Web 2'0 initiatives for business reporting: the case of EU financial institutions

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Web 2.0 initiatives for business reporting the
case of EU financial institutions

• Enrique Bonsón, Tomás Escobar and Francisco
  Flores. University o Huelva, Spain.

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Overview

• Brief survey of Web 2.0 tools and their potential
  value to financial institutions for corporate
  disclosure
• EU perspective on banks under Basel II and after
  the recent crisis
• An exploratory study
• Proposal for a simple index (SI) of web metrics
• Lines for further research Conclusions

3
Overview

• Brief survey of Web 2.0 tools and their potential
  value to financial institutions for corporate
  disclosure
• EU perspective on banks under Basel II after
  the recent crisis
• An exploratory study
• Proposal for a simple index (SI) of web metrics
• Lines for further research Conclusions

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Brief survey of Web 2.0 tools and their potential
value to financial institutions for corporate
disclosure

• Web 2.0 initiatives, such as the blogosphere,
  citizen journalism, online participation and
  voting, content syndication, widgets, social
  networks and wikis are modifying the delivery of
  information, products and services in the modern
  economy.
• But, at the moment, it seems institutions are
  not taking advantage of these new instruments for
  corporate reporting.
• Tentative usefulness

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Brief survey of Web 2.0 tools and their potential
value to financial institutions for corporate
disclosure

• Mashups
• A mashup is a coherent combination of
  pre-existing web services.
• For example, an entity would create a Youtube
  channel and a Facebook account and would then
  create links to and from them, or include
  materials in its own corporate website.

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Brief survey of Web 2.0 tools and their potential
value to financial institutions for corporate
disclosure

• Social networks
• Are new platforms for exchanging personal and
  professional information.
• Can constitute a new discussion forum and a
  special marketplace.
• Management can obtain opinions, feedback, e.g.
  from actual and potential customers or
  depositors, about the design of financial
  products, or e.g. from shareholders and the
  public, about the distribution of profits.

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Brief survey of Web 2.0 tools and their potential
value to financial institutions for corporate
disclosure

• Blogs
• also known as citizen journalism
• Managers can follow selected blogs and so monitor
  the public image of the bank.
• Blogs also offer feedback from customers and
  other stakeholders.

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Brief survey of Web 2.0 tools and their potential
value to financial institutions for corporate
disclosure

• Popular tagging or folksonomies
• Social bookmarking or tagging is the process of
  assigning one or more freely-selected terms or
  descriptors to a piece of information such tags
  are then shared among users.
• From this procedure a form of user-generated
  metadata is produced.
• These sets of metadata or folksonomies are
  dynamic dictionaries, in contrast to the previous
  hierarchical concept of taxonomies.
• A good example of photo tagging is Flickr.com.
• Tagging could be used by the banking industry to
  rename and classify financial instruments and
  could be a new approach for assigning External
  Credit Assessments.

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Brief survey of Web 2.0 tools and their potential
value to financial institutions for corporate
disclosure

• Wikis
• A wiki is a special kind of reference website,
  configured to support entries contributed by many
  specialist users, which can then be amplified,
  modified, corrected and amended by other users.
• Wikipedia, the on-line open encyclopedia, is the
  best known of such initiatives.
• To contribute, no previous demonstration of
  expertise is needed theoretically, any
  incorrect information entered will be
  identified, revised and corrected, in real time,
  by a more knowledgeable user.
• A financial entity could start its own wiki
  project on corporate social responsibility
  actions, asking the users to create the content,
  register opinions and suggest new initiatives or
  changes.

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Brief survey of Web 2.0 tools and their potential
value to financial institutions for corporate
disclosure

• Content syndication
• The Web offers a new way of broadcasting, which
  is useful at general shareholders meeting, and
  for communicating corporate news such as periodic
  results.
• Content of various kinds can be downloaded by
  users after the event, and re-used in different
  devices like a cellular phone, an i-pod, etc.
• A variety of different instruments are being
  used, including RSS feeds, widgets, podcasting,
  webcasting.

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Overview

• Brief survey of Web 2.0 tools and their potential
  value to financial institutions for corporate
  disclosure
• EU perspective on banks under Basel II and after
  the recent crisis
• An exploratory study
• Proposal for a simple index (SI) of web metrics
• Lines for further research Conclusions

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EU perspective on banks under Basel II and after
the recent crisis

• Why use Web 2.0 for corporate reporting?
• Recent studies have shown that
• Companies can reach out and build new and strong
  relationships with old and new stakeholders, by
  using Web 2.0 tools.
• They can also improve the quality of their
  websites, increasing the levels of transparency.

