Corporate Voluntary Disclosure Research Articles

Foreign Institutional Investors and Corporate Voluntary Disclosure Around the World

ABSTRACT We examine the impact of foreign institutional investors on firms' voluntary disclosure practices measured by management forecasts. In a sample of 32 non-U.S. countries, we find that, on average, foreign institutional investments lead to improved voluntary disclosure, and their impact is larger than that of domestic institutional investors. These results are more pronounced when foreign institutional investors (1) are unfamiliar with the firm's home country, (2) have longer investment horizons, and (3) are from countries with stronger investor protection and disclosure requirements than the firm's home country. However, we also find some evidence of voluntary disclosure deterioration in firms with foreign institutional investors from countries with inferior disclosure requirements and securities regulations and with concentrated foreign institutional ownership. Overall, our results suggest that the relation between foreign institutional investors and voluntary disclosure is much richer and more complex than what has been documented for domestic institutional investors in the literature.

Voluntary Disclosure Research: Which Theory Is Relevant?

The purpose of this paper is to overview the most popular theories that have been used in prior research to explain voluntary corporate disclosures and to provide guidance about the choice of a suitable theory or theories for different types of voluntary disclosure research. It presents a comprehensive comparison of voluntary disclosure theories and relates each of the theories to the type of information disclosure being examined. Following prior research, we classify disclosures into strategic and forward looking, financial, and non-financial information. We show that similarities and differences between theories stem from underlying paradigm differences which are related to incentives to disclose and the costs and benefits considered by each theory. The choice of a suitable theory to underpin the research depends on the type of information disclosure being examined and the external parties considered.

Industry Characteristics And Voluntary Disclosure In Private Mining And Manufacturing Firms In Tanzania

Disclosure of corporate information forms an integral part of the corporate governance framework and lies at the center of most of the corporate governance codes, principles and reports around the world given its indispensable contribution to market and firm performance. Unfortunately, corporate disclosure is not a central aspect of corporate governance in Tanzania. It is noted that the lack of adequate voluntary corporate disclosure is one of the biggest challenges facing the implementation of effective corporate governance in Tanzania. In turn, lack of sound corporate governance has fueled corruption and cronyism while suppressing sound and sustainable economic decisions. To address this major problem, this paper investigates the determinants of voluntary disclosure in 107 private Tanzanian mining and manufacturing firms. This study uses a longitudinal approach as variation across firms and over time. To this end, 2011–2015 is selected for the longitudinal analysis. Annual reports of 107 private firms was used to collect data in relation to ownership structures, financial performance and firm size. This data was analyzed using a random effects Generalized Least Squares (GLS) model with Mundlak (1978) corrections. Our results show that ownership structures are associated with voluntary disclosure. Specifically, ownership concentration is negatively associated with voluntary disclosure in mining companies while it is positively associated in manufacturing firms. Foreign ownership is positively associated with voluntary disclosure for both mining and manufacturing firms. Further, the results reveal that financial performance is associated with voluntary disclosure where leverage is positively related to voluntary disclosure in mining and manufacturing firms while liquidity is significantly associated with voluntary disclosure in mining companies only. Our results also show that mining companies disclose 3.2% more information than manufacturing firms. Relevant policies to promote voluntary disclosure should be directed at facilitating foreign direct investment and leverage. These policies include developing impartial court systems, development of infrastructure, provision of quality education, tax holidays and tax credit. It is recommended that loan guarantee provided by public financial institutions can be used to reduce risk. In addition, foreign exchange liquidity facilities can reduce risk associated with borrowing money in different currencies.

Litigation Risk and Voluntary Disclosure: Evidence from Legal Changes

ABSTRACT This paper documents that changes in litigation risk affect corporate voluntary disclosure practices. We make causal inferences by exploiting three legal events that generate exogenous variations in firms' litigation risk. Using a matching-based fixed-effect difference-in-differences design, we find that the treated firms tend to make fewer (more) management earnings forecasts relative to the control firms when they expect litigation risk to be lower (higher) following the legal event. The results are concentrated on the earnings forecasts conveying negative news and are robust to alternative specifications, samples, and outcome variables. JEL Classifications: D80; G14; K22; K41; M41.

