DISCLOSURE ISSUES

Disclosure issues - Mandatory versus Voluntary disclosure

Disclosure issues - Mandatory versus Voluntary disclosure

Introduction

The purpose of this study is to expand the boundaries of the author's knowledge by exploring some relevant facts related to disclosure issues in annual reporting. The aim of this paper is to analyze what and how companies voluntarily disclose in their narratives in the annual reports, related to business processes and performance. This will be made in order to promote a higher coherence between value creation and the disclosure of intangible assets. Business- knowledge- and IT-based resources and capabilities are not much disclosed, on average. However, the disclosure of these resources and capabilities has generally increased during the period. Otherwise the disclosure shows different conditions for different companies, as derived from government decisions and changes in society, e. g. from printed media to digital media. It seems that each company has its own strengths, weaknesses, opportunities, threats and challenges, according to the disclosure of intangibles. This paper is organized as follows. A discussion of the theoretical foundation for the study is presented next. This is followed by the presentation of specific research hypotheses and an overview of our methodology. The results are then presented and evaluated, and the paper concludes with a discussion of managerial and research implications, limitations, and future research directions.

Discussion & Analysis

Firms that voluntarily disclose financial data that is not required by law convey a general policy of transparency and compliance. In this study we assess the impact of voluntary disclosure of annual report data on mandatory disclosure of financial information. Building upon research in this area we extend previous research by incorporating the company variables of age, industry, stock price, annual revenues and net income. Utilizing data from the 100 largest firms traded on the New York stock market our results from Ordinary Least Squares regression analysis reveal a positive relationship between two types of voluntary disclosure and mandatory disclosure while controlling for company variables. A positive link is also identified between industry, revenues and disclosure activity. Future research directions as well as managerial and audit implications are also discussed. In many countries globalization has led to a period of deep reflection by government officials and industry leaders over what the ideal set of standards for financial reporting should be for publicly held firms (Bruton, Freid and Manigart, 2005). Indeed, with the surge in foreign direct investment in the past two decades many local firms are now faced with multiple, and often conflicting, sets of guidelines when determining a policy for external financial disclosure (Francis, Khurana and Pereira, 2005). As trade barriers continue to fall globally the pressure to adopt more open and transparent financial disclosure practices has undoubtedly increased. Despite the burgeoning relevance of this phenomenon little is known about the extent to which munificence of firm resources may lead to an embracement of more or less financial disclosure. This lack of clarity in the literature is particularly apparent in emerging markets.

One world region where very little academic research related to ...