Corporate Governance and Voluntary Disclosure Practices of Financial and Non-Financial Sector Companies in Bangladesh

Abstract

AbstractThis paper examines the relationship between voluntary disclosure and several attributes of corporate governance using data from the annual reports of companies listed on the Dhaka Stock Exchange (DSE) in 2011. The results obtained show statistically significant differences in levels of voluntary disclosure among listed companies in Bangladesh and show that companies in the financial sector disclose more voluntary information than non-financial companies.Findings from this analysis indicate a negative association between voluntary disclosure and percentage of equity owned by insiders. By contrast, firm size and profitability show significant positive relationship with voluntary disclosure.However, this study also shows that voluntary disclosure has no significant relationship with the percentage of equity held by institutions, board size, board audit committee and percentage of independent directors on the board of directors.KeywordsVoluntary DisclosuresCorporate GovernanceCorporate Annual ReportsDisclosure IndexDhaka Stock Exchange (DSE)IntroductionIn recent years, corporate voluntary disclosure has received a great deal of attention from many researchers (Ibrahim, Haron and Ariffin, 2000; Ho and Wong, 2001; Chau and Gray, 2002; Haniffa and Cooke, 2002; Eng and Mark, 2003; Li & Qi, 2008; Akhtaruddin, et al., 2009). While these findings have developed our knowledge of voluntary disclosure to an important degree, there are questions over the generalisabilty of these findings as most of the research studies in this area have focused on the industrialised western countries (e.g. McKinnon and Dalimunthe, 1993; Frost and Pownall, 1994; Skinner, 1994; Hutton, Miller and Skinner, 2003; Mercer, 2004; Schleicher and Walker, 2010; Schleicher, 2012). By contrast, a limited number of research studies have examined disclosure practices of companies in developing economies. (e.g. Ibrahim, Haron and Ariffin, 2000; Ho and Wong, 2001; Chau and Gray, 2002; Haniffa and Cooke, 2002; Eng and Mark, 2003; Li & Qi, 2008). In addition, the vast majority of the prior research in this field in all regions has examined the association between factors affecting voluntary disclosure practices and voluntary disclosure levels of listed non-financial companies.This paper aims to reduce this gap in prior research by investigating the voluntary disclosures made by both listed financial and non-financial companies in Bangladesh and examining the factors that influence the disclosure of voluntary information in their annual reports. A further motivation for this study was to examine whether the variables that researchers have found to be significant in explaining voluntary disclosure practices of companies in developed countries also apply in a developing country like Bangladesh. The study therefore aims to add to the literature on voluntary disclosure in developing countries and extend that literature by including corporate governance variables as possible explanatory variables for voluntary disclosure.The corporate governance variables examined in this paper include percentage of equity owned by the insiders, percentage of equity held by the institutions, board size, board audit committee, and proportion of independent directors on the board.The remainder of this paper is structured as follows. In the following section, the significance of the study is set out. Next, the research methods, analysis and findings of the research are presented. The final section summarizes the key findings in the paper, draws conclusions based in these findings and outlines limitations and suggestions for future research.Significance of the StudyThe demand for published information about companies has increased worldwide as the users of such information have become more aware than before. Most of the prior researches focuses mainly on mandatory disclosure (Ahmed & Nicholls, 1994; Wallace & Naser, 1995; Owusa-Ansah, 1998; Akhtaruddin, 2005). …