The association between disclosure of forward-looking information and corporate governance mechanisms

Abstract

Purpose – This paper aims to witness the importance of corporate governance mechanisms and investigates the relationship between the quality of disclosure of forward-looking information in the narrative sections of annual reports and the governance mechanisms for non-financial UK companies. Design/methodology/approach – Computerized content analysis using QSR NVivo 8 is used to measure the extent of forward-looking information in the narratives of the annual reports for 238 companies listed in the London Stock Exchange. Cross-sectional regression analysis is used to examine the impact of the corporate governance mechanisms on forward-looking information. Findings – The results show that board size and the independence of the audit committee are associated with the level of voluntary disclosure of forward-looking information. Research limitations/implication – One limitation of this study is that in controls for the effect of the financial crisis period, by selecting a representative year for a five-year period, 2006. The authors argument in using this year is based on the fact that the main variables of interest do not vary significantly with time, the cross-sectional analysis of the selected period will provide a fair view of the last five year-period. Practical implications – The authors report the importance of some governance practices in the UK, such as the role of the board members as well as the importance of audit committee independence. Originality/value – This paper contributes to the literature by using computerized content analysis to examine the relation between corporate governance mechanism and disclosure quality of forward-looking information using sample of companies before financial crisis period. The authors also examine governance mechanisms that are under-researched in the field of forward-looking disclosure.

Disclosure of corporate risks and governance before, during and after the global financial crisis: case study in the UK construction industry in 2006–2009

“…Being an essential "mechanism for addressing agency problems and controlling the firm's risk-taking", focus on corporate governance has been one of the responses to the financial crisis (Tarraf and Majeske, 2013). The quantity and quality of risk-related information in annual reports in relation to the corporate governance mechanisms is an area of significant research interest (Al-Najjar and Abed, 2014;Oliveira et al, 2011;Abraham and Cox, 2007;Mohd Ghazali and Weetman, 2006;Lim et al, 2007;Lajili, 2009;Solomon et al, 2000;Bonaci et al, 2012).…”

“…A large number of studies have investigated the impact of company size on corporate governance and disclosure (Probohudono et al, 2013;Linsley and Shrives, 2006;Beretta and Bozzolan, 2004;Amran et al, 2008;Al-Najjar and Abed, 2014). It has been argued that larger companies provide a higher volume of disclosures because of the importance of communicating effectively with a large pool of stakeholders (Amran et al, 2008).…”

Gender diversity on boards and forward-looking information disclosure: evidence from Jordan

“…Several studies have found a positive relationship between company size and the level of voluntary disclosures (Barako et al, 2006;Salama et al, 2012;Al-Najjar and Abed, 2014;Jizi et al, 2014;Qu et al, 2015). In respect to firm profitability, Alkhatib and Marji (2012) and Uyar and Kilic (2012) found that companies with high profits are motivated to disclose more information than those with small profits.…”

“…In respect to the relationship between the financial leverage ratio and the level of FLID, agency theory claims that highly leveraged firms have a greater contractual obligation to fulfil the information requests of long-term and short-term lenders, and therefore may offer more details to meet those needs than would a less leveraged company (Watson et al, 2002;García-Meca and Sánchez-Ballesta, 2009). The literature has reported that leverage ratio has an effect on the level of FLI disclosures (Deshmukh, 2005;Li and Zhao, 2008;O'Sullivan et al, 2008;Hussainey and Walker, 2009;Basiddiq and Hussainey, 2012;Al-Najjar and Abed, 2014).…”

Corporate Governance: An Overview. From Creation of Value for Shareholders by the Board to the Duality Role of Its Chairperson

“…The study of these authors also revealed that the size of the boards of directors can help a better disclosure of the strategic information. According to Al-Najjar & Abed (2014), the level of disclosure of information varies according to the size, performance, cross-listing and operating cash flow of the company. It is also related to the independence of the audit committee and the ownership structure.…”