The Economic Virtues of SRI and CSR

Jeroen Derwall (1978) is an Assistant Professor of Financial Management at RSM Erasmus University, and Assistant Professor of Finance at Maastricht University, The Netherlands. He is also co-initiator of the European Centre for Corporate Engagement (ECCE). Before starting his doctoral research at ERIM, he studied at Maastricht University to obtain his Master’s degree in economics. His research has been published in international journals and presented at international academic meetings. His current research interest includes sustainable investment, empirical asset pricing, and mutual funds. 

Download Full Text

Essays in Financial Accounting

This dissertation aims to contribute to the literature about the quality of accounting information by investigating its interaction with institutional factors (i.e., their external environment) in which firms operate, such as industry and stock exchange. The research topics of this dissertation include the motivation of earnings management (chapter 2), the consequence of accounting frauds on the failure rate of IPO firms (chapter 3) and the effectiveness of actions taken by standard setters to improve the quality of accounting information (Chapter 4). Chapter 2 focuses on firms’ industry environment and investigates whether industry valuation impacts management’s decision to manage earnings. Chapter 3 has been devoted to examine the consequence of large scale earnings management or accounting scandals on the firm’s external environment. Chapter 4 examines whether the uniform adoption of IFRS by EU countries in 2005 improves the quality of accounting information by investigating the changes in the quality of analyst forecasts.

Download Full Text

Empirical Studies in Financial Accounting

This dissertation contributes to the stream of literature that examines the role of accounting information in capital markets. The first two chapters deal with the economic consequences of changes in accounting regulations. The third chapter examines the relation between accounting information and asset prices. Chapter 1 studies the impact of International Financial Reporting Standards (IFRS) adoption on the cost of equity and liquidity of European banks. The adoption of IFRS is associated with lower cost of equity particularly for banks with low pre-adoption quality of information environment. Chapter 2 examines the effect of IFRS adoption on the risk exposure of banks in Europe. Our analysis shows an increase in the risk exposure of banks after the mandatory adoption of the new accounting standards. We provide limited evidence that the increase in risk exposure is more pronounced for banks that operate in countries where accounting numbers are more likely to be used for contracting purposes. Chapter 3 focuses on the relation between aggregate earnings changes and corporate bond market returns. Aggregate earnings changes are negatively related to investment-grade corporate bond market returns and unrelated to high-yield corporate bond market returns. Further, the earnings-returns relation is lower for high-rated and long-term corporate bonds. These findings suggest that aggregate earnings contain information about cash flows and discount rates. Overall, the essays in this thesis highlight the importance of changes in accounting regulations and the significance of accounting information for equity and debt investors.

Download Full Text

Credit Rating Agencies, Financial Regulations and the Capital Markets

This thesis studies the role of credit rating agencies (CRAs) in capital markets, and the effects of two important regulatory decisions that are taken to improve the quality of information available to the capital markets. In particular, this thesis examines a) the importance of credit ratings to the debt markets and the level of trust investors place on CRAs b) whether the adoption of International Financial Reporting Standards (IFRS) improves the quality of accounting information in European Union, and c) whether implementation of Market Abuse Directive (MAD) has been successful in deterring the market manipulation activities, improving the quality and flow of information to the capital markets, and reducing selective disclosure of private information. Chapter 2 of this thesis shows that the extent of investors’ reliance on the credit ratings depends on whether or not these ratings correspond to the ratings that are expected based on publically available information. Chapter 3 demonstrates that the reporting under IFRS is associated with higher credit ratings and a lower probability and level of rating disagreements between CRAs. The results in Chapter 4 reveal a decrease in the level of market manipulation activities and the provision of selective disclosures subsequent to the implementation of MAD. Chapter 4 also provides evidence of more timely and accurate information flowing to the security markets after implementation of MAD. Overall the findings in this thesis show that the participants in the capital markets prefer credit ratings that have strong association with the publically available information and that financial regulations introduced during the last decade enhanced the quantity and quality of information available to the capital markets.

Download Full Text