Corporate Governance and Voluntary Disclosure in SIDS

Abstract The main objective of this study is to examine the impact of internal and external corporate governance mechanisms on voluntary disclosure in Saudi Arabia. The sample consists of 87 companies from the Saudi Stock Market. The data are collected from the annual reports for the available financial years 2006 and 2007. It is found that corporate governance mechanisms play a vital role in providing quality reporting. Most corporate governance mechanisms, especially non-executive directors, board size, CEO duality, audit quality, and government ownership, have a significant contribution in providing quality voluntary disclosure. The findings of this study provide evidence on the effectiveness of corporate governance as a mechanism of monitoring power to provide users with adequate and sufficient information. The findings of this study have important implications for authority regulators, policy makers, shareholders and other users of reports who have an interest in best practices of corporate governance.

2.3. Board size Board size is a significant corporate governance characteristic. Board size has a positive effect on the level of corporate voluntary disclosure (Samaha et al., 2012; Nadndi and Ghosh, 2012 ; Hassan, 2013). Larger boards are more efficient for corporate performance since they have a wide range of collective experience and expertise that may assist in making better decisions. A large number of directors on the board can lower the likelihood of information asymmetry. The former research reveals that a large board may cause the company monitoring activities to become less efficient. Conversely, other studies suggest that the board’s monitoring abilities augment with the increase in the number of members on the board.

Qi-Bin Liang, Ph.D., University of Perpignan via Domitia, France ABSTRACT This paper examines the relative performance of several corporate governance factors, specifically the characteristics of boards of directors, managerial ownership, and voluntary disclosure, in improving firm information environments. The paper uses a new empirical approach based on a B-convex method on a sample of 70 non-financial French listed firms belonging to the SBF120 index. Our findings show that 68.57% of our sample firms are located on the efficiency frontier. Corporate governance practices appear to serve as effective monitoring for the top executives of these firms, which reduces information asymmetry between insiders and outsiders, thereby improving the information environment. The empirical analysis also generates evidence that 31.42% of our sample firms lie outside the efficiency frontier. Corporate governance practices in many firms appear insufficient to improve firm information environments. These findings suggest the need for many SBF120 firms to improve their corporate governance practices.

Using content analysis, the extent of R&D voluntary disclosure is measured by the number of sentences that include R&D-related information in the annual report. The study finds that firm size, R&D intensity and R&D partnership agreement have a significant positive impact on R&D disclosure. However, the results reveal that leverage, listing status and R&D accounting policy have no significant impact on the level of R&D disclosure. With regard to corporate governance-related variables, the findings indicate that the separation of the CEO and board chair function positively impacts on information disclosed on R&D activities. Conversely, the board independence has no significant effect in explaining R&D disclosure. Moreover, firms in the biotechnological sector provide more information on their R&D activities relative to the other sectors.

The results of this study are first, there is an empirical evidence to suggest that there are negative effects of discretionary accruals managerial ownership, institutional ownership and a positive influence on the size of the board of directors. Overall, these results are consistent with research conducted by Pranata (2003) and Rajgopal (1998) that managerial ownership and institutional ownership become a constraint on earnings management practice. Second, testing the relationship between voluntary disclosure mechanism between corporate governance and discretionary accruals indicate that the earnings management practices will be carried out if the company is getting a lot of information. These results are consistent with the research conducted by Aryati (2003). Third, the composition of the independent commissioner was not statistically

i ABSTRACT This study examines the impact of corporate governance mechanisms on greenhouse gas emission disclosure and the extent to which the disclosure of greenhouse gas emission information is associated with earnings management and the liquidity of firms’ shares. The sample for this study is drawn from Australian publicly listed firms that voluntarily disclosed their greenhouse gas emission information through voluntary disclosure channels such as the Carbon Disclosure Project, annual reports, standalone sustainability reports, and corporate websites between 2006 and 2009.

In Sri Lankan context, most of the businesses do not have sufficient knowledge about corporate governance and impact to the business performance as well as disclosure level. Because until 2009 there were no healthy environment for Sri Lankan businesses due to 30 years of Civil war. Therefore, they did not focus on any of other requirement rather than survival of business. After the war era businesses unable to reach to their business goals and objectives due to the weakness in their corporate governance practices and lack of knowledge on capital markets. Researchers identified the requirement of new knowledge to overcome the issues and barriers for enrichment of the business performance. Hence, this study provide guidance for businesses to overcome the prevailing issue and establish a proper policies and structures within the business. Further, purpose of this research work to provide suggestions and opinions for investors, policy makers and regulatory bodies to build up a strong corporate governance structure and stimulate businesses to increase their voluntary disclosure level of annual reports.

