A Study Of The Relationship Between Corporate Governance Structures And The Extent Of Voluntary Disclosure

Topics: Corporate governance, Board of directors, Non-executive director Pages: 18 (7699 words) Published: March 23, 2015
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

Abstract
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

1. Introduction
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

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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...

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