Voluntary Disclosure Quality Research Articles

Corporate governance and the quality of voluntary disclosure: Evidence from medium-sized listed firms

In turbulent economic conditions, firms have to improve their corporate communication in order to meet the information requirements of capital markets. The topic of the quality of communication in medium-sized companies appears to have received comparatively limited attention, despite their growing economic importance. This article, applying content analysis techniques, addresses the nature of voluntary disclosure in medium-sized listed firms and focuses on the quality of corporate communication. This study, through the use of a linear regression model, examines, in particular, the explanatory power of corporate governance issues, such as ownership structure and board composition, as potential determinants of communication quality. The results show that a diffuse ownership along with the existence of an audit committee is associated with increased qualitative levels of voluntary disclosure, while managerial ownership, board size and the number of board committees present a negative relation to disclosure. Moreover, institutional investors’ ownership and the presence of independent directors are not related to disclosure quality.

The quality and determinants of voluntary disclosures in annual reports of Shari'ah compliant companies in Malaysia

PurposeThe aim of this study is to investigate the quality of voluntary disclosure practices by Shari'ah compliant companies (ShCCs) in Malaysia. The study also examines factors influencing the quality of voluntary disclosures.Design/methodology/approachUsing a weighted disclosure analyses approach, a self‐constructed disclosure checklist was developed to measure the quality of corporate voluntary disclosures (CVDs). The study examines the annual reports of a sample of 76 ShCCs selected from various sectors listed on Bursa Malaysia in the year 2009.FindingsThe results indicate that the quality of voluntary disclosures by ShCCs is in overall low consistent with prior studies that gauged the quality of CVDs in Malaysia. The multivariate regression analyses reveal that board size is significant in explaining the quality of CVDs at the 5 percent significance levels. Company size and leverage as control variables are also significant at the 1 and 10 percent significance levels in determining the quality of CVDs by ShCCs. The reduced regression model further indicates that government ownership is highly significant at the 1 percent significance level in explaining the quality of CVD by ShCCs while leverage is significant at the 5 percent levels.Practical implicationsThe low level of corporate disclosures by the ShCCs in Malaysia suggests that these companies require awareness on matters relating to the concepts of accountability and full disclosures in becoming accountable to the community. Hence, the Shari'ah Advisory Council of the Securities Commission Malaysia should provide awareness on matters relating to accountability and transparency which could lead to socio economic justice. The commission may also introduce a detailed reporting guideline for the companies to follow.Originality/valueThis study provides useful insights on the disclosure quality of ShCCs in Malaysia which remained largely unexplored. The study also represents the first empirical investigation toward the association between voluntary disclosures by ShCCs and corporate governance attributes in the Malaysian context.

Corporate Governance, Product-Related Voluntary Disclosure and Analysts’ Forecasts Properties

Using a sample of US biotech firms, this paper examines the joint impact of product-related voluntary disclosure and corporate governance on a firms’ information environment, specifically on analysts forecast accuracy, dispersion, precision of public and private information. Moreover, we investigate whether voluntary disclosure was consistently disclosed over time. Our findings, shows that the quality of corporate governance affects information transparency and play a role in reducing the uncertainty associated with future firms’ performance by increasing the precision of analysts’ common information and forecast accuracy, only when voluntary disclosure is constant over time. Analysts forecast dispersion decreases when more independent directors sit on the board. Voluntary disclosure and corporate governance quality are two mechanisms that act as complement to improve the quality of information available to financial analysts.

Factors influencing corporate voluntary disclosures in Malaysia

This study examines factors influencing voluntary disclosures in Malaysian corporate annual reports to see if there has been a change in factors influencing disclosure after the 2007/08 global financial crisis. Multiple regression analyses were run using data from 85 listed companies for the years 2006 and 2009, selected based on systematic stratified random sampling. The quality of disclosure was measured using a self-constructed checklist. A scale of 0–3, depending on how an item is disclosed by the company, was used in awarding scores to companies. Results show that company size to be statistically significant in both years. However, profitability and government ownership which were statistically significant at the 5% and 10% levels respectively in 2006 were no longer significant in 2009. The finding on profitability implies that during times of financial crisis, whether a company is operating profitably or otherwise does not have an impact on voluntary disclosure practices. Additionally, board size was marginally significant at the 10% level in explaining the quality of voluntary disclosure in 2009 while board independence remained insignificant in both years, suggesting that independent directors are not an effective mechanism for enhancing corporate transparency.

