Accountancy
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Item Management of risks associated with the disclosure of future-oriented information in integrated reports(Sustainability Accounting, Management and Policy Journal, 2021) Lakshan, A.M.I.; Low, M.; de Villiers, C.Purpose – Integrated reporting (IR) promotes the disclosure of future-oriented information to enable financial stakeholders to make better-informed decisions. However, the downside to this type of disclosure is the risk to management of disclosing such future-oriented information. This paper aims to explore how IR preparers manage the risk of disclosing future-oriented information in companies’ integrated reports. Design/methodology/approach – This study represents an exploratory interpretative thematic analysis of 33 semi-structured interviews with managers involved in IR in eight Sri Lankan companies representing various industries. The thematic analysis is informed by the research literature and prior studies on IR. Findings – This paper provides evidence of various strategies to manage the risk associated with the disclosure of future-oriented information in integrated reports. These strategies include making non-specific predictions; increasing the accuracy of the predictions; linking performance management to disclosed targets, thus ensuring individual responsibility for target achievement; disclosing ex-post explanations for not achieving previously disclosed targets; and linking disclosed targets to the company’s risk management procedures. However, these strategies can cause managers to provide conservative future-oriented information, rather than “best estimate” future-oriented information. Practical implications – The study describes the strategies that managers use to mitigate the risks involved in disclosing future-oriented information. These strategies can provide support or raise concerns, for managers in deciding how to deal with such risks. Regulators tasked with investor protection, as well as stock exchanges interested in the transparency and accountability of listed companies’ activities should be aware of these strategies. Furthermore, the International Integrated Reporting Council (IIRC) should be interested in the implications of this study because some of the identified strategies could undermine the usefulness of integrated reports to stakeholders. This is a significant concern given that the IIRC envisages integrated reporting and thinking as vehicles that could align capital allocation and corporate behaviour with wider sustainable development goals. Social implications – The trend of future-oriented information moving from being used only in organisations’ internal management systems to being externally reported in integrated reports have implications for stakeholder groups interested in the reported targets. This study reveals management strategies that could affect future-oriented information reliability and reduce their usefulness for users of integrated reports.Item The use of financial ratios in predicting corporate failure in Sri Lanka(2013) Lakshan, A.M.I.; Wijekoon, N.The purpose of this research is to develop a model using financial ratios to predict corporate failure of listed companies in Sri Lanka. This study utilized publicly available data from annual reports of a sample of 70 failed firms and a sample of matched 70 non failed firms listed on Colombo stock market for a period covering the 2002 to 2008 financial years with logistic regression analysis. A total of fifteen financial ratios were used as predictor variables of corporate failure. Analysis of the statistical testing results indicated that the prediction accuracy of the model consists with financial ratios is 77.86% one year prior to failure. Furthermore, predictive accuracy of the model in all three years prior to failure is above 72%. Hence model is robust in obtaining accurate results for up to three years prior to failure. Final model includes three financial ratios; working capital to total assets, debt ratio and cash flow from operating activities to total assets. These variables are having more explanatory power to predict corporate failure. Therefore, model developed in this study can assist investors, managers, shareholders, financial institutions, auditors and regulatory agents in Sri Lanka to forecast corporate failure of listed companies.Item Predicting corporate failure of listed companies in Sri Lanka(2012) Lakshan, A.M.I.; Wijekoon, N.The purpose of this research is to develop a model to predict corporate failure of listed companies in Sri Lanka. This study utilized publicly available data from annual repots of a sample of 70 failed firms and a sample of matched 70 non failed firms listed on Colombo stock market for a period covering the 2002 to 2008 financial years with logistic regression analysis. A total of seven corporate governance variables were used as predictor variables of corporate failure. Analysis of the statistical testing results indicated that Model consists with corporate governance variables improved the prediction accuracy to reach 82.86% one year prior to failure. Furthermore, predictive accuracy of the Model in all three years prior to failure is above 73%. Hence model is robust in obtaining accurate results for up to three years prior to failure. Final model includes four corporate governance variables, outside director ratio, CEO duality, remuneration of board of directors and company audit committee. These variables are having more explanatory power to predict corporate failure. Therefore, model developed in this study can assist investors, managers, shareholders, financial institutions, auditors and regulatory agents in Sri Lanka to forecast corporate failure of listed companies.Item Corporate governance and corporate failure(2012) Lakshan, A.M.I.; Wijekoon, N.The purpose of this research is to examine the influence of corporate governance characteristics on the corporate failure of listed companies in Sri Lanka. This study utilized publicly available data from annual reports of a sample of 70 failed firms and a sample of matched 70 non failed firms listed on Colombo stock market for a period covering the 2002 to 2008 financial years with logistic regression analysis. Corporate governance characteristics comprises with board size, CEO duality, outside directors, outsiders’ ownership, audit opinion, presence of an audit committee and remuneration of board members. Outside director ratio, presence of an audit committee and remuneration of board members turn out to be negatively associated with the probability of corporate failure, While CEO duality is positively related with the likelihood of corporate failure. Board size, auditor's opinion and outside ownership do not appear to be significant determinants. The paper offers evidence on the extent to which corporate failure associated with corporate governance. It would be educational to investors, financial analysts, accounting professionals, management and be helpful for regulatory authorities in making decisions, evaluations and policies.