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The political and social effects of financial flows have been and remain topics of immense interest. Consider, for example, the rise and fall of bitcoin companies, news of layoffs or mergers in the automotive industry, and reports of IPO filings by tech giants. Whether expressed as a sift-through-the-rubble analysis of a financial crisis or the public scandal of a single, market-leading brand, reporting on financial activities can dramatically reshape public perspective of our economic reality – past, present, and future; locally and globally.

Traditional public relations practices and regulatory innovations in the area of financial reporting and accounting may be what drive companies to report. But that wealth of information on their financial activities, governance structures, internal and external activities, and more has value well beyond their own board-rooms.

Center researchers mine this data and the academic literature to understand statistical patterns, to contribute to reporting standards, and to create predictive models of their impacts on diverse areas of economic interest identified as the Centers research priorities. Similarly, practitioners have used this research as tools for action – among others, to influence investor behavior, to optimize financial performance, and, lately, to help business leaders navigate an increasingly complex regulatory landscape globally.

Research areas

  • Sustainable finance

    The influence of environmental, social, and governance (ESG) issues has moved from being the “niche concern of a select group of ethical or socially responsible investors,” as Reuters used to call it, to being part of the mainstream discourse on corporate performance and priorities. Yet the effects these changes will have on consumer-, labor-, and capital markets are still uncertain. Sustainable finance is thus the CFRA's central perspective goal: research, documenting, and encouragement of reporting and stability in the financial sector, with a focus on an integration of environmental, social, and governance (ESG) strategies.

    Environmental issues are central to the sustainable finance perspective, as climate change threatens the financial resilience and long-term prosperity of the financial sector. Key to the business community’s response is a shared perspective on responsible and sustainable investment strategies that recognize the needs of all stakeholders and realize fairness, innovation, and resilience objectives. The international Task Force on Climate-related Financial Disclosures states: “Increasing transparency makes markets more efficient, and economies more stable and resilient.” To this end, the 2030 Agenda for Sustainable Development outlined by the United Nations includes among its goals: “Improve the regulation and monitoring of global financial markets and institutions and strengthen the implementation of such regulations.” Moreover, the EU is swiftly moving to enhance its non-financial disclosure regulations with environmental, social, and governance (ESG) reporting requirements.

    Based as it is at ESMT Berlin, where one focus is on technology management, the CFRA is in the right place to educate and unite diverse, new players on the interplay of digitalization and ESG issues in the financial sphere. Our research focusing on the principles, mechanisms, and outcomes of sustainable finance will help companies meet the demand for ESG-integrated financial analysis. 

  • Entrepreneurial finance and accounting

    Berlin is an attractive home for many of Germany’s startups. Its relatively low cost of living, its artistic and cultural reputation, its linguistically diverse and young labor force, and its status as the country’s capital are among the factors that have contributed to this rich ecosystem. Market-disrupting brands such as the digital bank N26 (valued at 2.7 billion USD) and the tourism and tour bookers GetYourGuide (170.5 million USD) already call Berlin their home. According to KPMG’s Deutscher Startup Monitor 2018, Germany is answering the call with a number of supporting programs, including those designed to provide capital for especially promising growth-phase startups.

    Perhaps unsurprisingly, financial management infrastructure – the systems and tools for accounting, tax, and regulatory matters – is an afterthought for many startup leaders. In the pursuit of visionary ideas and innovations, these founding entrepreneurs are more focused on the hiring of their programmers and designers than controllers and treasurers. Nevertheless, sound financial management policies and practices are as vital for startups as they are for established companies of all sizes. Moreover, attracting lenders and investors – especially to gain capital for forays into international markets in the next phase of growth – requires that entrepreneurs either become experts in financial management and accounting systems or in hiring the right consultant partners to do the same. Not doing so in timely, useful, and reliable ways can endanger the company and jeopardize the fragile balance of the startup ecosystem.

    With our home base amidst Berlin’s startup scene, the CFRA is uniquely positioned to understand and contribute to emerging research in entrepreneurial accounting and financial management.  Our deep knowledge of banking, finance, and investment systems coupled with our experience in educating accounting and auditing practitioners provide early-stage companies with the proper insight and perspective on the value of accurate financial documentation, integrated accounting systems, and regulatory compliance.

