Studies in Developing Countries

Table 3.2 provides a summary of the key disclosure studies that have examined compliance with mandatory disclosure requirements in the developing world. These studies are classified in chronological order based on the year of publication.

24 Other company characteristics, such as earnings, size and listing status, did not impact on disclosure levels.

Table 3.2: Mandatory Disclosure Studies in Developing Countries

Hong Kong 1988-1992 85 listed

firms

74 items Increase in level of disclosure after adopting

160 items Poor level of compliance by companies with

72 241 items Companies’ compliance

was higher in the second

Note: This table summarises the results of key existing literature on mandatory disclosure in developing countries.

Developing countries have seen a greater proliferation of studies on compliance with mandatory disclosure requirements. The rest of this subsection focuses on these studies, which are summarised in Table 3.2. The first study, Wallace and Naser (1995), addressed the extent of mandatory financial disclosure practices in the annual reports of Hong Kong companies, including looking at the relationship between firm characteristics and disclosure comprehensiveness. The study found a positive association between company size, industry type and disclosure compliance, however, they also found a negative association between profitability and disclosure.²⁵ In the same vein, Naser (1998) examined the association between firm characteristics and the comprehensiveness of mandatory disclosure in the annual reports of 54 non-financial listed companies on the Amman stock market in 1994.

He found that company size, leverage and return on equity were all positively related to the comprehensiveness of disclosure.

In Egypt, Abd-Elsalam and Weetman (2003) investigated the effect of relative familiarity and language accessibility of disclosures when IASs were first introduced in Egypt. The study also examined the relationship between firm characteristics and the level of disclosure compliance for a sample of 72 listed companies during 1995-1996. Based on a disclosure index approach they reported that Egyptian companies do not fully comply with IAS mandatory disclosure requirements with only 83% of the mandated items disclosed by listed firms. The authors found a positive relationship between the extent of disclosure and familiarity; the level of disclosure was typically higher where firms were already familiar with the mandated requirements and these practices already available in the Arabic language.²⁶ In a follow-up study, Abd-Elsalam and Weetman (2007) again used a disclosure index to examine the compliance with mandatory disclosure requirements by 72 listed firms in Egypt over the longer period 1991 - 1996. The authors found that the level of

25 No association was reported between liquidity and level of disclosure.

26 In addition the study noted that the type of audit firm used was related to disclosure level.

compliance improved over time, with audit firm, business type, leverage and liquidity all significantly associated with the level of disclosure.

In the case of Bangladesh, Akhtaruddin (2005) empirically investigated the extent of mandatory disclosure in the annual reports of 94 listed companies in 1999. The author used a disclosure index that included 160 information items and found a compliance rate of only 44%, (ranging between 17% and 72%). The study found little association between company size or profitability and the level of disclosure.

In the United Arab Emirates Aljifri (2008) investigated the extent of disclosure in the annual reports of 31 listed firms and examined the factors that drive the level of disclosure.

Using a disclosure index and logit regression, he found that the level of compliance with disclosure requirements was 67%, with significant differences across sectors; however, size, debt: equity and profitability were found to have only insignificant impacts on the extent of disclosure.

More recently, Al-Akra et al. (2010) examined the extent of compliance with IFRS- mandated disclosure and the influence of firm specific factors in the annual reports of 80 Jordanian companies during 1996-2004. The authors used a disclosure index comprising two checklists, one with 301 items for the year 1996 and other with 641 for the year 2004.

They found that the level of disclosure improved from a level of 55% in 1996 to 79% in 2004 and that the type of auditor and liquidity here the most significant determinants.

Of most relevance to the present study is the work of Al Mutawaa and Hewaidy (2010) who empirically investigated the extent of compliance with IAS/IFRS disclosure requirements and the factors associated with the level of compliance in the annual reports of 48 non-financial Kuwaiti listed companies in 2006. The authors constructed an index that included 101 information items and documented that Kuwaiti companies did not fully

comply with IFRS disclosure requirements; only 69% of the mandated items were disclosed. The authors also found an insignificant association between audit type and disclosure level, as well as documenting a negative relationship between the level of disclosure and liquidity plus a positive association between both company size and profitability and the extent of disclosure.

More recently, Omar (2012) documented empirical evidence on the extent of compliance with IFRS mandatory disclosure and the influence of firm specific factors on mandatory disclosure in the annual reports of 41 Bahraini companies during 2010, using a disclosure index that included 224 mandatory items. He found that the average level of disclosure was 80.7% (with a range from 61% to 94%) and revealed that firm size and audit firm size were positively associated with disclosure level.

Overall, the evidence on the compliance with mandatory disclosure studies amongst developing countries indicates that the extent of disclosure is mixed, with a gradual increase evident over time. Again, as in developed countries, company size was found to be the most prominent factor in explaining the extent of disclosure. In addition to the single country studies discussed so far, a number of authors have investigated disclosure across countries simultaneously; these studies are now reviewed.