Governance, media and the quality of environmental disclosure

Given the rising emphasis on environmental disclosures and the expressed importance of ‘good’ governance in determining the extent of information disclosure in general, we examine the relation between specific aspects of governance and media coverage and the quality of voluntary environmental disclosure (VED). Using a sample of 127 firms over a 6-year period (2000–2005), we empirically test characteristics of governance and media in relation to VED. Our results suggest that VED quality is positively associated with environmental media coverage, negative environmental media and board attributes of independence, diversity, and expertise. Results from supplemental analysis suggest that institutional investors exert influence over managerial decisions on environmental reporting only in the face of negative environmental media. Additionally, results from longitudinal analyses indicate that the quality of environmental disclosures increases over time. Our conclusion discusses the implications of these findings.

Does Company Reputation Matter for Disclosure Quality? Evidence from Management Earnings Forecasts

In this study, we explore the association between company reputation and voluntary disclosure quality as proxied for by the issuance and characteristics of management earnings forecasts. We follow prior literature and proxy for company reputation using measures based on Fortune’s America’s Most Admired Companies List. We find that companies with higher reputations are more likely to issue earnings forecasts, and forecast earnings more frequently. We also find that for the subsample of companies selected to the Most Admired List, earnings forecasts issued by higher reputation companies are more accurate. We provide supporting results from a battery of sensitivity analyses designed to alleviate concerns related to potential endogeneity, the influence of managerial ability, and the influence of information demand. Our study contributes to the voluntary disclosure literature by identifying a unique factor that motivates companies to voluntarily disclose better forward-looking information, and to the reputation literature by demonstrating the effect of company reputation on company efforts to reduce information asymmetry with stakeholders.

The Quality of Mandatory Disclosure: the Impairment of Goodwill. An Empirical Analysis of European Listed Companies

The paper presents the results of an empirical analysis on the quality of the mandatory disclosure of IAS 36 – impairment of assets. The analysis focuses, in particular, on the disclosure of goodwill.The aim of the paper is to verify if companies disclose the information required by IFRS on the impairment of goodwill. The international financial crisis has lead many companies to recognize impairment losses on goodwill or to verify twice (or more) a year whether impairment losses were generated. The increasing relevance assumed by goodwill in the financial statement of companies has led disclosure to become an extremely important issue. IAS 36 defines that companies shall disclose, among others, the carrying amount of goodwill allocated to the cash generating unit (CGU), the basis on which the unit's recoverable amount has been determined, the discount rate applied to the cash flow projections, etc. Many studies have been conducted on the quality of voluntary disclosure of impairment and the results show that the disclosure index is very low. Thus, our paper aims at verifying if, first of all, the mandatory disclosure is shown in the notes of the consolidated financial statement. Consequently, an empirical analysis was carried out of the consolidated financial statements of the groups listed on the Italian, French, German and Spanish Stock Exchanges and belonging to the main indexes of the above-mentioned markets (FTSEMIB40, CAC40, DAX30, IBEX35). The sample is made up of 141 consolidated financial statements referring to the year 2010. The methodology of research is based on the use of the disclosure index (Botosan, 1997). The results are surprising: they show that the disclosure index is very low and there are wide differences between the stock markets analyzed. A question arises from the evidence: why is the quality of mandatory disclosure so poor? Standard setters, practitioners and academics must deal with this topic.

Changes in Managers’ Forecasting Behavior and the Market’s Assessment of Forecast Credibility during Periods of Financial Misreporting

The capital market benefits of high quality financial reporting create incentives for managers to signal the quality of their voluntary disclosure practices. Prior research focuses on the relations between observable measures of earnings quality and observable measures of voluntary disclosure quality. We examine the characteristics of management earnings forecasts during periods in which managers possess private (i.e., unobservable to the market) knowledge that they are engaging in financial misreporting (i.e., committing accounting fraud). Using a sample of Securities and Exchange Commission enforcement actions, we hypothesize and find that managers issue more bad news forecasts in periods of fraud relative to pre-fraud periods and control firms, consistent with the increased use of voluntary disclosure to manage expectations downward while violating constraints on earnings management. The fraud period forecasts are, when compared to fraudulent earnings observed by the market, less ex post biased and more accurate than pre-fraud period forecasts and thus give the appearance of higher quality voluntary disclosures. However, the fraud period forecasts are not less ex post biased or more accurate when accounting restatements later reveal true actual earnings. A consequence of the perceived increase in quality is greater bad news fraud-period forecast impact on prices relative to pre-fraud periods. Further, the enhanced price reactions do not deteriorate after the fraud is made public, suggesting that the public revelation does not taint investors’ assessment of the credibility of bad news management forecasts.

