On the Determinants of Voluntary Disclosure by Indian Companies

Abstract

In the current scenario of financial reporting regime, investors are increasingly looking at the disclosure practices of companies. The companies also face capital market pressures and need to disclose more than the regulatory norms. There could be several motivations for the companies to disclose more information voluntarily. This article explores the factors that determine the voluntary disclosure choices of the non-financial companies listed in the National Stock Exchange (NSE). The study uses a voluntary disclosure index (VDI) constructed by the authors with 81 financial and non-financial items across different categories such as strategy, forward looking, environment and social, etc. With the VDI, this study measures the voluntary disclosure levels for four financial years from 2009–2010 to 2012–2013 using the content analysis methodology. The study uses a panel data model to analyse the effects of three categories of variables, namely, firm characteristics, profitability and governance and found the fixed effect model to be suitable and leverage, size and institutional ownership emerged as the determinants of voluntary disclosures. The article is one of the first studies to use longitudinal data and a disclosure index specific to the Indian context.

Keywords

Voluntary disclosure discretionary disclosure fixed effects random effects VDI Nifty companies

Get full access to this article

View all access options for this article.

References

Barako

Hancock

Izan

(2006). Factors influencing voluntary corporate disclosure by Kenyan companies. Corporate Governance, 14(2), 107–125.

Belkaoui

A.R.

(2001). Level of multinationality, growth opportunities and size as determinants of analyst ratings for corporate disclosure. American Business Review, 19(2), 115–120.

Botoson

C.A.

Plumlee

M.A.

(2002). A reexamination of disclosure level and the expected cost of equity capital. Journal of Accounting Research, 40(1), 21–40.

Chow

Boren

(1987). Voluntary financial disclosure by Mexican corporations. The Accounting Review, 52(3), 533–540.

Damsetz

(1968). The cost of transacting. The Quarterly Journal of Economics, 82(1), 33–56.

El-Gazzar

Fornaro

Jacob

(2008). An examination of the determinants and contents of corporate voluntary disclosure of management’s responsibilities for financial reporting. Journal of Accounting, Auditing and Finance, 23(1), 95–114.

Fick

(2010, October). The value of good corporate disclosure. The CPA Journal, 80(10), 40–42.

Francis

Khurana

I.K.

Pereira

(2005). Disclosure incentives and effects on cost of capital around the world. The Accounting Review, 80(4), 1125–1162.

Gelb

(2000). Managerial ownership and accounting disclosures: An empirical study. Review of Quantitative Finance and Accounting, 15(2), 169–185.

10.

Gray

S.J.

(1988). Towards a theory of cultural influences on the development of accounting systems internationally. Abacus, 24(1), 1–15.

11.

Gray

S.J.

Banerjee

Shraddha

(2011). Accounting change in India since independence: The influence of culture and social environment with special reference to the regulation of cash flow statements. Indian Accounting Review, 15(2), 1–20.

12.

Gray

S.J.

Meek

Roberts

(1995). International capital market pressures and voluntary annual report disclosures by US and UK multinationals. Journal of International Financial Management and Accounting, 6(1), 44–67.

13.

Hashim

Saleh

(2007). Voluntary annual report disclosures by Malaysian multinational corporations. Malaysian Accounting Review, 6(1), 129–156.

14.

Hope

(2003). Disclosure practises, enforcement of accounting standards, and analysts’ forecast accuracy: An international study. Journal of Accounting Research, 41(2), 235–268.

15.

Huang

Zhang

(2012). Does enhanced disclosure really reduce agency costs? Evidence from the diversion of corporate resources. The Accounting Review, 87(1), 199–229.

16.

Hutton

(2004). Beyond financial reporting- an integrated approach to disclosure. Journal of Applied Corporate Finance, 16(4), 8–16.

17.

Ismail

(2011). Voluntary disclosure practices among listed companies in Nigeria. Advances in Accounting, Incorporating Advances in International Accounting, 27(1), 338–345.

18.

Jenson

Meckling

(1976). Theory of firm: Managerial behaviour, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.

19.

Khanna

Palepu

K.G.

Srinivasan

(2004). Disclosure practices of foreign companies interacting with US markets. Journal of Accounting Research, 42(2), 475–508.

20.

Khoshbakht

Salteh

H.M.

(2011). Evaluating the relationship between corporate governance and voluntary disclosure in companies listed in Tehran stock exchange. Business and Management Review, 1(9), 23–33.

21.

Kolsi

C.M.

(2012). The determinants of corporate voluntary disclosure: Evidence from the Tunisian capital market. IUP Journal of Accounting Research and Audit Practices, 11(4), 49–68.

22.

Lang

Lundholm

(1996). Corporate disclosure policy and analyst behaviour. The Accounting Review, 71(4), 467–492.

23.

Lim

Matolcsy

Chow

(2007). The association between board composition and different types of voluntary disclosure. European Accounting Review, 16(3), 555–583.

24.

Lopes

Rodrigues

(2007). Accounting for financial instruments: An analysis of the determinants of disclosure in the Portuguese stock exchange. The International Journal of Accounting, 42(2), 25–56.

25.

Malone

Fries

Jones

(1993). An empirical investigation of the extent of corporate financial disclosure in the oil and gas industry. Journal of Accounting, Auditing and Finance, 8(3), 249–275.

26.

Meek

Roberts

Gray

(1995). Factors influencing voluntary annual report disclosure by US, U.K and continental European multinational corporations. Journal of International Business Studies, 26(3), 555–572.

27.

Murcia

F.D.

Santos

A.D.

(2012). Discretionary based disclosure-evidence from the Brazilian market. Brazilian Administration Review, 9(1), 88–109.

28.

Partha

(1998). Corporate disclosure quality and the cost of debt. The Accounting Review, 73(4), 459–474.

29.

Prencipe

(2004). Proprietary costs and determinants of voluntary segment disclosure: Evidence from Italian listed companies. European Accounting Review, 13(2), 319–340.

30.

Raffournier

(1995). The determinants of voluntary financial disclosure by Swiss listed companies. The European Accounting Review, 4(2), 261–280.

31.

Stock

H.J.

Watson

(2007). Introduction to econometrics. Boston: Pearson Addison Wesley.

32.

Trueman

(1986). Why do managers voluntarily release earnings forecasts? Journal of Accounting and Economics, 8(1), 53–72.

33.

Wang

Sewon

C.C.

(2008). Determinants and consequences of voluntary disclosure in an emerging market: Evidence from China. Journal of International Accounting, Auditing and Taxation, 17(1), 14–30.

34.

Webb

Cahan

S.F.

Sun

(2008). The effect of globalisation and legal environment on voluntary disclosure. International Journal of Accounting, 43(2), 219–245.

35.

Whiting

R. H.

Woodcock

(2011). Firm characteristics and intellectual capital disclosure by Australian companies. Journal of Human Resource Costing & Accounting, 15(2), 102–126.

36.

R.Z.

(2009). Reexamination of the relationship between disclosure and cost of capital. Global Journal of Business Research, 3(1), 15–26.