Level Of Voluntary Disclosure Research Articles

An ode to government accountants

Directors' remuneration is a key issue for both academics and policymakers. It has caused enormous controversy in recent years. This study uses a comprehensive index to analyse the disclosure of directors' remuneration in Italian and UK listed firms. It finds that the level of voluntary disclosure is significantly associated with firm-specific incentives, such as the demand for information from investors and the need for legitimacy. It finds that the level of voluntary disclosure is significantly higher in the UK than in Italy and that firm-specific incentives to disclose voluntary information differ according to the institutional setting in which a firm operates. In the UK, firm-specific incentives mostly come from the demand for information, estimated with the level of ownership diffusion, and the need for legitimacy generated by poor market performance and shareholders' dissent. In Italy, firm-specific incentives seem to be represented by the need for legitimacy generated by media coverage. This study also provides evidence that, in both countries, the information disclosed in corporate documents does not allow readers to obtain a comprehensive picture of directors' remuneration. Bonuses are poorly disclosed even though they are a key element of directors' remuneration. This finding is clearly important for policymakers at European and national level.

Disclosure, Investment and Regulation

This paper provides a general model of voluntary and mandatory disclosure. In the present incomplete contract setting, disclosure determines the probability that the cash flow is verifiable. While disclosure is necessary to secure new financing, it provides existing claimholders with a windfall gain. Typically, the optimal voluntary disclosure level is below the socially optimal level. A mandatory standard improves welfare by reducing the deadweight loss of expropriation and by increasing investment efficiency. As complete mandatory disclosure may curtail investment, a partial standard can be superior. Furthermore, the model shows that better legal shareholder protection goes together with higher disclosure standards and that harmonization of disclosure standards may be detrimental.

Global Diversification and Corporate Disclosure

This paper examines whether a firm's level of voluntary disclosure varies with its level of global diversification. We argue that information asymmetries and agency costs arising from the global diversification of operations and financing increase the incentives for firms to disclose at a higher level. We measure global diversification of operations by factor-analyzing foreign shareholdings and foreign debt, and we measure global diversification of financing by factor-analyzing foreign sales and foreign subsidiaries. Using a sample of 216 firms from 17 countries selected from Fortune's Global 500 list and Botosan's (1997) disclosure index, we find that the level of voluntary disclosure is positively related to the extent of global operations, but is not related to the extent of global financing.

TINGKAT KELUASAN PENGUNGKAPAN SUKARELA DALAM LAPORAN TAHUNAN DAN HUBUNGANNYA DENGAN CURRENT EARNINGS RESPONSE COEFFICIENT (ERC)

This study examines whether voluntary corporate disclosure level that is published in annual report affects the return-earnings relationship. The study hypothesizes that the informativeness of earnings and voluntary disclosure is complementary to each other. This hypothesis implicitly presumes that investor will use the information provided in annual report disclosures together with information in earnings as one of the guidance in investment decisions. To test the hypothesis, current stock returns are regressed against current earnings changes. The sample consists of 90 annual reports of companies listed on the JSX as of December 31, 1998. The amount of voluntary disclosure provided in annual reports is measured by disclosure items and weighted scores developed by Botosan (1997), Sitanggang (2002), and Suripto (1999). Before deciding to use the weighted score, this study examines the differences between weighted scores and the equally weighted ones. The findings of the test of differences support the hypothesis that the two kinds of score measurement are statistically different, meaning that investors place different interests to each disclosure items. The findings of regression test support the hypothesis of complementary relationship, which remain consistent after controlling for other factors that have been identified in previous studies influence the earnings response coefficients. The findings are also robust with respect to different holding period returns and different earnings measurement.

Determinants of Voluntary Disclosure of Financial Information On the Internet by Brazilian Firms

Disclosure transparency is one of the pillars of good corporate governance. Moreover, the digital age has produced a dramatic shift in the corporate communication paradigm. As a result, companies increasingly use the Internet as an investor relations medium and a vehicle to disseminate financial information to capital markets. This paper examines the determinants of voluntary disclosure of financial information on the Internet by Brazilian firms. Cross-sectional analyses based on 291 non-financial companies listed on the Sao Paulo Stock Exchange in 2002 suggest that firm size and lower annual stock returns are associated with higher levels of voluntary financial information disclosure on corporate websites. These results are consistent with the notion that Brazilian firms (1) under public scrutiny or (2) that are performing poorly are more likely to disclose financial information on corporate websites.