When and How is Voluntary Disclosure Quality Reflected in Equity Prices?

This paper explores the idea that the speed with which equity prices reflect any benefits or costs of voluntary disclosure quality (VDQ) varies across firms. We find that for firms where we expect informational efficiency to be high, VDQ is not associated with returns beyond those available through passively investing in popular styles and is not a priced risk factor. By contrast, among opaque firms (such as those with little analyst coverage), those with higher VDQ achieve higher risk-adjusted excess returns. They also have better operating performance. This result suggests that for these firms value reporting provides net benefits, but today’s equity prices do not yet incorporate this information. We discuss the relation of this finding to existing evidence from another sample that in firms with little analyst coverage higher VDQ is correlated with lower implied cost of equity.

Evidence of assurance enhancing the quality of voluntary environmental disclosures: an empirical analysis

AbstractIn response to investor and public concerns about harm to the environment, companies are increasingly disclosing environmental information. To enhance the quality of corporate environmental disclosures in a largely voluntary context, various stakeholders are also demanding independent assurance. This study uses a stakeholder‐agency theoretical perspective to examine whether the quality of voluntary environmental disclosures is enhanced when assured. This study also examines the difference in the quality of voluntary environmental disclosures when assurance is provided by either professional accountant assurers or private consultants. Our sample comprises listed companies voluntarily disclosing environmental information in stand‐alone reports, annual reports, and websites. We use an index based upon the Global Reporting Initiative (GRI) to measure the quality of company environmental reporting. Results of this matched pairs study show that the quality of voluntary environmental disclosures scores significantly higher for assured companies than unassured companies. For assured companies, the quality is no different when assured by accountants or consultants. Additional analysis provides preliminary evidence that experience improves the quality of environmental disclosures.

Discussion of “The impact of product market competition on the quantity and quality of voluntary disclosures”

Li (2010, this issue) examines how product market competition affects voluntary disclosure by firms. Using several competition proxies, she finds that both the competitive threat from potential entrants into an industry and from existing rivals affect the quantity and accuracy of voluntary profit and investment forecasts by firms in that industry. However, the study’s findings are inconclusive mainly because each competition proxy used can reflect both types of competitive threat. The focus of my discussion is to provide some comments and suggestions for future researchers to consider in examining how the nature of product market competition affects voluntary firm disclosure.

The impacts of product market competition on the quantity and quality of voluntary disclosures

This study examines how firms’ voluntary disclosure decisions are influenced by product market competition. Using separate measures to capture different dimensions of competition, I show that competition from potential entrants increases disclosure quantity while competition from existing rivals decreases disclosure quantity. I also find that competition enhances disclosure quality mainly through reducing the optimism in profit forecasts and reducing the pessimism in investment forecasts. Moreover, I find that the above association is less pronounced for industry leaders, consistent with industry leaders facing less competitive pressures than industry followers.

Evidence of assurance enhancing the quality of voluntary environmental disclosures: An empirical analysis

Evidence of assurance enhancing the quality of voluntary environmental disclosures: An empirical analysis

Corporate Disclosure, Market Valuation, and Firm Performance

Quality of mandatory and voluntary disclosures varies substantially across firms. In this paper, we study the relationship between the Association for Investment Management and Research (AIMR) disclosure rankings and several performance measures during 1982 to 1996. We find a positive relation between these rankings and stock returns, and this relation is more pronounced for rankings on voluntary disclosures than for those on mandatory disclosures. Furthermore, disclosure rankings are highly correlated with firm value: firms ranked at the top have Qs that are 35 percent higher than those ranked at the bottom. We also find positive associations between disclosure rankings and future net profit margins, sales growth, and R&D intensity. Finally, we show that changes in disclosure rankings are positively related to future earnings surprises. Overall, our findings suggest that high quality disclosures (at least partially) reflect managers' genuine efforts to communicate favorable private information about future performance to investors, and can reduce misvaluation and short-run market pressures.

