Studies in Developed Countries

In Mautz’s study (1968) the main objective was to study how the users of published annual reports used these reports. In Mautz’s study, financial analysts were requested to rate the importance they attached to CARs as a source of corporate information for assessing the varied companies. Financial statements were ranked as the most important source of information. However, some studies in developed countries reported that other sources were considered as important sources of corporate information. For example, Baker and Haslem (1973) conducted an investigation which covered 1,623 individual investors in the US. The study focused on individual investors in order to obtain their attitudes regarding the importance that they attached to sources of corporate information. Baker and Haslem (1973) found that for the majority of the respondents, stockbrokers were the most

important source of information. Conversely, for about 8% of individual investors, CARs were ranked as the most important source of information. Furthermore, the study revealed that information related to future expectations was ranked as highly important, while dividends-related information was perceived as of lower importance by the respondents. This study has been criticised by Ahmed (1988) who argued that the sample in Baker and Haslem’s (1973) study was a list of customers of five brokerage firms, therefore it was expected that stockbrokers’ advice would be ranked as the most important source of information by respondents because they were customers of these firms.

Epstein (1975) conducted a survey to explore the perceptions of U.S. investors regarding the usefulness of CARs in the U.S. The results of the study were consistent with the findings of Baker and Haslem (1973). The author concluded that stockbrokers’ advice was ranked as the primary source of information for investment decisions by nearly 49% of the respondents, while CARs were perceived as the second most important source of information by only 15%. Lee and Tweedie (1975) attempted to examine the perceptions and views of individual investors investing in large British firms. The authors intended to identify whether or not individual investors read and relied on sections of CARs for their investment decision making. Lee and Tweedie (1975) found that financial press reports were considered as the most important source, while CARs were ranked as a less important source of information. Another finding of their study was that the chairman’s report was found to be the most widely read section, while the profit and loss account was the second most widely read section by individual investors in the UK. In addition, the study reported that future information about a firm was ranked as the most important information by the respondents.

In the UK, Firth (1978) conducted an investigation to offer empirical evidence relating to the importance of disclosure in CARs and to investigate whether there were any differences between the study’s targeted groups. A survey of seventy-five items was provided to various interested parties, namely: preparers, users and auditors asking them to rate the importance of the items. The study reported that historical accounting information attracted high scores for importance, as did inflation adjusted accounts. In addition, the study detected somewhat similar views between finance directors and auditors, and consensus between financial analysts and bank loan officers in terms of the importance ratings. However, there were significant differences between auditors and finance directors

on the one hand and bank loan officers and financial analysts in the other. These differences led to significant information not being disclosed to the user groups of those accounts, even when this release required extra costs. Like Chandra (1974), Firth’s (1978) T-statistic test was used to test his hypotheses, even though the study’s variables were measured on an ordinal scale.

In Australia, Anderson (1981) conducted a study to investigate the usefulness of CARs to institutional investors. The respondents were asked about their investment objectives, used sources of information, importance, and readership of sections of CARs. Anderson’s study reported that CARs were perceived as the most important source of information for Australian investors’ investment decisions, followed by advice from investment services. The third source as ranked by institutional investors was stockbrokers’ advice, while the fourth was direct visits to companies. Regarding the importance attached to sections of CARs, Anderson (1981) found that the balance sheet was perceived as the most important section of CARs followed by the profit and loss account, whereas notes to the accounts was seen as the third in the importance order.

Chang and Most (1981) surveyed three user groups including institutional investors, individual investors and financial analysts about their perceptions of the usefulness of qualitative and quantitative data in the annual reports in three countries; the USA, the UK and New Zealand. Chang and Most found that CARs were considered as the most important source of information for the three surveyed groups for their investment decisions. In Australia, a study was conducted by Courtis (1982) to elicit the perceptions and views of private shareholders about their use of CARs for the purpose of investment decision making. Drawing from approximately 2000 questionnaires, he reported that private shareholders perceived CARs as the third most important source of information, while stockbrokers’ advice was rated as the primary source for information followed by newspapers. With regard to reading the sections of CARs, the chairman’s report was the most readable section, while the profit and loss account was the second, followed by the directors’ report. In addition, shareholders perceived the profit and loss account as the most influential section of the annual report followed by the balance sheet, while the least important section was notes to the accounts and statistical data.