  • Digital reporting

    The digitalization of financial reporting and auditing affects almost all facets of our field. The Center focuses on how digitalization can enhance the value of financial reporting. We understand financial reporting as a sender/receiver activity embedded in additional information flows. Digitalization enables firms to detach financial reporting data from financial reporting presentation. Financial reporting presentation has always been complex, but has become increasingly multi-dimensional in nature in recent years as traditional financial statements have been accompanied by ever increasing notes and additional non-financial information. Recent research in the area of financial accounting documents that a significant group of financial statement users perceive an information overload problem when presented with financial reporting information. Related to that finding, current research in user experience design stresses the importance of customized presentation of complex information, yet, historically, financial reporting has followed a one-size-fits-all approach. We posit that this is going to change radically in the future.

    A key strategy to enhance the value of financial reporting in the digital age is to open up disclosed financial reporting information to algorithmic processing. To understand better how new developments in the area of natural language processing affect the usage of financial reporting information by professional investors, we hosted a one-day academic event where we brought together leading experts from the academic as well as from the investment community. One key takeaway of this very informative workshop was that various usage strategies will prevail in the future and that information sending firms are well-advised to cater to these various usage strategies to enhance the value of financial reporting.

    Based on these insights, our research in that area will (continue to) study how users of financial statement data use financial reporting information in various presentation formats. We already documented, based on a large sample interview study with institutional investors, how investors use and assess financial reporting data differently, and conditional on their decision problem at hand. In addition, prior work has documented vast differences in information behavior of institutional and retail investors. We plan to extend this line of research to internal decision members like board members. Our motivating question is to understand better how financial reporting data and its presentation can be customized digitally to cater to different user groups and decision problems. Building on interactive data visualization tools that we have already developed we will test in experimental settings whether and how users use additional financial information in their decision making and to what extent this behavior varies across different user groups.

    We envision that our research will help firms and their advisors to develop better tools for presenting financial data to investors and internal decision-makers. This will most likely allow for leaner data presentation, significantly the perceived information overload. The usage data collected by these tools can help firms to understand the decision-making process of their stakeholders better, feeding back to internal decision making and, ultimately, corporate performance.

  • Non-financial reporting

    The EU commission has voiced strong views about the positive effects that Corporate Social Responsibility reporting will bring to the common market, and particularly to consumers: “Each individual company disclosing transparent information on social and environmental matters will realize significant benefits over time, including better … relations with consumers and stakeholders” (EU Commission, MEMO/14/301). At the Center for Financial Reporting and Auditing, we monitor the development of non-financial reporting with the aim to understand how it affects corporate transparency and how these transparency effects affect firms and their stakeholders.

    In particular, we are interested in three aspects:

    • How and why do non-financial disclosures evolve across firms, countries, and time?
    • How do non-governmental institutions shape regulation in the area of non-financial reporting? and
    • How does CSR reporting affect consumer behavior?

    The first aspect, the development of non-financial disclosures over time, is related to round tables and discussion events that we hosted in the past. Being a relatively new disclosure phenomenon, firms have to develop a feeling about what constitutes best practice in this area. We strive to integrate knowledge from corporations, their advisors, researchers, and users of non-financial information to understand better how non-financial disclosures evolve over time and which legal and economic aspects are influential in shaping the disclosures that we observe in the field.

    One key user of non-financial reporting are non-governmental organizations (NGOs), like, e.g., advocacy groups. Relatively little is known about their usage of (non-financial) corporate information and how they affect regulatory rule-making. With the increasing importance of ‘targeted transparency regulation’, i.e., transparency regulation intended to induce corporations towards acting in line with a given policy objective, influencing transparency-related rule-making has become a strategic option for NGOs to push their agenda. Clearly, information about corporate behavior is central to NGOs’ activities, which include staging shaming campaigns through the media. These campaigns can impose political costs as well as reputational costs. We want to understand better how advocacy groups use financial and non-financial disclosures in their activities, how disclosures interact with other information sources such as public relations and media coverage, and about the properties that render information useful for these purposes.