Litigation Risk and Corporate Voluntary Disclosure: Evidence from Two Quasi-Natural Experiments

We examine the effect of litigation risk on corporate voluntary disclosure using two quasi-natural experiments, which have substantial and opposing impacts on the litigation risk of firms headquartered in the Ninth Circuit. We find that firms in the Ninth Circuit decrease (increase) the quantity and quality of their voluntary disclosure, relative to control firms, when their litigation risk is lowered (elevated). The pre-treatment test shows an indistinguishable trend between treatment and control firms. A battery of robustness checks indicates that our results are not driven by alternative explanations. We hypothesize and find that the impact of litigation risk is more pronounced when firms have bad news and that firms are more likely to preempt bad news through voluntary disclosures when litigation risk is elevated. Overall, results from both experiments suggest that litigation risk causally increases corporate voluntary disclosure.

Factors affecting the voluntary disclosure: a study by using smart PLS-SEM approach

PurposeThis paper aims to examine the factors affecting the voluntary disclosure in the annual reports of listed companies in Bangladesh.Design/methodology/approachThe study is based on a sample of 96 listed non-financial companies in Dhaka Stock Exchanges over the period of 2013 to 2016. The study used partial least squares structural equation modeling tool to analyze data which provides evidence of reliability and validity. It also used an unweighted relative disclosure index for measuring voluntary disclosure.FindingsThe empirical results show that corporate governance (board leadership structure and ownership structures) and firms characteristics (total assets and total sales) are significantly positive correlated with the voluntary disclosure.Originality/valueThe finding of the study will be a bench mark or the board for policy makers and implementers in torching the avenues of improvement in raising the level of corporate voluntary disclosure in annual reports of listed companies in Bangladesh.

Restrictions on Managers' Outside Employment Opportunities and Asymmetric Disclosure of Bad versus Good News

ABSTRACT This study examines the effect of restrictions on managers' outside employment opportunities on voluntary corporate disclosure. The recognition of the Inevitable Disclosure Doctrine (IDD) by courts in the U.S. states in which the firms are headquartered places greater restrictions on their managers from joining or forming a rival company. We find that, on average, the IDD adoption increases the asymmetric withholding of bad news. We further show that the IDD adoption increases the asymmetric withholding of bad news relative to good news for firms whose managers are mainly concerned about losing their current job. However, an opposite effect is observed for firms whose managers are mainly interested in seeking promotion elsewhere. Furthermore, these effects are less pronounced for firms subject to greater monitoring of their disclosure policy. These results suggest that managers' career concerns affect corporate disclosure policy, and the effect varies with the type of career concerns. JEL Classifications: D82; M4.

Does board gender diversity affect the transparency of corporate political disclosure?

Purpose The purpose of this paper is to examine the influence of board gender diversity on the transparency of corporate political disclosure (CPD). Design/methodology/approach Two empirical proxies, CPD transparency and policy transparency, are constructed from a data set jointly produced by the Center of Political Activity and the Carol and Lawrence Zicklin Center for Business Ethics Research. The CPD transparency score measures the level of transparency in voluntary corporate disclosure of the amount of political contributions and the identity of the recipients as well as the titles and names of the executives who authorize the political spending. The policy transparency score measures the level of transparency in the voluntary disclosure of the policies governing corporate political spending. Board gender diversity is measured by the percentage of women on the board of directors. Findings Higher proportions of female directors are associated with more transparent disclosure of political contributions after controlling for a set of corporate governance and firm-level variables. Originality/value This study is the first to examine whether and how gender-diversified boards enhance the transparency of CPD. It contributes to the literature by providing evidence that gender-diversified boards enhance corporate governance.

Voluntary disclosure and the pricing of earnings components

This study examines the association between earnings components, corporate voluntary disclosures and market reactions to the contents of the disclosures. Taiwanese listed firms report substantial non-operating income. I disaggregate earnings into three components: operating income, equity investment income and other non-operating income. I first investigate whether earnings components have different influences on a firm’s voluntary disclosure decision as measured by conference calls. I find that firms with higher operating income and with higher other non-operating income are more likely to hold conference calls. Consistent with the corporate control contest hypothesis, this paper provides evidence on the negative association between a firm’s equity investment income and its decision to hold conference calls. Furthermore, I investigate how voluntary disclosures provided by management during conference calls affect the pricing of earnings components. I find that the mispricing of earnings components are smaller for firms hosting conference calls. My findings suggest that conference calls improve the efficacy of investors’ reactions to earnings announcements in the Taiwanese stock market by conveying information on earnings components.

