Ownership Concentration and Corporate Disclosure Choice in Bangladesh

Abstract

This paper investigates empirically the effect of ownership concentration on corporate disclosure choice in Bangladesh. In an environment of weak enforceability of laws, corporate culture in Bangladesh is characterized by family control and concentrated ownership. Controlling shareholders exercise nearly full control over a firm’s operating and financial policies, including disclosure policies, while maintaining low cash flow rights relative to voting rights. The paper shows that management’s choice of disclosure across key financial elements is discriminatory against external shareholders and bondholders. The findings show that controlling for factors such as age, size, profitability and financial leverage, ownership concentration reduces corporate disclosure. The findings validate the hypothesis of La Porta et al. (1999) that an increasing ownership concentration leads corporate management to adopt a disclosure regime which is biased against external shareholders and creditors.