In New Zealand, McNally et al (1982) carried out a study to review the importance of a list of 41 voluntary information items to stockbrokers and financial editors. The study reported that both groups of users considered future dividends and dividend policies to be the most influential pieces of information, followed by information about profit forecast. On the other hand, information about advertising and corporate social responsibility was perceived as the least important items. The stockbrokers attached higher importance to most of the information items (28 out of 41) than the financial editors. This difference between the two groups was however only represented by five items, and the study used a T-test for the purpose of examining the differences in the views of the user groups instead of using a non-parametric test.

Meyer and Bernstein (1982) conducted a study in the UK to investigate institutional investors’ perceptions towards CARs. The study found that CARs were ranked as the most important source of information that institutional investors needed for investment decisions. Arnold and Moizer (1984) undertook a survey between 1978 and 1981 to provide information about the methods used by investment analysts in the UK to appraise investments in ordinary shares. The survey reported that the most influential source of information was company’s annual reports between the eighteen possible sources that were specified in the study. Surprisingly, a discussion with personnel from the company was the next most important source of information.

A comparative study was carried out by Chang and Most (1985) to examine users’ perceptions and attitudes regarding the usefulness of information provided in CARs in three countries: the US, the UK and New Zealand. The study focused on three user groups in the three countries namely: individual investors, institutional investors and financial analysts. The findings of the study concluded that CARs were perceived as an important source of information for the decision making of the three user groups. The study also found that individual investors in the US perceived CARs as the most influential source of information, followed by newspapers and magazines as the second most important sources and advisory services as the third most important source. With regard to individual investors in the UK and New Zealand, newspapers and magazines was considered as the most important source of information, followed by stockbrokers’ advice as the second most important source and CARs as the third source.

In the U.S., Epstein and Pava (1993) conducted a questionnaire survey to elicit the perceptions and attitudes of individual investors regarding CARs. Epstein and Pava attempted to compare the findings of the study with the findings obtained from Epstein (1975), and by doing this they were trying to capture any changes in the individual investors’ perceptions regarding corporate annual reporting during eighteen years. The study concluded that CARs were considered as the most important source of information compared with the perceptions of the respondents in Epstein’s (1975) study where CARs were considered as moderately important, as the second most important source of information. The study also reported that stockbrokers’ advice was perceived as the fifth most important source of information, which was considered as the most important source in Epstein (1975). In addition to this and with regard to the importance of sections of CARs, the balance sheet and profit and loss account were ranked as the most influential sections of CARs in the U.S.

In Australia, Anderson and Epstein (1995) carried out an empirical study of a sample of four large firms to examine their attitudes and perceptions of individual investors regarding CARs. A questionnaire survey was employed to collect the perceptions of the respondents. The findings of the study revealed that individual investors rated stockbrokers’ advice as the most important source followed by financial newspapers and magazines, while CARs were perceived as the third most important source of information for investment decision making. In a more specific focus on CARs, the directors’ report was found to be the most readable section of the annual report, followed by the income statement.

Bartlett and Chandler (1997) came to support the findings of Anderson and Epstein (1995) reporting that CARs were largely neglected by shareholders, which can be seen as a reflection of the passive nature of the individual investors who have low interest in much of the detailed disclosure. Following the methodology of Lee and Tweedie (1975), Bartlett and Chandler (1997) attempted to explore the usage of CARs using a sample of 300 individual investors in the UK. The findings indicated that the chairman’s statement and the chief executive’s review were widely read sections respectively, followed by the report of operations. Surprisingly, the auditor’s report was found to be the least read section by the respondents. In addition, Bartlett and Chandler (1997) concluded that newspapers and magazines were found to be ranked as the most important sources of information, while CARs were rated as the seventh most important source.