Voluntary disclosure of corporate political spending

In this paper, we study voluntary political spending disclosure, a widespread yet relatively unexplored corporate voluntary disclosure practice. Using an index created by the CPA-Zicklin Center that measures the level of voluntary political spending disclosure for S&P 500 firms, we examine firm-level characteristics associated with such disclosures, and their importance. We find that firms with greater political expenditures, direct political connections, higher investor activism, better corporate social responsibility performance and governance, and more industry competition tend to have a higher level of political spending disclosure. We also find that a higher level of political spending disclosure is positively associated with both the number of institutional investors and the proportion of shares owned by institutional investors, particularly socially responsible institutional investors, after controlling for the quality of other disclosures. The level of political spending disclosure is also associated with a higher analyst following, lower forecast error, and smaller forecast dispersion. Finally, we find that political spending disclosure enhances the positive relationship between annual corporate political spending and firm financial performance. Together, these results are consistent with the view that voluntary political spending disclosure helps align managers’ interests with those of shareholders.

The determinants of voluntary strategy disclosure: an international comparison

PurposeThe purpose of this paper is to examine the roles of country-level characteristics versus firm-level characteristics in explaining variations in firms’ voluntary strategy disclosures.Design/methodology/approachStrategy disclosure in annual reports is measured using an index of 40 items derived from the strategy literature. The sample is 204 large companies from 12 Asian and European countries in 2005. The disclosure index is subdivided into four underlying latent constructs using principal components analysis. The authors then use OLS regression to test whether total disclosure score, and the latent constructs are associated with country-level characteristics and firm-level characteristics.FindingsThe authors find that total strategy disclosures are more prevalent in stakeholder-oriented countries, in countries with greater levels of financial transparency, but are less prevalent in countries with a culture of secrecy, and strategy disclosures are more likely to occur in companies with greater economic incentives to disclose, with a Big 4 auditor or which are listed in New York. These findings also occur but not as consistently with the four latent constructs.Research limitations/implicationsThe sample used in this paper comprises large public companies, so the findings may not be generalisable to all companies. Nevertheless, the findings demonstrate that both country- and firm-level variables matter in explaining voluntary strategy disclosure.Practical implicationsThe IASB released an IFRS Practice Statement in 2010, which recommends, but does not require, disclosure of information about corporate strategy in Management Commentary statements. The findings of this paper may help inform the issue of whether regulators should make strategy disclosures mandatory.Originality/valueThe paper contains the first detailed examination of the roles of country-level characteristics versus firm-level characteristics in explaining variations in corporate voluntary strategy disclosures.

Audit Committee Diversity toward Voluntary Disclosure Reporting with Existence of Regulatory Regime as Moderation Variable: a Critical Review

The audit committee is a fundamental and prerequisite tool for fulfilling board’s monitoring role of ensuring transparency, financial and managerial efficiency. Therefore, it has been applied to address perceived governance failure. This paper aims to critically review the previous literature on the relationship between audit committee diversity as a major corporate governance mechanism and corporate voluntary disclosure reporting (CVDR) with a change in the regulatory regime as moderation variable. This review specifically evaluates theoretical and empirical literature related to audit committee diversity such as independence, financial expertise, accounting expertise; and CVDR in order to highlight some important areas of gaps for future research in this field. It also, emphases the need for a more qualitative method for better understanding of the relationship. This paper proposes that examining the moderating influence of the change of the regulatory regime with regard to CVDR would provide more insight into the link between audit committee diversity and CVDR. The policy implication of the study is also discussed. Lastly, the paper stresses the importance of future studies linking audit committee diversity and CVDR, which are quite scanty the existing literature.