    Finally, we will explore consumer activism and demand reactions to Corporate Social Responsibility (CSR) disclosures. Prior literature in CSR has argued that consumers react positively to increased firm transparency about CSR issues and that EU firms increase their CSR spending in preparation for the EU directive. However, causal empirical evidence on this issue remains scarce, not least due to the difficulty of distinguishing between CSR performance and CSR reporting. In addition, most research focuses on corporate activities and less on the actual reactions of other market participants. By assessing whether (a) consumers use CSR disclosures and (b) CSR disclosures impact consumer activism, we can understand better how CSR-reporting affects consumer behavior.

    Given the inherent complexity of CSR disclosures and the relevance of alternative information channels, it is unclear to what extent consumers will actually use CSR disclosures. The recent European adoption of CSR reporting for large companies provides a suitable setting to explore these questions. As the EU commission has identified consumers as one of the key receivers of CSR disclosures, we will use the scope exclusion of firms with below 500 employees and the cross-country variation in Directive transposition to explore the effects of the regulation on consumer demand and on consumer activism.

  • Information on capital markets

    The established equity market literature needs to be fundamentally reinvestigated on how financial reporting transparency can be measured in the equity market. Given that the informational environment of equity markets has undergone dramatic changes during recent decades, the competitive informational advantage of financial reporting information conditional on the additionally available information is unclear. We contribute to the construction of an extensive dataset describing the financial reporting behavior of publicly listed firms. Using these data and exploiting market reactions around exogenous macro news events, we can identify financial reporting components that are theoretically and empirically connected to equity capital market outcomes. Based on these insights, prior evidence on the capital markets effects of financial reporting information can be revisited and explored in term of whether refined measures of financial reporting transparency can help to improve company valuation, in particular for firms entertaining new business models.

  • Regulatory design

    Regulation is paramount in financial reporting and auditing. Historically, regulation in these areas has been dominated by corporate and legal experts and was of limited interest to the general public. In recent years and in particular post the financial crises, however, corporate transparency has become a key area of concern to a wider audience. In addition, regulators have identified transparency regulation as a mechanism to achieve public policy objectives. This idea, coined as “governance through transparency”, increasingly influences the regulatory debate about the appropriateness of financial disclosure regulation.

    These new trends affect also such traditional fields like the development of financial accounting standards. Financial reporting under IFRS is intended to “provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions relating to providing resources to the entity” (IFRS Conceptual Framework, para. 1.2). Clearly, triggering real effects on firms’ operating, investing, and financing decisions is not an explicit part of this decision's usefulness objective. Nonetheless, individual IFRS have been shown to affect firms’ real decisions. It is unclear where individual standard-setters stand on the issue of real effects of financial reporting standards. Understanding their views is important for cost-benefit analysis of regulation, and for understanding the trade-offs standard-setters make.

    We intend to work in this area by conducting interviews with standard setters and corporate insiders to assess whether they are aware of, and care about, real effects of financial reporting standards. In addition, we want to understand whether their actions are consistent with intentions to achieve or avoid potential real effects.

    We will use the data from these interviews to identify which real effects corporate insiders and regulators expect financial disclosure regulation to develop. Based on preliminary analyses and prior work, we expect real effects to be clustered in the financing function of firms (e.g, lease, and pension financing-related decision). In addition, we are interested to explore whether recent IFRS changes in revenue recognition have an effect on salesforce incentivization and the design of complex sale arrangements.

    Our long-term objective is to develop a deeper understanding of the complex mix of incentives that shape rule-making in the area of financial reporting and disclosure. We believe that our findings will be informative for regulators, auditors, and corporate decision-makers alike.

