A behavioral approach to voluntary change and innovation in external financial reporting: A case study of the restructuring of the Annual Report on Form 20-F and the Financial Report

Abstract

The accounting literature contains a large quantity of studies about mandatory regulatory- enforced changes in external financial reporting, however very few studies explore the underlying behavior and the internal decision management process of companies when substantial change and innovation in their external financial reporting is observed despite non-existence of new regulatory requirements. Due to the absence in the literature to provide explanatory reasons, the existing terms such as “voluntary” have difficulties in explaining such behavior. ‘Voluntary’ implies providing additional information to the investor with the aim to increase transparency and reduce information asymmetries between management and investor. Applying this to the initiation of reducing information appears as a phenomenon. We apply a behavioral economic approach to explain triggers – but also obstacles – for initiating change, which is not regulatory enforced. Considering interviews with company representatives and external auditors as well as archival data, our detailed analysis considering the model of institutional entrepreneurship reveals that organizational changes and individual levels strongly influenced the change project under study. A strong culture of applying management tools such as benchmarking, peer’s analysis and innovation to financial and non-financial reporting seems to have provided a fertile ground for academically-trained accounting executives constantly challenging effectiveness.