The relationship between corporate governance mechanisms and IFRS 7 compliance: evidence from an emerging market

Abstract

Purpose This paper aims to investigate compliance with risk disclosure requirements under International Financial Reporting Standard (IFRS 7) by firms listed on the Ghana Stock Exchange (GSE) over a three-year period. Specifically, the paper examines the extent, quality and determinants of risk disclosure compliance with IFRS 7. Design/methodology/approach The study uses 90 firm-year observations for the period 2011-2013 for firms listed on the GSE. Each annual report was individually examined and coded to obtain the extent and quality of corporate risk disclosure index. Descriptive analysis was performed to provide the background statistics of the variables examined. This was followed by regression analysis, which forms the main data analysis. Findings The results indicate that over the three years, the extent of compliance with IFRS 7 is, on average, 53 per cent, which is very low; the quality of the disclosures is, on average, 33 per cent, which is also very low. The regression results suggest that proportion of non-executive director (PNED) is significantly and positively associated with the extent of risk disclosure compliance under IFRS 7. Board size was found to be significantly and positively associated with quality of risks disclosure compliance. Originality/value This is the first study in Ghana that considered the impact of corporate governance factors on the extent and quality of IFRS 7 risk disclosure compliance. The findings of this study will help market regulators in Ghana in evaluating the adequacy of the risk disclosures by listed firms.

Determinants of risk reporting by Portuguese and Spanish non-finance companies

“…Risk reporting literature has not been conclusive on the relationship between RRD and independent non-executive directors. Some studies have found a positive association (Abraham and Cox, 2007;Ntim et al, 2013;Agyei-Mensah, 2017), but others did not find any significant association (Elzahar and Hussainey, 2012;Buckby et al, 2015;Elshandidy and Neri, 2015;Allini et al, 2016;Singh, 2017). In the Portuguese context, Oliveira et al 2011found a positive association.…”

“…Prior literature on the influence of corporate governance mechanisms and RRD are focused on Anglo-Saxon countries (Taylor et al, 2010;Abraham and Cox, 2007;Elzahar and Hussainey, 2012;Ntim et al, 2013), developing Islamic/African countries (Mokhatar and Mellet, 2013;Agyei-Mensah, 2017), India (Singh, 2017) and European Latin countries (Oliveira et al, 2011;Elshandidy and Neri, 2015;Allini et al, 2016;Madrigal et al, 2015;Carmona et al, 2016), using different explanatory variables to assess different aspects of the same constructs (such as board composition, ownership structure, and audit committee). (Oliveira et al, 2011), Italy (Elshandidy and Neri, 2015;Allini et al, 2016) and Spain (Madrigal et al, 2015;Carmona et al, 2016).…”

“…Number of directors in the board ? Annual report (Elzahar & Hussainey, 2012;Ntim et al, 2013;Elshandidy & Nery, 2015;Allini et al, 2016;Agyei-Mensah, 2017;Singh, 2017)…”

“…Proportion of independent non-executive directors in the board ? Annual report (Abraham & Cox, 2007;Oliveira et al, 2011;Ntim et al, 2013;Agyei-Mensah, 2017;Singh, 2017) Annual report (Oliveira et al, 2011;Agyei-Mensah, 2017) Leverage Debt ratio = Total debt to total assets ? Annual report (Abraham & Cox, 2007;Taylor et al, 2010;Oliveira et al, 2011;Ntim et al, 2013;Agyei-Mensah, 2017 Board and audit committee meetings (Allini et al, 2016;Singh, 2017) (LaPorta et al, 1998 32 Table 2 -Definition of the independent and control variables (to be continued) (Linsley & Shrives, 2006;Abraham & Cox, 2007;Oliveira et al, 2011) (Linsley & Shrives, 2006;Oliveira et al, 2011;Ntim et al, 2013;Buckby et al, 2015;Elshandidy & Neri, 2015)…”

“…They concluded that financial analysts pay greater attention to detailed, customized, future-oriented individual risks, rather than generic information on risk management and internal control systems, which is less transparent, less relevant, and from a lower quality. On the other hand, prior literature on RRD has indicated that some corporate governance mechanisms are crucial to improve the quality of risk disclosures (Taylor et al, 2010;Abraham and Cox, 2007;Elzahar and Hussainey, 2012;Ntim et al, 2013;Mokhatar and Mellet, 2013;Agyei-Mensah, 2017;Singh, 2017;Oliveira et al, 2011;Elshandidy and Neri, 2015;Allini et al, 2016;Madrigal et al, 2015;Carmona et al, 2016). Consequently, our second research question is: since Code Law countries are characterized by a "stakeholder" governance 4 model, in which way the influence of corporate governance mechanisms on RRD is mediated by strategic/institutional legitimacy interests?…”