The Influence of Insider Ownership and Board Independence on the Narrative Risk Reporting

Rina Fadhilah Ismail,Suaini Othman,Roshayani Arshad

doi:10.5539/ass.v10n1p28

Abstract

Prior studies have examined the regulators’ aim for corporate transparency improvement has less being supported by the insider ownership. Further, by addressing the issue of risk and uncertainty, the presence of insider ownership in the company has been observed to influence corporate decisions that eventually drive to lowering corporate transparency. The main objective of this study is to analyse the impact of insider ownership on the narrative risk reporting of Malaysian corporations. Using the data set of 328 companies for 2008 and 2009, the empirical findings indicate a negative effect between narrative risk reporting and the insider ownership that implies Malaysian corporations are continuously resisting to accept recurring changes for the betterment of the companies.

Highlights

Effective corporate governance has been closely discussed in relation with enhanced corporate transparency
The quality measure for each firm j is constructed as follows: where QL(DIM)i = quality index depending on the specific dimensions either time orientation, type of measurements and economic signs for the company i idi = the number of risk information that may disclosed by company i nij = value of disclosure score depending on the scoring schemes
This study aims to examine the influences of insider ownership and board independence on the quality of voluntary risk disclosure among the Malaysian companies

Summary

Introduction

Effective corporate governance has been closely discussed in relation with enhanced corporate transparency. Most prior studies have suggested that a transparent report made by listed companies should be presented precisely, accurately and contain sufficient information as this kind of information is of interest to the investors and regulators. This in turn reduces the agency conflicts between managers and investors that are reflected in reduced information asymmetry. The expectation will be in the increase of information assessment of company’s performance Comprehensive reporting comprising both the mandatory and voluntary information is vital in assisting the investors’ decision-making. The lack of comprehensive voluntary risk information in annual reports may lead to the misinterpretation of current corporate performance condition that will affect the future business operations (Dobler, Lajili & Zeghal, 2011; Oliveira, Rodrigues & Craig, 2011), in the recovery period after the Asian financial crisis

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Conclusion