Journal of International Accounting,
Auditing & Taxation 10 (2001) 139 –156
A study of the relationship between corporate governance
structures and the extent of voluntary disclosure
Simon S.M. Ho*, Kar Shun Wong
School of Accountancy, The Chinese University of Hong Kong, Shatin, N.T., Hong Kong
The primary objective of this study is to test a theoretical framework relating four major corporate governance attributes with the extent of voluntary disclosure provided by listed firms in Hong Kong. These corporate governance attributes are the proportion of independent directors to total number of directors on the board, the existence of a voluntary audit committee, the existence of dominant personalities (CEO/Chairman duality), and the percentage of family members on the board. Using a weighted relative disclosure index for measuring voluntary disclosure, the results indicate that the existence of an audit committee is significantly and positively related to the extent of voluntary disclosure, while the percentage of family members on the board is negatively related to the extent of voluntary disclosure. The study provides empirical evidence to policy makers and regulators in East Asia for implementing the two new board governance requirements on audit committee and family control. © 2001 Elsevier Science Inc. All rights reserved.
Keywords: Corporate disclosure; Corporate governance; Voluntary disclosure; Hong Kong
It is commonly agreed that the recent Asian financial crisis was not only the result of a loss in investor confidence but, more importantly, of a lack of effective corporate governance and transparency in many of Asia’s financial markets and individual firms1. Over the last several years, most East Asian economies have been actively reviewing and improving their regulatory frameworks, in particular, corporate governance, transparency and disclosure.
* Corresponding author. Fax: ϩ(852) 2603-6604.
E-mail address: simon @baf.msmail.cuhk.edu.hk (S.S.M. Ho).
The helps given by the two anonymous reviewers and the Editors are gratefully acknowledged. 1061-9518/01/$ – see front matter © 2001 Elsevier Science Inc. All rights reserved. PII: S 1 0 6 1 - 9 5 1 8 ( 0 1 ) 0 0 0 4 1 - 6
S.S.M. Ho, K.S. Wong / Journal of International Accounting, Auditing & Taxation 10 (2001) 139 –156
However, the simple adoption of more International Accounting Standards (IAS) is not sufficient to resolve the transparency problem in these countries. Whether the quality of the actual corporate disclosures satisfies investors’ information needs is more central. Mandatory disclosure rules ensure equal access to basic information (Lev 1992), but this information has to be augmented by firms’ voluntary disclosures and information production by intermediaries. There are major market incentives to disclose information voluntarily and managers’ attitudes to voluntary disclosure change according to the perceived relationship of the costs and benefits involved (e.g., see Gray, Radebaugh and Roberts 1990; Healy and Palepu 1995). Voluntary disclosure and its determinants have been identified as an important research area in financial reporting since the 1970s. Previous studies on the determinants of voluntary disclosure have been done mainly in the U.S. and other developed countries (e.g., Malone, Fries and Jones 1993; Schadewitz 1994; Raffournier 1995; Lang and Lundholm 1996).
Some studies have examined institutional mechanisms (i.e., corporate governance) that may influence voluntary disclosure practice. Corporate governance attributes examined in these studies include ownership structure (e.g., Craswell and Taylor 1992; Mckinnon and Dalimunthe 1993; Hossain, Tan and Adams 1994; Raffournier 1995), the proportion or existence of independent directors (e.g., Forker, 1992; Malone, Fries and Jones 1993), the appointment of a nonexecutive director as chairman, (e.g., Forker 1992), and the existence of...
References: Bradury, M. (1992). Voluntary disclosure of financial segment data. Accounting and Finance, 32, 15–26.
Chen, J.P., Charles, & Jaggi, B. L. (1998). The Association between independent nonexecutive directors, family
control and financial disclosures
Chow, C., & Wong-Boren, A. (1987). Voluntary financial disclosure by Mexican corporations. The Accounting
Review, 62 (3), 533–541.
Collier, P. (1993). Factors affecting the formation of audit committees in major UK listed companies. Accounting
and Business Research, 23 (91), 421– 430.
