Determinants of corporate disclosures: An empirical test of political economy theory

Abstract

The principle objective of this study was to employ political economy theory in order to examine the determinants that impact the corporate disclosure of listed companies in Sri Lanka. Data was gathered from 122 companies over a period of eight years, from 2012 to 2019. Corporate disclosures of Sri Lankan listed corporations were analysed using Partial Least Square Structural Equation Modelling (PLS-SEM). Determinants of corporate disclosures have been examined in light of political economy theory, namely legitimacy, isomorphic effects, and stakeholder power. The amount of corporate disclosure was quantified using an unweighted index in this research. This study found that legitimacy, isomorphic influences, and stakeholder power are positively associated with the level of corporate disclosure. Findings suggest that managers use corporate disclosures as a strategy to legitimize themselves, manage stakeholder power, and cope with isomorphic influences. This is the first research so far to utilize the PLS-SEM to identify the determinants of corporate disclosures. Considering emerging economies across the globe, the findings of the study provide valuable insights for companies to understand how political economy theory affects the level of corporate disclosures.