Lack of effective corporate governance mechanism and disclosure transparency frameworks have been partly blamed for the 1997-1999 East Asia economic crises. Consequently, Indonesia, together with many countries across the globe have been actively reviewing and improving their corporate governance and transparency mechanisms. Theoretically, corporate governance mechanism is designed to monitor and evaluate decisions made by managers in the management of a company to reduce agency cost and information asymmetry between the shareholders and the management. The main objective of the study is to examine the effect of corporate governance mechanism on the level of voluntary disclosure in Indonesia, a country that has adopted a two-tier board system. The two-tier board system is considered a better system compared to one tier board system since all members of the board are non-executives. Therefore, the board members are more independent and objective in supervising and monitoring the performance of executive managers. This study investigates four corporate governance variables which are expected to influence the level of voluntary disclosure; (1) composition of independent members of Board of Commissioners ( BOC ), (2) composition of family members on the BOC ,

- Table 12 here - Tabel 13 presents results of the fixed-effects coefficient estimations using as the dependent variable the future plans disclosure index that is regress on a series of corporate governance and control variables. Model 1 shows that preclinical products (PRECL) and CEO duality (CHCEO) are negatively associated to future plans disclosure. The results in Model 2 lend evidence that when firms have support specialists on the board voluntary disclosure of future information increases. However, the interaction variable SS_PRECL is negative and highly significant (p-value ≤ 0.01). it implies that, for a given percentage change in preclinical products, support specialists impact is more pronounced than for clinical products , probably because of the competitive costs protection. This has not been shown in the prior literature. This findings are consistent with the notion that independent directors may complements for firms’ voluntary disclosure. Similarly, the results in Model 3 shows that when independent directors are community influential members, disclosure levels decreases. This findings also adds to prior research that has examined the corporate governance and voluntary disclosure by showing that because of their background independent directors may value differently the costs and benefits of disclosure, thus affecting companies’ disclosure behavior differently.

aGraduate Basiness School,College of Graduate Studies , Tenaga National University, Jalan IKRAM-UNITEN,43000 Kajang, Selangor,Malaysia Abstract In the new economy, companies try to convey to their stakeholders that they are a good investment and Attempt highlight the good value of the company via disclosure of pertinent information in the annual reports. This paper investigates the relationship between corporate governance and ownership structure on voluntary disclosure, with a particular focus on variables affecting in voluntary disclosure of listed companies in the Amman Stock Exchange (ASE). Using a dynamic panel system GMM estimation for the period 2002-2011, this study of 72 Jordanian finds that the listed companies at ASE during 2002-2011 had shown a significant degree of voluntary disclosure in line with greater corporate governance awareness and implementation in Jordan. In particular, this paper found board activity, foreign ownership, non –executive directors and block holder ownership to be significant in influencing voluntary disclosure. Finally, this paper found that the voluntary disclosure in the annual reports does potentially affect the market capitalization.

Given the lengthy analysis of the variables related to voluntary disclosure of information, which involved the reading and classification of information contained in voluntary reporting of annual accounts and the official websites of companies, was not considered practicable to extend this analysis to a broader horizon. In this manner, and following a series of studies in this area that analysed one year of disclosure 24 , we choose to analyse the year of 2007. In this sense, we analysed the information disclosed by Iberian Peninsula non-financial listed companies few time after the obligation of following the International Financial Reporting Standards (IFRS) and after a set of amendments on the corporate governance recommendations adopted in both countries. In Spain, the Unified Good Governance Code, applicable from 2007 onwards, provided a common standard for the good governance practices of all listed firms. In Portugal, the recommendations on Corporate Governance were implemented on a comply-or-explain basis in 2001, continuing to be regularly improved through a process of bi-annual amendments.

