Voluntary Corporate Financial Disclosures as Strategy: Case Study of an Indian Company

Abstract

Voluntary Corporate Financial Disclosures (henceforth voluntary disclosures) are such information disclosures made by firms as are not required by laws or regulations Much of the existing literature on voluntary disclosures have focused on the question as to why should firms make voluntary disclosures or on the question of what are the characteristics common to firms making voluntary disclosures. The question of why do firms make voluntary disclosures has not received adequate attention in the literature. This paper attempts to answer the question of why do firms make voluntary disclosures by doing an in depth case study of an Indian company operating in the Financial Services sector. The voluntary disclosures made by the company in its annual report of 1995-96 were the focus of the investigation.The paper presents a review of the literature on voluntary disclosures in Section 2. Section 3 is a description of the regulatory framework governing financial reporting by Financial Service companies in India. Section 4 describes the methodology. Section S provides a background of the company and describes the specific voluntary disclosures made by the company under study. Section S presents the analysis. The concluding section presents some generalizations and directions for future research.The additional disclosures made by the case company represent a major shift in the company's disclosure policies The disclosures collectively communicate the poor financial state of the company The disclosures result in the company reporting a large loss and in a substantial write down of its assets Casual observation would lead us to believe that companies adopt an approach of gradually increasing the levels of voluntary disclosures Evidence from the case suggests that major shifts in the level of voluntary disclosures are likely to be associated with a shift in corporate strategy and/or a change in top management. The absence of any linkage between top management remuneration and financial performance of the company can facilitate disclosures which have negative implications for the reported financial performance and position of the company. Disclosures are used to both communicate strategy and as an element of strategy The results of the analysis are related to the model of disclosure process proposed by Gibbins, Richardson and Waterhouse ( 1990).