The Extent and Determinants of Voluntary Disclosures in Annual Reports: Evidence from Banking and Finance Companies in Sri Lanka

Abstract

Corporate disclosures are essential for every stakeholders. Hence, in excess of mandatory disclosures companies are voluntary disclosed information. The voluntary disclosure level is different from company to company and there may be some factors which are affect to this variation. Therefore, the objectives of this study are to identify the extent of voluntary disclosure level and its determinants. In order to achieve these objectives the study develop a voluntary disclosure index including 83 items and the nine sub categories which include in this index analyzed by employing content analysis in the annual reports of quoted public banking and finance companies for the time period of 2012 to 2015. Furthermore, this study analyze the selected variable to identify the determinants of voluntary disclosure level by employing panel data analysis. The study find that disclosures about general information, corporate environment, financial performance and risk management has more than 61% level and Corporate strategy, forward looking information, human and intellectual capital, competitive environment and outlook and corporate social responsibility information have less than 45% average in 2015 and it indicates that there is a much room for improvement in the context of voluntary disclosures. Furthermore, the study find that firm size, profitability, firm's age, leverage and board independence as determinants of voluntary disclosure level and among them firm size, profitability and firm's age have positive relationship and leverage and board independence has negative relationship.

The Impact of Firm Characteristics on the Level of Voluntary Disclosure:

“…However, the results of prior studies that investigated the relationship between leverage and voluntary disclosure were not consistent. Some studies found a positive and significant relationship between firm leverage and voluntary disclosure (Abeywardana & Panditharathna, 2016;Kolsi, 2012;Lan et al, 2013;Sharma & Davey, 2013;Xiao, Yang, & Chow, 2004), whereas a significant negative association between firm leverage and voluntary disclosure was found by other studies (Birjandi & Hakemi, 2015;Elfeky & Nasiri, 2017;Sehar et al, 2013). On the other hand, the studies were undertaken by Owusu-Ansah (1997), Alves, Rodrigues, & Canadas (2012), Uyar et al, (2013) and Hieu & Lan (2015) found that no significant relationship between firm leverage and voluntary disclosure.…”

“…Older firms with more experience are probably to disclose more information in their annual reports to improve their image and reputation in the market (Akhtaruddin, 2005). Most of the results of the empirical study show that there is a positive relationship between firm age and voluntary or mandatory disclosure (Abeywardana & Panditharathna, 2016;Elfeky & Nasiri, 2017;Hossain & Hammami, 2009;Owusu-Ansah, 2005;Sehar, Bilal, & Tufail, 2013). However, Hossain & Reaz (2007) and Akhtaruddin (2005) found no significant relationship.…”

“…The voluntary disclosure level differs from one firm to another because of some factors that may influence the voluntary disclosure level (Abeywardana & Panditharathna, 2016). Firm characteristics are considered one of the important determinants of voluntary disclosure.…”

“…The results of prior studies that examined the relationship between profitability and the level of voluntary disclosure were mixed. Most of these studies found a positive relationship between profitability and the extent of voluntary disclosure (Abeywardana & Panditharathna, 2016;Elfeky & Nasiri, 2017;Raffournier, 1995;Rouf, 2011;Sehar et al, 2013). Whilst, Hossain & Taylor (2007), Hossain & Hammami, (2009) and Uyar et al (2013) found that there is no significant relationship.…”

أثر الإفصاح الطوعی على ربحیة البنوک فی القطاع المصرفی المصری (باللغة الإنجلیزیة)

“…The valid data was 200 observations and analyzed using panel data analysis. The analysis explained that there were positive associations between VD and profitability from Banking and Finance Companies in Sri Lanka (Abeywardana and Panditharathna, 2016).…”