Board structure and corporate disclosure via social media: an empirical study in the UK

PurposeThe purpose of this paper is to investigate the impact of board structure on voluntary corporate disclosure via social media among the top 150 companies listed on the London Stock Exchange.Design/methodology/approachA disclosure index comprising of a set of items that encompass two facets of disclosure, namely corporate disclosure via social networks and social media sites, is developed and used. Binary logistic regression is used to test the research hypotheses.FindingsThe results of this study reveal the underlying relations between board composition and control variables as the determining factors of corporate disclosure, i.e. board size, board activism, board independence and board diversity (gender and ethnicity). The gender of the board can affect the corporate disclosure via a social network. The results of this study indicate that an increase in the number of female in the board members leads to higher corporate disclosure using social network. Moreover, firm size has a positive effect on corporate disclosure indicating that large firms tend to disclose more information on their websites and social networks.Practical implicationsThe paper provides new insights into the role played by the non-executive female directors in monitoring and controlling managerial processes related to corporate disclosure using social media.Originality/valueTo the best of the authors’ knowledge, this is the first paper that examines the role of board structure in monitoring and controlling management decisions and managerial processes in the area of corporate disclosure via social media.

Pengaruh Diversitas Dewan dan kinerja keuangan terhadap voluntary corporate disclosure

<p>More disclosure can reduce agency costs incurred by the company. The more management (agent) reveal information about the company can reduce the conflict to shareholders (principal). Therfore, a voluntary disclosure more to minimize the occurence of information asymmetry. The more management companies disclose information about the incentives obtained become more, because basically shareholders (principal) would be willing to pay the cost of monitoring surveillance to prevent the hazard of the agent.</p><p>The aim of this study is to analyze and discribe how diversity influences gender and educational background of the board as well as the financial performance of the corporate voluntary disclosure. Definition councils in this study combines the board of commissioners and board of directors, because indonesia is adopting a two-tier system. The companies sampled is a company registered in the Indonesia Stock Exchange (IDX).</p>Adjusted R-squere value (0.55) shows that voluntary corporate disclosure nearly 55% depending on the independent variable is gender diversity of the board, board diversity educational backgrounds, profitability, size, liquidity and liverage of the company. Significance test showed that gender diversity and leverage are important determinants of corporate voluntary disclosure in Indonesia. On the other hand, the research also found that the variable gender diversity, provitability, size and liquidity is not strong explanatory variables to determine the extent of voluntary disclosure of company in Indonesia.

Nonfinancial Risk Disclosure and the Costs of Private Ordering

In 2016 the Securities and Exchange Commission (SEC) considered for the first time whether financial disclosure reform should address information on sustainability matters and other sources of nonfinancial risk. The resulting debate over these issues raised fundamental questions about how well the federal disclosure regime addresses emerging risks and about how well private ordering, through shareholder engagement, the work of private standard‐setters, and corporate voluntary disclosure, can fill the gaps. This article argues that the current model of nonfinancial risk disclosure, based largely on private ordering, is ineffective and undermines the SEC's mission to protect investors, facilitate capital formation, and promote fair, orderly, and efficient markets. This conclusion rests on evidence that the current state of sustainability disclosure is inadequate for investment analysis and that these deficiencies are largely problems of comparability and quality that cannot readily be addressed by private ordering. This article also highlights the costs of agency inaction to investors and to public companies, which have been largely ignored in the debate over the future of financial reporting. It concludes by proposing avenues for disclosure reform.

The Corrosive Effect of Offshore Financial Centers on Multinational Firms’ Disclosure Strategy

This study investigates whether U.S. multinational firms with subsidiaries located in offshore financial centers (OFCs) (i.e. offshore firms) are more likely to be opaque in their voluntary disclosure relative to U.S. multinationals without such subsidiaries (non-offshore firms). We use management earnings forecasts to capture corporate voluntary disclosure. Consistent with the opportunism view, but inconsistent with the efficiency argument, our results (including robustness checks) show that offshore firms are less likely to issue earnings forecasts, disclose forecasts less frequently, exhibit a stronger tendency to withhold bad news forecasts, and release less precise forecasts than non-offshore firms. Moreover, of the three distinct dimensions of OFCs’ institutional environment, namely, low taxation, lax regulation, and secrecy policy, each plays a role in negatively shaping firms’ disclosure strategy. Thus, OFCs’ institutional features exacerbate the opacity that plagues firms seeking to avoid taxes via their OFC subsidiaries. Our results are consistent with the notion that, beyond the scope of taxes, multinational firms’ use of OFCs has a corrosive effect on market information dynamics. Hence, OFCs have a much wider impact on the U.S. economy as well as other major economies than just tax avoidance or evasion.

