Patrick Velte

This paper takes a closer look at sustainable management compensation and the impacton environmental, social and governance (ESG) performance in the German two tier system. The empirical quantitative study covers a sample selection of German companies listed on the Prime Standard of the Frankfurt Stock Exchange (DAX30, TecDAX, MDAX, SDAX) for the business years 2010-2014 (677 firm-year observations). In order to determine a possible link between nonfinancial indicators of management compensation and ESG performance, a correlation and regression analysis is carried out. On the basis of multiple regressions, non-financial elements (social or environmental aspects) in the management board compensation positively influence ESG performance, as determined by the Asset Four database of Thomson Reuters. This analysis is the first empirical study focusing on a connection between sustainable management board compensation, taking into consideration non-financial aspects, and ESG performance in the German two tier system. Not only users, but also public policy are affected by the findings indicating that national and European regulations on compensation could greatly influence future CSR performance and market reactions.

Keywords: ESG performance, stakeholder management, sustainable compensation, corporate governance, management board, non-financial performance indicators.
JEL Classification: M40

Corporate social responsibility (CSR) reporting plays a key role in management control, particularly in light of the increased demand for non-financial reporting after the financial crisis of 2008–2009. This literature review evaluates 47 empirical studies that concentrate on the influence of several board composition variables on the quantity and quality of CSR reporting. The author briefly introduces the research framework that underpins current empirical studies in this field. This is followed by a discussion of the main variables of board composition: (1) committees (audit and CSR committees), (2) board independence, (3) board expertise, (4) CEO duality, (5) board diversity (gender and foreign diversity), (6) board activity, and (7) board size. The author, then, summarizes the key findings, discusses the limitations of the existing research and offers useful recommendations for researchers, firm practice and regulators.

This study contributes to the recent “managerial ability” literature and analyses the impact of audit committees’ financial and sustainability expertise (i.e. combined and separately as individuals) on the readability of integrated reports. Analyses were conducted with data on a sample of European Union (EU) public interest entities (PIE) from the Examples Database of the International Integrated Reporting Council (IIRC) for the fiscal years 2014–2016 (i.e. 215 firm-year observations). Correlation and regression analyses were conducted to evaluate possible links between either financial or sustainability expertise and combined financial and sustainability expertise in audit committees and the readability of integrated reports, as measured by the Flesch Reading Ease and Gunning Fog indices. While audit committees’ financial and sustainability expertise has a positive impact on the readability of integrated reports, combined expertise has a stronger effect compared with either financial or sustainability expertise. This finding is in line with the idea that, to combine financial and sustainability information in integrated reports, audit committees need to have more diverse expertise. Companies, regulators and researchers could be significantly affected by the finding that managerial ability variables such as audit committee expertise can have a considerable impact on integrated reporting.

This literature review evaluates empirical studies which concentrate on economic effects on joint audits from an international perspective. We briefly introduce the theoretical and empirical joint audit framework that comprises an adequate structure of the state-of-the-art of empirical research in this field. This is followed by a discussion of the following output factors of joint audits: (1) audit quality; (2) audit costs and (3) audit market concentration. We will summarize the key findings in each area, and provide a description of the analyzed proxies. Finally, we will discuss the current limitations of the studies and give useful recommendations for future empirical research activities in this topic.

This article presents a literature review of 49 empirical studies on key audit matter (KAM) disclosure in audit reports. The study involves a structured literature review on KAM disclosure based on the reactions of stakeholders. The limitations of former studies and useful recommendations for research are stressed. Five major streams of empirical research that analyze the impact of KAM disclosure on stakeholders’ reactions are focused: (1) shareholders (e.g. investors’ perceptions of auditors’ responsibility and litigation, value relevance and investors’ decisions); (2) debtholders (e.g. loan contracting terms); (3) external auditors (e.g. audit processes and audit fees); (4) boards of directors (e.g. earnings management); and (5) other stakeholders (e.g. informational value for suppliers and customers). The authors stress that most of the included studies use experimental or archival data and analyze the impact of KAM disclosure on investor reactions in a US-American setting. As the international standard setters assume a positive impact of KAM on stakeholder reactions, mixed empirical results are found. Although there are some indications of decreased earnings management behavior, most studies find no significant changes in auditor behavior. Furthermore, there are many insignificant results with regard to shareholders’ reaction in line with our stakeholder and behavioral agency framework. The literature review is especially useful for management decisions, because firm reputation may be positively or negatively influenced by KAM regulations.

Since the financial crisis of 2008–2009, nonfinancial-related shareholder activism increased, as public interest entities (PIEs) should strengthen their environmental, social, and governance (ESG) activities. This study aims to determine whether institutional ownership (IO) impacts ESG performance and disclosure and vice versa. Moreover, IO’s moderating and mediating influence on the relationship between ESG and firms’ financial consequences is included. This is the first literature review focusing on IO and ESG, describing IO as independent, dependent, moderator, and mediator variable. A structured literature review with 81 empirical-quantitative (archival) studies on that topic is presented based on an agency theoretical framework. Regarding the main results, long-term IO leads to increased ESG performance. Moreover, ESG performance promotes the ratio of institutional investors. Other relationships are rather heterogeneous and too low in an amount yet, stressing major research gaps.