Board leadership, outside directors’ expertise and voluntary corporate disclosures

This study examines the linkages between board leadership structure in terms of CEO duality (CEOs who jointly serve as board chairs), the proportion of expert outside directors on the board (PENEDs) and voluntary corporate disclosures. Regression analyses of observations from 385 Hong Kong companies show that CEO duality is associated with lower levels of voluntary corporate disclosures. However, the negative CEO duality/voluntary disclosure association is weaker for firms with higher PENEDs suggesting that the expertise of non-executive directors (NEDs) moderates the CEO duality/corporate disclosures relationship.

Firm characteristics and voluntary disclosure of geographic segment data by US multinational companies

This study examines the role of firm specific factors such as size, leverage and assets-in-place in determining the level of voluntary disclosure of interim data on foreign operations made by US multinational companies. While prior studies test the impact of firm characteristics on the level of voluntary disclosure of segment data of Australian and New Zealand companies, no research to date has conducted such investigation with respect to the US multinational companies. The results of this study indicate that firm size, leverage and assets-in-place systematically influence the level of voluntary disclosure of geographic segment data of US multinational companies in interim periods. Thus, the study extends the existing disclosure literature by demonstrating that, among other things, certain firm-specific attributes significantly impact a US multinational company's decision to voluntarily disclose interim geographic segment data.

Global Evidence on Incentives for Voluntary Accounting Disclosures and the Effect on Cost of Capital

This study provides international evidence that external financing dependence creates incentives for firms to undertake a higher level of voluntary accounting disclosure. For a sample of 856 observations from 34 countries and 18 different manufacturing industry sectors, we document that firms in industries that are more dependent on external financing also have higher average levels of accounting disclosure. This result holds after controlling for country-level differences in legal and financial systems, and firm-specific controls for firm size and performance. We then show that firms with higher disclose levels also have a lower cost of capital, which is evidence that voluntary accounting disclosures reduce information asymmetry and lower the firm's cost of external financing. These results are robust across a wide range of legal and financial systems around the world, and underscore the importance of accounting disclosures in firm financing decisions.

Auditor conservatism and voluntary disclosure: Evidence from the Year 2000 systems issue

This study further examines the phenomenon of conservative auditor behaviour by considering the level of voluntary disclosure of Year 2000 remediation information in company annual reports. Previous studies have provided evidence of conservative auditor behaviour by examining the link between Big 6 auditor choice and accruals (Francis and Krishnan 1999; Becker et al., 1998; Defond and Subramanyam 1998). Protecting their reputation capital increases Big 6 auditor incentives to act conservatively to avoid litigation risk. We propose and find that Big 6 auditor clients disclose more Year 2000 remediation information than non–Big 6 auditor clients.

Quality of financial reporting: evidence from the listed Saudi nonfinancial companies

This study assesses the quality of information disclosed by a sample of nonfinancial Saudi companies listed on the Saudi Stock Exchange. The study also compares the extent of corporate disclosure before and after the creation of the Saudi Organization of Certified Public Accountants (SOCPA). We classify information disclosed in the annual reports into three main categories: mandatory; voluntary related to mandatory; and voluntary unrelated to mandatory disclosure. The sample provided 63% and 66% of the total population of companies listed on the Saudi Stock Exchange in the years 1992 and 1999. In departure from most previous studies conducted in this area of research, we weighted the indexes of disclosure by the mean and median responses of seven users of the annual reports in Saudi Arabia. The results of both unweighted and weighted indexes are reported. The outcome of the analysis indicated a relatively high compliance with the mandatory requirements in all industries covered by the study, with the exception of the electricity sector. As for the voluntary disclosure, whether related or unrelated to mandatory disclosure, the analysis revealed that Saudi companies disclose information more than the minimum required by law. The level of voluntary disclosure, however, is relatively low. The analysis also showed that the creation of SOCPA has had little impact on corporate reporting in Saudi Arabia.

