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THE EFFECT OF OWNERSHIP STRUCTURE ON QUALITATIVE INFORMATION DISCLOSURE IN CORPORATE REPORT

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 Format: MS WORD ::   Chapters: 1-5 ::   Pages: 70 ::   Attributes: Questionnaire, Data Analysis, Abstract ::   141 people found this useful

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CHAPTER ONE

INTRODUCTION

  1. BACKGROUND OF STUDY

The forces that have caused an increase in the demand for information disclosure in the current capital market stem from the information asymmetry and agency conflicts existing between stockholders and management. Therefore, the solution to agency conflicts lies in the function of the board of directors and the ownership structure. Currently, every organization, whether it is private or public, small or big, non-profitable or profitable, is looking to convince investors, customers, suppliers, creditors, regulators and the public at large about their work. They are trying to work in a way that makes all those stakeholders or users appreciate them. One way for these organizations to improve their performance is by making public their responsibility towards the environment. There is growing pressure on firms to be responsible to society, which has influenced them to work in an environmentally responsible manner. As a variety of stakeholders demand greater disclosure of environmental influences and performance, a large number of firms all over the world have started disclose on these issues. In many countries, disclosure of some environmental information has also been made mandatory. However, different research findings have suggested that these disclosures differ across industries, sectors, and countries.

An agency theory states that a rational agents (managers) will act for their own interest, and not for their shareholders. This type of management behavior occurs because they have more complete information about a company, than the owner (Jensen and Meckling, 1976). This behavior leads to corporate governance, which is a lack of transparent disclosure about a company‟s performance to its owners. Corporate disclosure plays an effective corporate governance role, by providing transparent information to both shareholders and other parties. In this regard Makhija and Patton (2004), state that the extent and quality of corporate disclosure is an outcome of conflicting interests, among management, majority shareholders and minority shareholders. With controlling power, large block holders may manipulate the extent of disclosure to maximize private benefits, gained directly from the firms and/or from changes in share values in the capital market.

When the owner's holding increases, convergence of interest between the controlling shareholders and outside investors occurs. When investment decisions are more likely to be made to maximize the insiders‟ wealth, at the expense of outside investors, outsiders will find it necessary to supervise owner managers by increasing the extent of disclosures (Chau and Gray, 2010). Company ownership structure is acknowledged to be an important governance mechanism. The present corporate governance literature recognizes that importance, however, the impact of ownership structure on corporate voluntary disclosure practices, remains unexplored in emerging stock markets.

The company’s annual report is one of major corporations’ communication mediums used to transmit information to outsiders. In other words, annual reports are used as a communication method to communicate both quantitative and qualitative corporate information with stakeholders or with the interested parties.  States that a corporation’s interested parties are the owners, investors, employees, creditors, suppliers, customers, and the public. Everybody who is interested in the success of corporations depends on the information disclosed by corporations in making various decisions. Relevance is a vital standard, so the information must be appropriate and relevant to the users to assist decision-making.

In light of recent corporate scandals involving high profile companies such as the Enron Cooperation and WorldCom, the restoration of public confidence or trust has become one of the main agendas among today's business leaders. Disclosing more information on the company's capital structure and control can be an important way to achieve that goal. Likewise, emphasizes the crucial role of full disclosure in avoiding financial reporting fraud. Investigating a series of financial statement frauds that have occurred in recent years, study found that, to protect investors' rights and enhance information transparency, the regulatory authorities of securities markets and information intermediaries have exerted great effort to advocate corporate governance, thus lessening the occurrence of adverse selection and agency problems as a result of information asymmetry. High quality and relevant information is crucial for the exercise of government powers.

In addition to that, voluntary disclosure is the external reporting done beyond what is mandated. It covers all information, which concerns both subsidiaries and the group itself. The increasing amount of voluntary disclosure among firms all over the world have motivated the research in this particular area to wonder and explore factors that could make firms to disclose information that it is not mandated to disclose in the first place. Over the years, corporations have had to disclose certain information regarding the company's financial position, management, creditors, competitors, and shareholders. This type of disclosure is considered as a mandatory disclosure, meaning that corporation must disclose certain information.

Presently, corporate governance is studied as a mechanism which affects corporate disclosure. Transparency, openness, disclosure, and trust, which form the integral part of CG, will help companies improve their financial performance. In fact, in a corporate governance survey carried out by Bursa Malaysia Berhad and the accounting firm Price Waterhouse Coopers (PWC), it was found that the majority of investors in Malaysia were prepared to pay a 20% premium for companies with superior corporate governance.

One of the important areas of focus regarding VDS is the relationship between some of the firm characteristics and the level of VDS. Ref. mentions that many studies empirically examined the extent of voluntary disclosure and measured the relationship between the level of disclosure and several corporate attributes. However, most of these studies have focused on developed countries. Few studies have been carried out in developing countries in general and the Middle East in particular. Also as who studied the quality and volume of social reporting in the Middle East, stated that his research was a timely one in all of the Middle Eastern countries, in the region of social reporting.

The quality of corporate governance concerns the rights and interests of stakeholders. Accounting disclosure is very important to all stakeholders. Thus, it provides them with the necessary information to reduce uncertainty and helps them to make salient economic and financial decisions. Recently, there has been a growing interest on the issue of institutional ownership both in the developed and emerging economies. The waves of accounting scandals and financial crisis brought to fore the relevance of institutional ownership among policy makers, academics, financial institutions and investors. Institutional ownership as advocated by several researchers has been a necessary condition to assure and maintain the confidence of stakeholders on issues relating to the quality of financial disclosure. The large presence of institutional ownership has important implication on financial disclosure quality of most corporate organizations. Institutional ownership affects the quality of financial disclosure and could as well pose a challenge on earnings management. An organization with a presence of large institutional investors tends to increase financial disclosure quality due to strict monitoring of shares in the company.