  • Investors and corporate communication

    While starting more than a decade ago, the global financial crisis continues to cast long shadows over the financial landscape. Out of the economic turmoil rose demand for, among other things, greater transparency in financial reporting and a people-planet-profits approach to quantifying value. For investors especially, improvements in narrative disclosures was seen as a way to help illuminate company governance, strategy, and results otherwise obscured by complex accounting methods and footnote disclosures. The German chemical producer BASF, for example, responded to this change in expectations with its “Value-to-Society” impact valuation method. That is, BASF aims “to identify, quantify, value, and demonstrate” both financial and non-financial impacts in euros with auditable, reportable results.

    Nevertheless, the tension between transparency and opacity in financial reporting remains high. On the one side are new tech tools and regulations for revealing greater amounts of financial and non-financial (narrative) data to public scrutiny. Directive 2014/95/EU, for example, now requires that large public-interest companies with more than 500 employees must report on their policies and activities related to environmental protection, labor rights, human rights, board diversity, and anti-corruption efforts. On the other side of the transparency push are company insiders that see information retention and control as key to their maneuvers in highly competitive (and sometimes litigated) markets. Textual disclosures can be strategically obscure as a result. There is tension also within organizations, as accounting personnel and corporate sustainability departments struggle to communicate financial value as one team.

    Fundamentally, while investors, regulators, and the broader public have laid their hopes in disclosure, the consequences of the flood of information coupled with confusion within companies about how to navigate the new regulatory environment threaten to undermine efforts to rebuild trust across the board.

    Within the context of an academic institution, the CFRA offers a distinct approach to the financial transparency debate. Our focus is on the data – how financial reporting transparency (in whole and in part) can be measured and tested, how its impacts can be theoretically described and predicted, and how other academic fields – such as computer science and linguistics – can shape the production and processing of financial and non-financial information. We thus delve into transparency expectations, regulation, and implementation, and how this information revolution affects earnings quality and capital markets.

  • Natural language processing in financial markets

    Analysis of qualitative information has a long tradition in computer science (Natural Language Processing – NLP) and linguistics (corpus linguistics). The analysis of language ‍(spoken and written) can provide powerful insights in studying economic consequences, and methods applied only recently started to gain traction in accounting and finance. Estimates suggest that 90% of all available data created in the last 10 years, 80% of which in a business context, is qualitative/unstructured.

    Literature in accounting and finance has only scratched the surface of textual analysis capabilities, and reliance on basic NLP techniques is primarily involving “bag-of-words” methods and make little use of corpus methods. Estimates say that in accounting and finance the state of affairs is significantly behind developments in computational linguistics and machine learning. Surprisingly little is known about how corporate disclosures interact with alternative information sources to influence investor behavior. Recently, however, hedge funds have started to make more and more use of textual analysis for trading purposes, which makes it even more important for corporations to use language strategically.

    The amount of corporate information is increasing exponentially and most of it is non-numerical data, such as texts, images, and video. Regulatory innovations in the area of financial and non-financial reporting require corporations to provide rich information not only on their financial activities but also on their corporate governance, as well as their environmental and their social activities. Information provided by financial analysts, the media but also by users of social networks add to the mix.

    How does this new informational landscape shape corporate transparency? Are financial markets still capable to siphon through all this data, pricing firms correctly? How do institutional investors deal with these questions? Is regulatory intervention needed? These are the motivating questions for the Center for Financial Reporting and Auditing at ESMT Berlin to engage with natural language processing in financial markets.


Research activities and collaborations


To see the latest research by the CFRA academics, visit their profiles:


Per Olsson

Joachim Gassen

Maximilian Müller

Katja Kisseleva


TRR 266 Accounting for Transparency

CFRA is a part of the TRR 266 Accounting for Transparency, a trans-regional Collaborative Research Center funded by the DFG, gathering seven partner institutions, including the application leads Humboldt University Berlin, University of Mannheim, and Paderborn University. The Center intends to help develop effective regulation for firm transparency and a transparent tax system. See more about the grant here.


Annual Accounting Conference 2018

CFRA at ESMT Berlin has received a grant from the DFG for the organization of the Annual Accounting Conference 2018. See more about the grant here.


Our academic networks serve to strengthen the bond between financial theory and practice:


Berlin Accounting Research Group


TRR 266 Accounting for Transparency

Contact CFRA

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