The Effect of Product Market Competition on Corporate Voluntary Disclosure Decisions

This paper investigates empirically the effect of different types of product market competition on levels of voluntary disclosure of proprietary information in financial markets. Firms, considering a disclosure, trade off attaining financial market valuation-related benefits vs. protecting long-term product market advantage. Based on economic theory, I propose that there are two types of strategic interaction settings relevant to disclosure: Capacity competition drives firms to disclose more; price competition drives them to disclose less. When firms are competing on capacities, firms disclose more information to lower the cost of capital needed for capital investments. In contrast, when firms are competing on prices, they disclose less information because proprietary costs are high and the benefit from any decreased cost of capital is low due to less acute need for additional capital. By estimating the signs of the slope of reaction curves to identify the type of competition facing firms in oligopoly markets, I find that the type of product market competition affects the level of voluntary disclosure over and above what pervious literature has documented as the firm's external financing needs. That is, firms engaged in capacity competition disclose relatively more information than firms engaged in price competition. Further analysis after including as benchmarks firms with no strategic interaction, shows that capacity competition firms disclose more information than no-strategic-interaction firms but that price competition firms do not disclose less information than no-strategic-interaction firms.

Regulation Fair Disclosure and Information Asymmetry

With the institution of Regulation Fair Disclosure (FD) on October 23, 2000, the Securities and Exchange Commission (SEC) imposed higher transparency requirements on the voluntary disclosure practices of public companies. This paper investigates whether the regulation induced companies to commit to higher or lower levels of voluntary disclosures by studying the changes in information asymmetry. The analysis is based on the extant economic theory suggesting that increases in the quantity and/or quality of disclosures should reduce companies' levels of information asymmetry. We study two proxies of information asymmetry - the probability of informed trading and the adverse selection component of the spread. After the implementation of Regulation FD we find a significant increase in both proxies of information asymmetry and the probability of new information events that contain private information while the proportion of informed traders decreases. An analysis of the volume of disclosures shows that the regulation was successful in increasing the quantity of available public information. Combined with the previous results we are able to conclude that, at least initially, companies responded to the regulation by providing more public information of lower quality.

Pengaruh Luas Ungkapan Sukarela dan Asimetri Informasi Terhadap Cost of Equity Capital pada Perusahaan Publik di Indonesia

This study examines whether voluntary corporate disclosure level published in annual report and asymmetry information has an effect on cost of equity capital. The purpose of the study is to investigate whether the variances in corporate disclosure level and asymmetry information effect cost of equity capital. The sample consists of 61 companies listed on the Jakarta Stock Exchange in 1999 and 2000. The hypotheses tested was conducted by implementing pooled data method, for period of 1999- 2000. The results support the hypotheses that voluntary corporate disclosure, information asymmetry and beta have effect on cost of equity capital. More specifically, the results show that size significantly moderates the relationship between information asymmetry and cost of equity capital, but size does not significantly moderate the relationship between voluntary corporate disclosure level and cost of equity capital.

Culture, Institutional Factors and Differences in Environmental Disclosure Between Canada and the United States

We explore the role of cultural and institutional factors in motivating production of mandatory and voluntary disclosure by comparing environmental disclosure produced by Canadian and US companies. We study the years 1988 and 1994 on a matched pairs basis using content analysis of annual reports, security exchange filings (the 10 K in the US and the Annual Information Form in Canada) and environmental reports. Over the time period, the disclosure produced by Canadian firms increased more dramatically than the US disclosure, which was initially greater. This might suggest that Canadian culture and institutional infrastructure is more conducive to the production of environmental disclosure than US counterparts. It would appear that the collectivistic nature of Canadian society has led, in recent years, to the production of a greater level of voluntary environmental disclosure, especially in the environmental report. However, the US, a more litigious society, produces more of the mandated disclosure in the 10 K and annual report.

Environmental Influences on Voluntary Disclosures in the Annual Reports of Hong Kong and Singapore Companies: A Cultural Perspective

This study investigates the impact of environmental influences, particularly a secretive aspect of Chinese culture, on voluntary corporate disclosure practices. Evidence is provided of the similarly low level of voluntary disclosure by Hong Kong (HK) and Singaporian listed industrial companies. Further, a comparative analysis with prior research on UK/US companies indicates that the extent of voluntary disclosure by HK and Singaporian companies is lower overall. However, while this finding applies to both financial and nonfinancial information, it is not so in the case of strategic information for HK companies.

