Firm specific characteristics and voluntary disclosure: evidence from a developing country

Abstract

This paper assesses the levels of voluntary disclosure in the annual reports of companies in Sri Lanka, a developing country, and identifies firm-specific characteristics that impact on voluntary disclosure of the listed companies in Sri Lanka. Eight variables, representing firm specific characteristics, were tested to assess the levels of disclosure of 100 listed companies. The study adopts a disclosure checklist consists with 20 variables to identify the levels of disclosure. The relationship between firm specific characteristics and the level of disclosure was examined using unranked Ordinary Least Square approach. The findings of the study were analyzed using a stakeholder theory perspective, which attempts to explain why management will meet the expectations of certain stakeholders, typically those in a position of power or influence. Findings reveal that four variables namely firm size, profit margin, leverage and audit firm size are positively and significantly associated with the level of disclosure. This means that large size companies have more interest in disclosing additional information as compared to small size companies. Further, firms with a high profit margin disclose more information than firms with a low profit margin. Moreover, debt capital holders and large audit firms have more influence to encourage companies to disclose voluntary information. The results of this study are useful for the managers and investment community to assist in evaluating the extent of voluntary disclosure by Sri Lankan listed companies and explaining the variation of disclosure. Further, the results provide useful insights to policy makers and regulators who may want to improve voluntary disclosures in their countries, especially in Sri Lanka.