average cost method, it’s not fair to compare with different companies. Like we mentioned before, people pay more attention on nonfinancial information. If combing financial reports with nonfinancial disclosures, it would help external parties have a whole picture of a company. Like Cohen et al. (2012) said, nonfinancial disclosures are not regulated heavily, compare with financial statements. The US government enables mandatory filings are reliable, therefore, investors and finance professionals can review these filings to evaluate the investment. Corporate websites have the low cost for a company and are the easy way for the public to access. For size effects RQ3, we find that market share has the positive relationship with firm size.

We think this is because when industry become more and more large, they will have more revenues and possess more market share, having more good news, then more market share will come. Furthermore, no matter how size firms have, they still prefer to represent more market share and innovation, because market share and innovation reflect firm’s present and future benefits and revenues directly. For instance, GRI gave some list of standard disclosures: labor practices, decent work and economic performance, product responsibility, strategy and analysis. And in our paper, we have six leading indicators, they are market share, innovation, customer satisfaction, employee satisfaction, turnover and quality rankings. In fact, market share, innovation, customer satisfaction, quality rankings are related to the strategy analysis and economic work.

Satisfaction of employees and rate of new employees are associated with labor practice and work disclosure. World Intellectual Capital Initiative (WICI 2011) submitted framework for integrated reporting. However, it’s hard for me to find all the related information because of time and labor. Therefore, our paper only has 326 information bursts. These facts can make my paper not very accurate. Second, like Cohen et al. (2012) claims that they didn’t include all the industry. Simnett, J. Thibodeau, and A. Wright. Sell-side analysts’ reports and the current external reporting model. Accounting Horizons (December):375-390 Adams, A. Contemporary Accounting Research (Fall): 763-793 Arthur, L. What are the limitations of a company’s financial statements? Chron (March). Bragg, S. Limitations of financial statements. The Interpretation of Financial Statements (May 17).

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