Craswell, A., & Taylor, S. (1992). Discretionary disclosure of reserves by oil and gas companies: an economic
Eccles, R. G., & Mavrinac, S. C. (1995). Improving the corporate disclosure process. Sloan Management Review,
Fama, E., & Jensen, M. (1983). Separation of ownership and control. Journal of Law and Economics, 26,
Forker, J. J. (1992). Corporate governance and disclosure quality. Accounting and Business Research, 22 (86),
Gray, S. J., Radebaugh, L. H., & Robert, C. B. (1990). International perceptions of cost constraints on voluntary
information disclosures: a comparative study of UK & US multinationals
Healy, P. M. & Palepu, K. G. (1995). The challenges of investor communication: the case of CUC International,
Hill, J. G. (1999). Deconstructing Sunbeam–Contemporary issues in corporate governance. University of Cincinnati Law Review, Vol.67, 1099 –1127.
Hong Kong Institute of Company Secretaries (HKICS). (1998). The limits of governance. Company Secretaries,
Hong Kong Management Association (HKMA). (1995). Judges Report of the HKMA Best Annual Report Award
Hong Kong Society of Accountants (HKSA). (1997). Second Report of the Corporate Governance Working
Hossain, M., Tan, L. M., & Adams, M. (1994). Voluntary disclosure in an emerging capital market: some
empirical evidence from companies listed on the K.L
Jensen, M.C., & Meckling, W. H. (1976). Theory of the firm: managerial behavior, agency costs and ownership
Lang, M. H., & Lundholm, R. J. (1996). Corporate disclosure policy and analyst behavior. The Accounting
Review, 71 (4), 467– 492.
La Porta, R., Lopez-De-Silances, & Shieifer, A. (1999). Corporate ownership around the world. The Journal of
Finance, April, 471–517.
Leftwich, R., Watts, R., & Zimmerman, J. (1981). Voluntary corporate disclosure: the case of interim reporting.
Lev, B. (1992). Information disclosure strategy. Calfornia Management Review, Summer, 9 –32.
Malone, D., Fries, C., & Jones, T. (1993). An empirical investigation of the extent of corporate financial
disclosure in the oil and gas Industry
Mckinnon, J. L., & Dalimunthe, L. (1993). Voluntary disclosure of segment information by Australian diversified
McMullen, D. A. (1996). Audit committee performance: an investigation of the consequences associated with
Meek, G. K., Robert, C. B., & Gray, S. J. (1995). Factors influencing voluntary annual report disclosures by U.S.,
Millstein, I. (1992). The Limits of Corporate Power: Existing Constraints on the Exercise of Corporate
Molz, R. (1988). Managerial domination of boards of directors and financial performance. Journal of Business
Research, 16, 235–249.
Morck, R., Shleifer, A., & Vishny, R. W. (1988). Management ownership and market valuation: an empirical
Oppenheim, A. N. 1966. Questionnaire Design and Attitude Measurement. New York: Basic Books.
Pound, J. 1995. The promise of the governed corporation. Harvard Business Review, 73 (2), 89 –98.
Raffournier, B. (1995). The determinants of voluntary financial disclosure by Swiss listed companies. European
Accounting Review, 4 (2), 261–280.
Redding, S. G., & Pugh, D. S. (1986). The formal and the informal: Japanese and Chinese organization structures.
Rosenstein, S., & Wyatt, J. G. (1990). Outside directors, board independence and shareholder wealth. Journal of
Financial Economics, 26, 175–192.
Ruland, W., Tung, S., & George, N. 1990. Factors associated with the disclosure of managers’ forecasts. The
Accounting Review, 65, 710 –21.
South China Morning Post (SCMP). (1998). “Accountants want better disclosure,” Business Section, July 30:2
Securities and Futures Commission (SFC)
Shleifer, A., & Vishey, R. (1997). A survey of corporate governance. Journal of Finance, 52, 737–783.
Tai, B. Y. K, Au-Yeung, O. K., Kwok, M. C. M., & Lau, L. W. C. (1990). Noncompliance with disclosure
requirements in financial statements: the case of Hong Kong companies
The Stock Exchange of Hong Kong (SEHK). (1997). The Rules Governing the Listing of Securities.
The Stock Exchange of Hong Kong (SEHK). (1998). Fact Book 1998.
Welker, M. (1995). Disclosure policy, information asymmetry, and liquid in equity market, Contemporary
Accounting Research, 11 (Spring), 800 – 827.
Please join StudyMode to read the full document