Corporate governance mechanisms and disclosure quality: Evidence from UK top 100 public companies

Saleh Alagla

doi:10.22495/cocv16i2art10

Abstract

This research is aimed to explore the determinants of corporate governance disclosures with emphasis on board structure and external audit. Theoretical and empirical literature shows conflicting evidence on how aspects of corporate governance are related to disclosures. This study carried out an extensive synthesis of the existing literature, taking into account the aims of analysis and the underlying situation of past studies, to come up with tentative answers to the research questions before the analysis. The paper adopts a balanced analysis in which disclosures are assumed to be as a result of both board and non-board factors but still within the corporate governance realm. In order to achieve the overall aim, the study sample was drawn from the existing list of UK’s Top 100 FTSE non-regulated firms. A combination of quantitative statistical and business analytics methods was used to carry out the analysis. Using the Corporate Governance Disclosure Quality (CGDQ) index as the dependent variable and selected board and non-board factors as independent variables, pooled OLS regressions were run. The diagnostic tests were carried out to establish the relative contribution of each independent variable to the model. It was established that the age of board members, the proportion of female directors, the frequency of audit committee meetings, external audit expense, firm growth opportunities, and firm size were important determinants of CGDQ. It was suggested that future studies should investigate whether board structure is still an important determinant of corporate disclosures in the age of advanced information technology.

Highlights

Corporate disclosures have occupied corporate governance literature for a long time
This study investigates the impact of corporate governance mechanisms on corporate governance disclosure level of FTSE100 nonfinancial companies in this paper
The empirical investigation on the determinants of corporate governance disclosure quality on UK top 100 listed firms shows that average board age, the proportion of female in the boardroom, frequency of audit committee meeting, external audit expense, firm growth opportunities, and firm size in terms of equity value are important determinants of Corporate Governance Disclosure Quality (CGDQ)

Summary

Introduction

Corporate disclosures have occupied corporate governance literature for a long time. In the early 2000s, there was renewed interest in disclosures especially after the corporate scandals of Enron, WorldCom, Lehman Brothers, and other companies came to the limelight (Bauwhede & Willekens, 2008). Both research and practice have suggested that wellthought-out corporate communications are required to mitigate the information asymmetry, which is suggested to be the cause of agency problem and agency costs in corporations. It is believed that corporate transparency is a signal for the quality of management and management ability to induce growth and profitability (Bhat et al, 2006; Daub, 2007; Eccles et al, 2014; Enache & Hussainey, 2019). The corporate governance theory explains how firms choose some approaches to disclosures than others

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