Audited financial reporting and voluntary disclosure: International evidence on management earnings forecasts

In this paper, we extend prior research on the link between audited financial reporting and voluntary disclosure by examining international differences in the relationship between commitment to higher levels of audit verification of actual financial outcomes and management earnings forecasts (our proxy for voluntary disclosure), using firm‐level data from 30 non‐US countries. Our evidence that commitment to higher levels of audit verification (proxied by the choice of a Big 4 auditor, the amount of audit fees, and excess audit fees) is positively associated with the incidence and frequency of management forecasts, and with stock market reactions to such forecasts, supports the notion that audited financial reporting and voluntary disclosure of managers' private information are complements in countries around the world. We further find that the relation between audited financial reporting and management earnings forecasts is weaker for firms in countries with relatively stronger capital market development or with higher levels of investor protection, suggesting that audited financial reporting plays a more important complementary role in voluntary disclosure in countries with less‐developed institutions. Overall, our findings suggest that firm‐level commitment to better audited financial reporting and the strength of country‐level institutional characteristics play substitute roles in corporate voluntary disclosure decisions.

Corporate boards, ownership structures and corporate disclosures

PurposeThe purpose of this paper is to investigate the effect of corporate board attributes, ownership structure and firm-level characteristics on both corporate mandatory and voluntary disclosure behaviour.Design/methodology/approachMultivariate regression techniques are used to estimate the effect of corporate board and ownership structures on mandatory and voluntary disclosures of a sample of Libyan listed and non-listed firms between 2006 and 2010.FindingsFirst, the authors find that board size, board composition, the frequency of board meetings and the presence of an audit committee have an impact on the level of corporate disclosure. Second, results indicate that ownership structures have a non-linear effect on the level of corporate disclosure. Finally, the authors document that firm age, liquidity, listing status, industry type and auditor type are positively associated with the level of corporate disclosure.Research limitations/implicationsFuture research could investigate disclosure practices using other channels of corporate disclosure media, such as corporate websites. Useful insights may be offered also by future studies by conducting in-depth interviews with corporate managers, directors and owners regarding these issues.Practical implicationsThe evidence relating to the important role that corporate governance mechanisms play in shaping the expectations relating to the level of corporate voluntary and/or mandatory disclosures may be useful in informing investor decisions, as well as future policy and regulatory initiatives.Originality/valueThis paper contributes to the existing literature by examining the governance-disclosure nexus relating to both mandatory and voluntary disclosures in both listed and non-listed firms operating in a developing country setting.

The Effect of Exogenous Information on Voluntary Disclosure and Market Quality

We analyze a model in which information may be voluntarily disclosed by a firm and/or by a third party, e.g., financial analysts. Due to its strategic nature, corporate voluntary disclosure is qualitatively different from third-party disclosure. Greater analyst coverage crowds out (crowds in) corporate voluntary disclosure when analysts mostly discover information that is available (unavailable) to the firm. Nevertheless, greater analyst coverage always improves the overall quality of public information. We base this claim on two market quality measures: price efficiency, which is statistical in nature, and liquidity, which is derived in a trading stage that follows the disclosure stage.

Corporate voluntary disclosure practices and its association with corporate attributes: an empirical investigation of listed and non-listed commercial banks in Bangladesh

The study evaluates the level of the voluntary disclosure practices of 27 listed and non-listed banks in Bangladesh; whether there is any significant association between bank's specific attributes (i.e., size, profitability, age, and ownership structure) and the level of voluntary disclosure in the annual reports over the period of the study. To measure the level of voluntary information disclosure in the annual reports of each individual bank for each year, the study considered a two-step process: 1) construction of the voluntary disclosure index; 2) scoring the voluntary information disclosure items. For analysing the study, some statistical methods (descriptive statistics, OLS regression model, correlation analysis) have been considered. The result reveals that, a diverse set of factors influence the level of voluntary disclosure in the annual reports of the banks. The study has the implication for current professional practice and is in important addition to existing literature in the arena of voluntary disclosure and the strategy of disclosure. The study also finds that, the bank's size and profitability have the positive relationship with the level of voluntary disclosure. On the other hand, bank's age and ownership structure have the negative relationship with the level of voluntary disclosure in the annual reports.