Abstract
This study is aimed at providing evidence in regard with (1) the economic consequences of quality of extended disclosure and (2) the influence of ownership and director char- acteristics on the quality of extended disclosure. Using 260 firm years of the Indonesian firms, this study finds that the increase of disclosure quality is found to have a positive correlation with the increase of share price five (5) days after the announcement date of financial reports and the increase of Return of Assets (ROA). In regard with ownership and director characteristics, this study finds that government ownership and size of board have a positive relationship with disclosure quality; while management and block-holder ownership are not relevant in increasing disclosure quality. It is also found that individual characteristics of director which are independence and financial expertise/background do not have any relationship with the quality of extended disclosure. From the study, it can be concluded that extended disclosure is an effective tool to increase the financial performances of a firm under a concentrated ownership environment such as in Indone- sia. Government and board directors are two players who induce firms to increase trans- parency through voluntarily disclosure.
Highlights
The Asian Development Bank (2014) has reported that despite significant improvements made by the Indonesian firms with regards to the implementation of good corporate governance, a lack of disclosure qualities especially the disclosure of ownership structure and minority shareholder protection is still the main weaknesses of corporate governance practices in Indonesia
Using 260 firm years of the Indonesian firms, this study finds that the increase of disclosure quality is found to have a positive correlation with the increase of share price five (5) days after the announcement date of financial reports and the increase of Return of Assets (ROA)
It can be seen that the increase of disclosure quality has a positive relationship with the increase of share returns and ROA. These results indicate that the improvement of disclosure quality has economic consequences which result in improvement on share return and ROA
Summary
The Asian Development Bank (2014) has reported that despite significant improvements made by the Indonesian firms with regards to the implementation of good corporate governance, a lack of disclosure qualities especially the disclosure of ownership structure and minority shareholder protection is still the main weaknesses of corporate governance practices in Indonesia. The phenomenon of low level of disclosure in Indonesia contradicts with theoretical benefits of full disclosure. The literature of corporate governance asserts that low quality of disclosure will result in asymmetric information which decreases the confidence of investors. High quality of disclosure will result in improved firm value, as investors are confident and able to predict firm’s financial performance. Wang et al (2008) found a significant positive relation between voluntary disclosure and firm’s financial performance measured by return on equity. Theoretically extended disclosure benefits firms, firms in Indonesia still are not encouraged to improve the disclosure through extended or voluntary disclosures
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