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EU perspective on banks under Basel II and after
the recent crisis

• Why study the banking industry first?
• Banks need to reinforce trust and rebuild their
  public image.
• The content of the banks corporate websites is
  regulated under the Basel II agreement, in the EU
  context, but banks can exploit other web
  functionalities to generate competitive
  advantage.
• In the current environment of crisis, banks can
  improve their image and get valuable feedback
  from the public, for creating new products,
  changing managerial attitudes and increasing
  transparency.
• They can also transform shareholders, depositors
  and other stakeholders into co-developers of Web
  content and opinion.
• These Web 2.0 initiatives are already generating
  great interest in todays banking industry.

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From an EU perspective banks under Basel II and
recent crisis

• Several banks report that they are already doing
  banking 2.0
• Why wont they do reporting 2.0 as well?

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More examples banking 2.0
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Overview

• Brief survey of Web 2.0 tools and their potential
  value to financial institutions for corporate
  disclosure
• EU perspective on banks under Basel II and after
  the recent crisis
• An exploratory study
• Proposal for a simple index (SI) of web metrics
• Lines for further research line Conclusions

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An exploratory study

• To date, there have been no systematic studies of
  the specific disclosure needs of the banking and
  investment community related to Web 2.0.
• It is necessary to get an overall idea of the
  current status of Web 2.0 corporate disclosure by
  EU banks, if it exists in any form.
• The sample studied comprises the 56 principal EU
  financial entities operating in the banking and
  investment industry, corresponding to the Banks
  Supersector of the DJ Stoxx 600 for Europe

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Overview

• Brief survey of Web 2.0 tools and their potential
  value to financial institutions for corporate
  disclosure
• EU perspective on banks under Basel II and after
  the recent crisis
• An exploratory study
• Proposal for a simple index (SI) of web metrics
• Lines for further research Conclusions

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Proposal for a simple index (SI) of web metrics
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Proposal for a simple index (SI) of web metrics

• In compiling information on the corresponding
  websites, each corporate website (j, j1,56) has
  been rated according to the following
  non-exhaustive Sophistication Index (SI(j) i,
  i0, 14), each component of the SI being a
  dichotomous (yes/no) variable.
• different specific parts of the corporate group
  website have been analyzed, like Press Rooms,
  Investor Relations and Sustainability.

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Proposing a simple index of web metrics SI

• Two classic variables are used to test different
  hypotheses the influence of the size of each
  entity and also its market capitalization float.
• H1 The level of Web 2.0 sophistication is
  positively associated with the size of the
  entity
• The greater the size of the entity, the more
  resources the company is able to deploy in the
  development of a high quality website (Bonsón et
  al., 2008). In fact, when a company reaches a
  certain level of size, then it tends to formulate
  a particular strategy of web development and
  design, and takes into account various dimensions
  like content, accessibility and navigation
  quality, among others. ASSETS is the selected
  proxy for size.
• H2 The level of Web 2.0 sophistication is
  positively associated with the float factor of
  the entitys shares Pirchegger and Wagenhofer
  (1999) have reported that the float factor is
  significant for Austrian companies. The more
  widely dispersed the share ownership of a
  company, the greater the need for better
  reporting. FLOAT is the value for the free float
  shares factor offered by Stoxx ( of shares in
  hands of shareholders who each individually
  account for less than 5 of the total share
  capital).

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Proposal for a simple index (SI) of web metrics

• So, the resulting model proposed for these tests
  is
• SI ?0?1FLOAT?2ASSETSe
• where
• SI total score for a particular company
• FLOAT Value of the float factor () reported by
  Stoxx (2009).
• ASSETS Size of the company, for which the proxy
  is Total assets at 31st December 2008.

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Proposal for a simple index (SI) of web metrics
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Proposal for a simple index (SI) of web metrics
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Proposal for a simple index (SI) of web metrics

• Additionally, we use a Logit model to predict the
  likelihood of a particular financial entity
  having a SI value above the average, using the
  model described below
•  
• BINARY_SI 1
  .
• 1 e
  ?0-?1FLOAT-?2ASSETS
•  
• where
•  
• BINARY_SI Probability of a financial entity
  having a value of SI above the average.