Although the importance of board size has received considerable attention in previous literature, scholars differ among themselves regarding the effect of board size on corporate disclosure. Some of them conclude that board size has a material impact on other dependent variables, with either positive or negative effect (Rouf, 2011). In contrast, some scholars found the size of the board did not have an effect on the relationship with other dependent variables (Cheng and Courtenay, 2006). In the prior literature, there are different viewpoints about board size; some scholars agreed with large size and others agreed with small size. For the first view, a number of studies support the notion that large boards can decrease monitoring ability. Bédard et al. (2004) and (Xie et al., 2003) found in their studies that in firms that have large board size, it plays an important role in monitoring and observation of activities and operation of the top-management in the firm by diminishing the level of earning manipulation. Empirically, Yerrnack (1996) and Eisenberg et al. (1998) found that firm valuation is negatively associated with board size. The board of directors with smaller size is better than larger size, because the large board may suffer with communication and coordination problems. Lipton and Lorsch (1992) and Jensen (1993) reported that the task of monitoring and observation for any board have diminished when the board is too large, that mean the smaller board suffers less than the large board, since they do not face poorer communication (Hermalin and Weisbach, 1988). This is consistent with the conclusion reached by Yerrnack (1996), who reported large board size is less efficient in decision-making than small size because there is less agency conflict among the board directors. Kovner (1985) mention that oversized boards are ineffective in decision-making. In addition, Yermack (1996), who found higher market valuation of companies with a small board of directors, investigated the effect of board size on the market.

This table provides the results of Heckman two-stage sample selection model and two-stage least squares method. The dependent variable is quality of GHG emission disclosure index calculated based on annual reports, sustainability reports, and corporate website using the CDP 2010 scoring methodology. AUG is the absolute value of discretionary accruals calculated using the modified Jones model with ROA. AUG*DUA is an interaction variable between the CEO duality and the absolute value of discretionary accruals calculated using the modified Jones model with ROA. IND is board independence measured as proportion of independent directors on the board; DUA is an indicator variable that equals to 1 if the CEO has a role as a chairman of t he board, and 0 otherwise. DIV is a board diversity measured as an indicator variable that equals to 1 if the board has female director and 0 otherwise. LAT is natural logarithm of number of audit committee meetings. MAC is the size of the audit committee measured as number of members of an audit committee. MSO is proportion of ordinary shares held by all directors. INS is proportion of shareholding by the institutional investors measured from Top20 shareholding list of a firm excluding individual shareholding. LMV is the size of a firm measured as natural logarithm of market value in millions one month before disclosure annual report announcement date. TOB is Tobin’s q measured as the market value of common equity plus book value of preferred stock and book value of long-term debt and current liabilities, all scaled by book value of total assets. ROA is firm profitability measured as net profit after tax before abnormal items all divided by total assets. LEV is leverage measured as total debt divided by total assets. AGE is natural logarithm of firm age calculate from its listing date (years). VOL is the volatility calculated as the standard deviation of daily stock returns over the annual report announcement period from day -260 to day -2.

Finally, it should be noted that multiple theories were used for several reasons. First, using several theories allows overcoming the shortcomings of a single theory. In other words, no single theory could explain the relationship between disclosure and all of its determinants. Even though the agency theory is the most dominant theory in voluntary disclosure research, it does not provide an explanation for the impact of industry type on voluntary disclosure, whereas the signalling and political cost theories do provide such explanation as provided in Section 4.7.2.2. Second, using more than one theory helps in explaining different relationships found, such as liquidity as explained later in Section 4.7.3.1. A positive relationship between liquidity and corporate governance disclosure was expected based on the signalling theory, whilst a negative relationship was suggested according to the agency theory. Third, the use of multiple theories permits explaining relationships derived from different perspectives, such as explaining the relationship between company size and corporate governance disclosure in Section 4.7.1.1.

Prior studies, including Malaysian ones, on the association between corporate governance and corporate voluntary disclosure have mainly focused on board and ownership structure (Akhtaruddin & Haron, 2010; Allegrini & Greco, 2011; Barako, Hancock, & Izan, 2006; Haniffa & Cooke, 2005; Haniffa & Cooke, 2002; Mohd Ghazali & Weetman, 2006). In addition, a number of empirical studies has shown that AC characteristics influence financial reporting quality and disclosure practices in Malaysian companies (Abdullah, Mohamad-Yusof, &

