Dynamics of corporate information and capital markets: An empirical approach

Professor, Keio University Faculty of Business and Commerce　Takashi Asano

Understanding of fundamental research issues

My expertise is in financial accounting. Financial accounting refer to accounting intended to provide stakeholders with corporate information centered on financial statements. It's also known as accounting for external reporting.
Financial accounting is expected to perform two important functions. The information-provision function provides investors with information useful in making investment decisions and promotes efficient allocation of resources in the capital markets. The interest-adjustment function promotes contractual monitoring and enforcement, lessens conflicts of interest between contractual parties, and makes contracts more efficient. I am particularly interested in these functions, with a focus on the information-provision function.
Investors need information for calculating corporate value and making investment decisions based on the results. Thus the capital markets need information for corporate valuation. Investors value a firm based on forecasts of future performance (i.e., cash flow, dividend, and income) based on corporate valuation models (i.e., the discounted cash flow, dividend discount, and residual income models) rather than past performance. Intentional manipulation of performance, or doubts about its quality, will reduce the forecast accuracy of future performance, and this could reduce the accuracy of corporate valuation.
Interest in nonfinancial information, particularly sustainability information, is rapidly increasing in recent years. While sustainability information is widely recognized to affect medium- to long-term corporate performance, such information lacks clear measurement standards such as accounting standards. This leads to issues concerning its reliability and comparability. For this reason, it is difficult to obtain consistent results on the relationship between sustainability information and corporate value. Research on the value relevance of sustainability information is increasingly valued and actively pursued.
My research theme is “Corporate Information and Capital Markets” focusing on the roles of corporate information in the capital markets. Specifically, I employ empirical methods to analyze (i) what factors affect disclosure of corporate information (such as financial and sustainability information), (ii) how such disclosure affects decision-making by market participants such as investors, analysts, and rating agencies, and (iii) what factors affect the relationship between disclosure of corporate information and decision-making by market participants (Fig. 1).

Applicability to other fields

In January 2024, I took part in an accounting conference held in China. This conference included sessions on subjects such as accounting, ESG (sustainability), finance, corporate finance, governance, and technology, other related fields, where the latest research were actively presented. As is clear from its session titles, collaboration with other fields is increasingly emphasized in accounting. This trend reflects the fact that accounting is a discipline that chiefly handles information and it is essential to consider its effects on capital markets.
One of the researches I am currently working on is the relationship between sustainability disclosure and ESG ratings. A recent research (Asano 2023) shows that environmental and social score vary among different ESG ratings agencies, leading to increased inconsistency in ESG ratings. In addition, as environmental and social disclosure expands, inconsistency in ESG ratings shows a narrow trend. That is, I show that expansion of environmental and social disclosure is an effective way to narrow inconsistency in ESG ratings (Fig. 3). These findings suggest that active disclosure on environmental and social initiatives has positive effects, and they could have implications for research in other fields as well.