Theoretical perspectives on corporate disclosure: a critical evaluation and literature survey

Abstract

Purpose – The purpose of this paper is to provide an extensive and critical overview of the theoretical perspectives used in the accounting disclosure literature including economic theories, political and social theories. Design/methodology/approach – The paper reviews and discusses in details the positive accounting theory (PAT), agency theory, signalling theory, political economy theory (PET), stakeholder theory, legitimacy theory and contingency theory to identify the situations suit each of these perspectives. Findings – The main finding shows that there is no universal theory applicable for all situations or societies. For example, PAT is probably used when a corporation believes that its primary responsibility is to use its resources and engage in activities designed to maximise its profits. On the other hand, the PET seems to better explain why some corporations appear to respond to government or public pressure for information about their social impact. The agency theory provides the required framework to evaluate accounting choices and disclosure decisions in market-based studies. While the legitimacy theory seems to be more suitable for multinational corporations working in developed/democratic countries, the stakeholder theory seems to be most suitable for multinational corporations working in developing/dictator countries; whereas a corporation can manage its stakeholders. The contingency theory supports our main finding that different theories are required for different situations, as it clearly indicates that management's preferences of reporting practices are related to the nature of environmental and organisational constraints rather than their relative income effects. Originality/value – The paper contributes to the limited body of literature concerning the accounting disclosure theories and to identify the main theoretical perspective that can be used in the accounting disclosure research.

Firm Performance and Corporate Disclosure Level of Listed Companies in Nigeria

“…Prior to the mid-1960s, accounting research was mainly normative, seeking to prescribe 'what should be' or 'what ought to be' in relation to accounting measurement and financial reporting. Normative accounting research failed to provide an empirical explanation to accounting practice (Omran & El-Galfy, 2014). This led to the development of positive accounting research to combat this limitation.…”

“…For over four decades of research into corporate disclosure, the concept was bereft of any known theory until Healy and Palepu (2001) as well as Omran and El-Galfy (2014) proposed a list of theories for disclosure. This lack of general theory, according to Abdulrahman (1998), was due to the abstract nature of disclosure which may mean several things to several people.…”

Corporate Attributes and Corporate Disclosure Level of Listed Companies in Nigeria: A Post-IFRS Adoption Study

“…For over four decades of research into corporate disclosure, the concept was bereft of any known theory until Healy and Palepu [23] as well as Omran and El-Galfy [40] proposed a list of theories for disclosure. This according to Abdulrahman [1] is due to the abstract nature of disclosure which may mean several things to several people.…”

The Implications of Mandatory Corporate Social Responsibility—A Literature Review Perspective

“…Government intervenes to create a regulated financial reporting environment to ensure that firms provide accurate accounting information to the market. Consequently, this improves investor confidence and improves overall market efficiency (Omran and El-Galfy [13]). Omran and El-Galfy [13] argue that public interest theory ignores the opportunistic roles of the regulator, capture of the regulatory process by companies and the private interests of stakeholders.…”

“…Consequently, this improves investor confidence and improves overall market efficiency (Omran and El-Galfy [13]). Omran and El-Galfy [13] argue that public interest theory ignores the opportunistic roles of the regulator, capture of the regulatory process by companies and the private interests of stakeholders. Moreover, the lack of competence of the regulator and their true intention to protect the public interest may compromise the usefulness of this theory (Gaffikin [14]).…”