In this study, we deploy another alternative multidimensional measure of performance to counteract such difficulties. This measure of performance is based on technical efficiency through both parametric and non- parametric approaches. Note that Technical efficiency relates to the success of firms to produce maximum outputs from a set of inputs under a given production technology (Nanka-Bruce, 2009). Some previous papers have linked technical efficiency to a number of corporate governance aspects, such as board of directors and ownership structure. Nevertheless, to the best of our knowledge, no study has associated this alternative measure of performance with corporate disclosure policy. To summarize, this study aims explicitly to investigate the link between the level of corporate voluntary disclosure indexes and firm multidimensional performance proxies.

meet independence criteria, or explain why they do not, whereas New York has a firm requirement. Companies in all three countries had prevalence of voluntarily disclosing information about their directors’ independence in advance of regulation in each country. Several companies were also tied to exchanges outside their home country of incorporation, meaning that they are listed on at least one of the other exchanges among the focal countries. Almost 40% of Canadian companies were cross-­‐listed in New York in 2005, representing the strongest unidirectional tie among the exchanges. Canada, the United Kingdom, and the United States regulated director independence between 2005 and 2007, by which time four other countries had also regulated, albeit through different causal paths each. The stock exchanges listing rules and ties compound the firms’ voluntary disclosure of director independence criteria as a condition preceding regulation in these countries. This underscores the fact that private actors in the markets set the standard for this particular governance practice, unsurprisingly in three institutionally similar countries—Canada, the United Kingdom, and the United States—but more surprisingly, their regulation was influenced by other regulating countries that did not follow the markets in the same causal path, nor are institutionally similar.

Similarly, the legal origin, legal framework, capital market structure, and the presence/absence of various external CG mechanisms (as discussed in Chapter 2) would also affect the level of voluntary disclosure. All the sample firms in this study, being constituent firms of the Hang Seng HK Composite Index, are subject to the same regulatory environment and financial reporting standards. For instance, all listed firms on the HKEx are subject to the same set of Companies Ordinance, Securities and Futures Ordinance, and the listing rules of the Hong Kong Stock Exchange. Prior to the implementation of Appendix 13 of the HKEx Listing Rules in January 2005, all the listed firms were encouraged to disclose their corporate governance practices since 2002 (after the SCCLR report 2001 as has been discussed in Chapter 5 of this thesis). However, there was no penalty for non-disclosure prior to 2005, the year Appendix 13 came to full enforcement. As such, some firms chose not to disclose their CG information as much as desired by the regulators, even though they were kept informed about the forthcoming CG disclosure requirements. Variations in levels of disclosure were therefore expected. Apart from those structure-related or performance-related variables as suggested by Haniffa and Cooke (2002), the variations in voluntary CG disclosure would most likely be caused by other managerial quality variables, depending on the management’s initiatives, intention, willingness, efforts, and commitment in reducing the information asymmetry between insiders and outsiders. These differences in disclosure contents are expected to be perceived, recognised, and valued differently by outside investors because investors would feel more comfortable to leave their investments in the hands of good quality managers, who will look after their interests with the vigilance they deserve.

information is unconditionally preferred and most efficient in the absence of prior knowledge of the information. Research on voluntary disclosure relies on information asymmetry theory and complements the positive theory of accounting in the attention given to capital market motivations for accounting and disclosure decisions (Healy and Palepu, 2001). These studies assume that managers have more information on the expected results than outside investors and suggest that, depending on how the accounting and auditing regulations works, managers will seek an equilibrium between accounting options and disclosures, namely between disclosing more information to the market or managing the disclosure for contractual, political or corporate governance reasons.

Second, our analysis of the SA context-specific factors driving voluntary compliance and disclosure suggests that ownership characteristics and other CG variables are generally significant in explaining variations in disclosure. Specifically, our results indicate that an increase in block ownership significantly reduces voluntary CG disclosure, implying substitutability between block ownership and CG disclosure, as a managerial monitoring mechanism. In contrast, we find that companies with a larger board size, higher government ownership, higher institutional ownership, a big-four auditor and a CG committee, disclose significantly more; an indication that these variables are complementary to voluntary CG disclosure. With respect to the general factors, the results show that larger and profitable companies, as well as firms in the consumer services sector, disclose more. CG disclosure scores are also significantly higher in 2006 than in 2002. However, we do not find any evidence that highly geared and high growth firms disclose significantly more or less than their counterparts. Our results are generally robust whether we use a weighted or an unweighted index and whether or not we control for firm-level fixed-effects.