Corporate In-House Legal Counsel as Voluntary Governance Mechanism and Quality of Voluntary Disclosure: The Case of Management Earnings Forecast

The key role of corporate in-house legal counsel as a voluntary governance mechanism is to advise managers on various matters including regulations, legal issues, and litigation risk and to monitor managers' behavior against shareholders' interest. Using the in-house status of counsel as a proxy for a firm's perception of the importance of self-governance and legal security, we find that firms with high-status counsel issue more frequent management earnings forecasts and that their forecasts are less biased and more accurate than those issued by other firms. Consistent with this, the stock price reaction to forecast news is stronger for the former firms. Together, the results suggest that the role of in-house counsel is positively related to the level and quality of management forecast disclosure.

Firm size, board of directors’ quality, managerial ownership and level of voluntary disclosure in Thailand

Despite intensive efforts to determine the nature of the relationship between the firm size and the level of voluntary disclosure (VDI), empirical studies of this issue have produced mixed results. This paper attempts to delve deeper into this complex phenomenon by employing a resource dependency perspective to hypothesize a model of mediation as board of directors’ quality index (BOQI) is moderated by a high concentration of CEO’s ownership (HCEO). The findings suggest that the larger firm size, the higher is the BOQI and this in turn will lead to the higher VDI. These relationships appear to be weaker when there is moderation as HCEO, produced by the mediation process of the BOQI, and when this process is controlled, the residual moderation of the treatment effect is reduced. Further, board size as control variable is found to have a positive significant influence on BOQI and VDI.

THE IMPACT OF VOLUNTARY ENVIRONMENTAL DISCLOSURE QUALITY ON FIRM VALUE.

The article analyzes the association of firm value, in terms of the cost of equity capital (CostCap) and the anticipated cash flows, with its voluntary disclosure quality. The authors explain the d...

Corporate governance and the quality of financial analysts’ information

We examine the association between corporate governance and the quality of information available to financial analysts. Our results indicate that the quality of financial analysts’ information about upcoming earnings increases with the quality of corporate governance. Recent research indicates that the quality of firm-provided mandatory and voluntary disclosures increases in the quality of specific corporate governance mechanisms. Our results add to this stream of research by showing that better quality corporate governance is associated with a key benefit to the end users of firm-provided financial disclosures: an increase in the overall quality of information possessed by financial analysts, one of the key users of firm-provided financial disclosures.

Factors influencing the quality of corporate environmental disclosure

AbstractMany firms choose to communicate their environmental strategies through voluntary environmental disclosures. This paper examines patterns in the quality of voluntary environmental disclosures made by a sample of around 450 large UK companies drawn from a diverse range of industrial sectors. The analysis distinguishes between five facets of quality, including the disclosure of group‐wide environmental policies, environmental impact targets and an environmental audit. We examine how the decisions firms face regarding each facet of quality are determined by firm and industry characteristics, and find the quality of disclosure to be determined by a firm's size and the nature of its business activities. Specifically, we find high quality disclosure to be primarily associated with larger firms and those in sectors most closely related to environmental concerns. In contrast to several recent contributions, we find that the media exposure of companies plays no role in stimulating voluntary disclosures. Copyright © 2006 John Wiley & Sons, Ltd and ERP Environment.

How to Assess the Quality of Voluntary Disclosures

Institutional and small investors, financial analysts and other key stakeholders are demanding more information about long-term strategies and profitability of companies. The growing information needs seemingly force managers to disclose more: (1) operational information, (2) performance analysis and (3) forward-looking data. However, little evidence is available concerning company's disclosure policies addressed to stakeholders other than investors. This paper studies the non-mandatory information available on the web sites of 36 leading companies across Italy and U.S, the main objective is to describe companies' information patterns in order to better understand voluntary disclosure choices. In particular, observed disclosures are presented through an original framework that purports to combine strategic and stakeholder reporting. This framework is based on seven perspectives that highlight information addressed to key stakeholders categories and information concerning business effectiveness and efficiency. Finally, an index attempts to measure the disclosure's quality and it provides a first analysis of differences amongst industries and countries. A limited, but strategic, use of the non-mandatory information seems to influence the observed companies' disclosure policies. Furthermore, cultural effects are likely to affect forms, quality and types of information released. These findings may be useful in providing an insight to further research on voluntary information addressed to stakeholders, other than investors, and they could also be helpful to accounting organizations that are attempting to regulate and control disclosure practices.