Managerial discretion and voluntary disclosure: Empirical evidence from the New Zealand life insurance industry

The managerial discretion hypothesis holds that variations in the degree of autonomy afforded to managers in insurance companies can be explained by corporate-specific factors such as organizational form and firm size ( Mayers and Smith, 1988, pp. 351–378; Mayers and Smith, 1994, pp. 638–655). To the extent that the public disclosure decisions of life insurance companies are likely to be linked to managerial discretion, valuable insights could be gained from applying the managerial discretion hypothesis to explain differences in the level of information voluntarily disclosed by life insurance companies in their annual reports. The relation between voluntary disclosure and eight explanatory variables representing the major constructs of the managerial discretion hypothesis is thus specified in the form a fixed-effects regression model using 1988–1993 data drawn from New Zealand's (NZ) life insurance industry. The results indicate that organizational form, firm size, product diversity and distribution system, are positively related to the level of voluntary disclosure as implied by the managerial discretion hypothesis. In contrast, assets-in-place and localization of operations are not significant variables. Two independent variables – non-executive directors and reinsurance – are statistically significant, but in the opposite direction to that predicted.

Corporate Governance Disclosure in Australia: the State of Play

Corporate governance has been proposed as a general prescription to remedy the excesses of the 1980s. The Australian Stock Exchange has embraced this view and has imposed a new listing rule, applying from 30 June 1996. This study examines the current level of corporate governance disclosure in light of advance warning of this listing rule in September 1994 and international best practice. Factors which influence levels of voluntary corporate governance disclosure, such as size, auditor and overseas listing, are also examined.

Disclosure Policy Choice and Corporate Characteristics: A Study of Bangladesh

ABSTRACT This paper empirically investigates the extent of disclosure in the 1987–88 and 1992–93 annual reports of 118 non-financial publicly quoted companies in Bangladesh, and association between company size, total amount of debt, relationship with parent companies, qualifications of the principal accounting officer, and size of the company's audit firm with disclosure level. The results show that the disclosure level varied between 29.8 per cent and 73.4 per cent, with an average of 53.3 per cent. While the majority of the companies disclosed much information of a statutory nature, the level of voluntary disclosure was very low. However, there has been some improvement in the disclosure levels of local companies and companies audited by smaller firms in 1992–93 over 1987–88. Using a multiple linear regression model, it is found that subsidiaries of multinational enterprises and companies audited by large audit firms disclose significantly more information in their annual reports.

Economic Effects of Accounting Regulation for Public Accountants: Evidence from the Netherlands

Abstract This paper provides empirical evidence on the size of the audit market and the number of public accountants supplying services in an attempt to understand the effects of accounting regulation for public accountants. Intuitively, the size of the market for public accounting services would be expected to increase because of accounting regulation and have beneficial effects for public accountants. However, the actual effects of accounting regulation depend on the level of voluntary disclosure before the regulation, the degree of compliance with the regulation by firms and the number of public accountants supplying services. The size effects of two changes in Dutch accounting regulation, one in 1970 and one in 1983, are analysed empirically. The indicators of the size of the market for public accounting services used suggest an increase in the size of the audit market. The results for the supply side suggest that the total number of employed public accountants adjusted to this increase. However, the total number of partners did not adjust to the increased size of the market. Two alternative explanations for the different findings for employed public accountants and partners are provided and discussed.

News items

The Internet is widely used by listed companies to manage investor relations. Since January 2007, the French Financial Authority has required companies listed on Euronext-Paris to disclose all mandatory financial information via the Internet in order to enhance information transparency. This paper examines the impact of Internet-based disclosure on the French stock market by analyzing the relationship between information asymmetry and Internet disclosure practices. Extending previous studies on Web-based disclosure, a checklist of 40 items is developed to evaluate the level of Internet-based voluntary disclosure. Measuring information asymmetry by the spread and the probability of informed trading, we show that greater Web-based disclosure lowers information asymmetry in the French financial market.