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Proposal for a simple index (SI) of web metrics
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Proposal for a simple index (SI) of web metrics

• Discussion
• The results show that, in general, the level of
  usage of the described Web 2.0 mechanisms is low
  a significant proportion of the sample report a
  value of zero for the entire checklist.
• The application of many of these mechanisms is
  limited. For example, few use Webcasting and
  on-demand videos, since many companies prefer to
  use external servers, such as Thomson Reuters
  services instead, or additionally, they could
  use free access websites like Youtube, where they
  would be able to obtain feedback from the public
  for each communication.

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Proposal for a simple index (SI) of web metrics
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Proposal for a simple index (SI) of web metrics

• Discussion
• The results of the logistic estimation support
  the hypotheses, at a confidence of 93. There is
  a positive relationship between size and float
  and the SI scored. It can be said that the size
  of the company and the degree of dispersion of
  its share ownership have some influence on the
  degree to which it exploits Web 2.0 tools and
  facilities, or at least on its use of RSS and
  webcasts.
• One of the limitations of this exploration is
  that the Web 2.0 tools have been searched only in
  corporate websites. Our findings do not
  necessarily mean that there are no Internet
  opinion communities operating outside the
  corporate site of the entity. For example, it is
  possible to find public discussions on particular
  companies at Google Finance, or unofficial
  Youtube channels. External forums of this kind
  should be also monitored and evaluated by company
  management.

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Overview

• Brief survey of Web 2.0 tools and their potential
  value to financial institutions for corporate
  disclosure.
• EU perspective on banks under Basel II and after
  the recent crisis.
• An exploratory study.
• Proposal for a simple index (SI) of web metrics.
• Lines for further research Conclusions

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Lines for further research Conclusions

• The main finding of this exploratory study of the
  banking sector is that there is a clear lack of
  strategy in corporate websites now that the Web
  2.0 is gathering momentum.
• Web 2.0 initiatives exist, but are not associated
  with other web quality initiatives like
  navigability or accessibility. This is not a
  question of resources or technology some
  entities that score SI0 offer a good level of
  accessibility and e-voting in shareholders
  meetings.
• At first sight, and in agreement with the
  previous literature, this situation seems due to
  managements perceived potential inability to
  control the information disclosed and to respond
  to the public feedback potentially generated.

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Lines for further research Conclusions

• More research questions for the near future
• Is it possible to obtain from the leaders of this
  sector a list of prospective competitive
  advantages available from Web 2.0 ? How could
  such a list be created and validated with the
  opinion of the main parties involved? Could the
  Delphi approach be a good research technique for
  this?
• Is it possible to detect synergies or,
  alternatively, contradictions between the various
  Web 2.0 mechanisms? How could the
  inter-dependences between these technologies be
  detected and managed in a multi-channel reporting
  perspective? How can we measure and weight the
  relative importance of each Web 2.0 mechanism for
  a banks reporting strategy?

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Lines for further research Conclusions

• More research questions for the near future
• Is Web 2.0 more likely to be used for voluntary
  or compulsory disclosures?
• How can we measure the situation (cross-section
  approach) and also the evolution (time series
  approach) of the implementation of Web 2.0 by the
  banks? Could we use the same kind of
  Sophistication Index in both scenarios?
• Can the regulatory authorities and central banks
  (Federal Reserve, European Central Bank, Bank of
  Basel, Bank of Japan) also use these
  initiatives? Could we have a more participative
  monetary policy?

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Lines for further research Conclusions

• More research questions for the near future
• How could the objectives and operations of
  Working Groups on standards like XBRL, based on
  qualified consensus around taxonomies, be changed
  to promote the popularization of folksonomies?
  Could such integration help to change a situation
  in which the fundamentals of accountingand
  accounting researchremain as they were a decade
  earlier (Vasarhelyi and Alles, 2008)?
• What issues arise for a company or institution in
  administering intellectual property rights and
  managing corporate responsibility in the context
  of collaborative Web 2.0 reporting and related
  projects?

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Lines for further research Conclusions

• Many challenges will need to be faced in respect
  of this new online philosophy. For example, there
  is the question of expertise how far can online
  communities be trusted in tagging information and
  in formulating relevant opinions ,.
• Another aspect will be how to manage intellectual
  property, legal responsibility, ethics and
  similar issues in this context. These and other
  challenges arising from the enhanced
  democratization of the WWW, must be faced in
  future research and discussion.

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• Your comments are more than welcome!
• This is also an invitation to you to collaborate
  with us.
• franflores1982_at_gmail.com
• Many thanks for your attention!