Accounting for Investments in Operating Assets

Reichelstein and Rohlfing-Bastian investigate the quality and usefulness of accounting information for investment decisions. The project investigates how levelized cost as a life-cycle metric affects transparency and enables internal stakeholders to make better decisions. Therefore it applies the concep tto different types of investment decisions and management control problems, illustrating its decision relevance and potential transparency effects. Building on these insights, we then focuse on external stakeholders and analyzes how the corporate reporting of environmental metrics (such as carbon dioxide emissions) affect environmental transparency and how transparency in turn affects investment decisions that will reduce emissions in the future.

• Research Question

  How can accounting information create transparency about investment decisions for the firm’s internal and external stakeholders?

• Research Motivation

  The availability of decision-relevant information to different stakeholder groups such as investors, managers, and firm owners is in line with the CRC’s definition of transparency and embeds our research agenda in the overall CRC theme. In the second funding period, our research agenda will continue to be based on the concept of the levelized cost as it was originally developed. However, the potentially wide applicability of the concept to various decision contexts as well as the potential to increase transparency not only for internal but also for external stakeholders requires a broadening of the research scope of this project.

• Research Program

  Our proposed research agenda comprises two parts: In the first part, we plan to further explore the application of the levelized cost concept to various industries and circumstances and analyze the application of the emerging valuation rules to management control problems. In the second part, we will shift the focus towards external stakeholders and analyze the corporate reporting of different environmental metrics, with a particular focus on disclosures about past and future carbon dioxide emissions.

• Research Contribution

  Our findings will help to make this information accessible and interpretable for external stakeholders, including investors, customers, and regulators. Our results can also contribute to evaluating the usefulness and real effects of mandatory reporting standards for Environmental, Social, and Governance (ESG) purposes that are currently developed, for example, by the U.S. Security and Exchange Commission (SEC) or the International Sustainability Standards Board (ISSB) of the IFRS Foundation on a global level. At the European level, similar efforts are underway by the European Commission and the European Financial Reporting Advisory Group (EFRAG).