Does corporate investment efficiency affect corporate disclosure practices?

Abstract

PurposeThe authors examine the impact of corporate investment efficiency on corporate voluntary disclosure for a sample of UK non-financial companies.Design/methodology/approachThe authors use a sample of FTSE All-Share firms for the period of 2007–2014. Disclosure scores are collected from Corporate Financial Information Environment (CFIE). They follow Biddle et al. (2009) and Chen et al. (2011) in measuring corporate investment efficiency.FindingsThe authors find that high level of performance-related disclosure is associated with high level of corporate investment efficiency, while high level of good news information is associated with low level of corporate investment efficiency. They also find evidence on a bidirectional relation between disclosure and corporate investment efficiency.Research limitations/implicationsThe authors’ findings would be of importance to stakeholders and corporations. Stakeholders' investment decisions could be facilitated by understanding the disclosures provided by their firms and how these firms' performance is presented. Corporations become aware of the language which must be used to signal their performance.Practical implicationsCorporations become aware of the language which must be used in their disclosures. As firms may reflect their efficient investments but not in the form of good news in order to avoid revealing their competitive advantage to competitors.Originality/valueThis paper adds to disclosure studies by introducing a new variable, corporate investment efficiency, as a determinant of corporate disclosure practice.

Governance Vis-à-Vis Investment Efficiency: Substitutes or Complementary in Their Effects on Disclosure Practice

“…The UK provides an interesting context for our study because most of the narrative sections of corporate annual reports are voluntary. Our paper complements the recent work of Elberry and Hussainey (2020) by considering the joint impact of corporate governance and investment efficiency on disclosure practice. We add corporate governance into the corporate efficiency-disclosure model because prior research shows that corporate governance is a common determinant for both corporate investment efficiency (Billett et al 2011;Chen et al 2011Chen et al , 2019 and voluntary disclosure (Xiao et al 2004;Samaha et al 2015;Habbash et al 2016).…”

“…The association between corporate investment efficiency and different disclosure types has been investigated by many studies. To the best of our knowledge, the literatureexcept for Chen et al (2019) and Elberry and Hussainey (2020)-investigates the effect of disclosure types or transparency on investment efficiency but not vice versa. For example, Cheng et al (2013); Lai et al (2014); Al-Hadi et al (2016); Dutta and Nezlobin (2017); and Zhong and Gao (2017) provide empirical evidence that corporate disclosure improves corporate investment efficiency.…”

Anti-corruption disclosure as a necessary evil: impact on profitability and stability of extractive firms in Africa

“…The higher the three scores, the better the extractive firms’ performance. The return on asset and the return on equity (Duho et al , 2020a; Elberry and Hussainey, 2020), as well as the z -score (Duho et al , 2020b; Orazalin et al , 2019), have been extensively used in the extant literature. The specific definitions of all the variables used are presented in Table 1.…”

Risk disclosure behaviour: evidence from the UK extractive industry

“…Log of total assets (LOGTA) is seen as a measure for firm size and is the logarithm of the total assets, in pounds (thousands), of the company, as used in recent literature (Allini et al, 2016;Elberry and Hussainey, 2020). A positive association between firms' voluntary disclosure and their size is anticipated as large firms attract more interest from analysts and investors.…”