The quality of corporate governance concerns the rights and interests of stakeholders. For example, the bankruptcy of Enron and the falsifying of expenses by large enterprises such as WorldCom and Merck have triggered a worldwide financial crisis. In Taiwan, for instance the embezzlements and accounts manipulation of Infodisc Technology Co., Ltd. and Procomp Informatics Ltd., lead to the outbreak of the “landmine” shares. These events resulted in the impairment of the rights and interests of many investors, shareholders and employees, making the top managements of many companies realize the necessity to establish the separation of management control and company owners, fair and objective external supervisory mechanisms and various corporate governance mechanisms with information transparency. Among them, the credibility of financial statements and accuracy of information disclosure are especially often the crucial factors causing corporate malpractices (Whittington, 1993; Young, 2000). Many studies have found out that there is a distinct relationship between company characteristics and the extent of voluntary information disclosure (Cooke, 1991; Forker. 1992; Meek et al., 1995). These studies were mostly discussing the extent of financial information disclosure standards from the perspective of organization characteristics and financial structure (Ho and Wong, 2001; Eng and Mak, 2003; Linck, Netter, and Yang, 2008), and there were relatively fewer discussions on information disclosure issues regarding the substance of corporate governance. Even if there was, the references to information disclosure were mostly focused on discussing categories of financial information disclosure, and involve relatively less on non-financial information disclosure. As the corporate governance system in Nigeria has yet to be formed, share ownership are concentrated and management power is mostly controlled by members of the family, which causes the level of voluntary information disclosure (especially non-financial information) to be limited. Thus, this easily leads to corrupt practices as a result of the flaws. It is on this background that that study will give a critical analysis on the ownership structure and qualitative information disclosure in corporate report.

  1. STATEMENT OF THE PROBLEM

A corporation must disclose certain information about itself for the benefit of shareholders, investors, and lenders. However, studies on the issue have exposed that most mandatory disclosure by organizations is not satisfactory to the firm’s stakeholders, which means that some institutions, governments, and individuals are not satisfied with the mandatory disclosure of information supplied by companies. Nevertheless, firms have started to supply some further information in order to fill the gap in response to the dissatisfaction voiced by stakeholders. As a result of the changes taking place in the business environment everywhere, the issue of voluntary disclosure has become one of the significant issues that researchers consider worth studying. To date, numerous studies have been done in this particular area to examine the association between corporate governance attributes and voluntary disclosure. Studies on company voluntary disclosure have been carried out in both developing and developed countries. Many researchers have carried out studies on voluntary disclosure and the numerous studies on in examining the association between corporate governance and voluntary disclosure but no study has been done on the ownership structure and qualitative information disclosure in corporate report.

  1. AIMS AND OBJECTIVES

The main aim of the study is to examine ownership structure and qualitative information disclosure in corporate report. Other specific objectives include:

  1. to determine the relationship between ownership structure and qualitative information disclosure in corporate report.
  2. to examine the impact of ownership structure and qualitative information disclosure in corporate report.
  3. to determine the effect of ownership structure and qualitative information disclosure in corporate report.
    1. RESEARCH QUESTION
  1. What is the relationship between ownership structure and qualitative information disclosure in corporate report?
  2. What is the impact of ownership structure and qualitative information disclosure in corporate report?
  3. What is the effect of ownership structure and qualitative information disclosure in corporate report?
    1. STATEMENT OF RESEARCH HYPOTHESIS
  1. HO: ownership structure has no significant effect on the qualitative information disclosure in corporate report.
  2. HI: ownership structure has significant effect on the qualitative information disclosure in corporate report.
    1. SIGNIICANCE OF STUDY

The study will help firms to understand that firms with concentrated ownership structure may have less voluntary corporate disclosure for various reasons. Firstly, the controlling shareholders are able to monitor the behavior of management and have access to all the relevant information and thus do not necessitate additional disclosures.

Secondly, the major shareholders in concentrated firms have greater incentives to monitor the behavior of management, implying less principal to agent problem, and consequently less need for voluntary corporate disclosures. In addition, controlling shareholders can effectively decide on the accounting reporting policies adopted by the business (Fan & Wong, 2002). This implies lower voluntary disclosure because the controlling shareholders do not have incentives to act in the interest of minority shareholders.

The study will also bring to the understanding of various corporations and firms that the type of controlling shareholders also influences the voluntary disclosures. For instance, concentrated family owned firms would have less voluntary disclosures to ensure that the outside stakeholders do not have access to company information. In addition, firms having institutions as the controlling shareholders, have less incentive for voluntary disclosure. Institutions, as major financiers, are able to access the relevant information, while the other stakeholders are unable to demand additional information. However, we expect that voluntary disclosures will be higher in institutionally owned firms when compared to family owned firms, as institutions are not directly involved in the daily operations.

A number of studies show that agency costs decrease when the owner is actively involved in the daily activities. The study will show how and serve as an enlightening tool.

  1. SCOPE OF STUDY

the study will cover a critical analysis on ownership structure and qualitative information disclosure in corporate report.

  1. LIMITATION OF STUDY
  1. Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
  2. Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.
    1. DEFINITION OF TERMS

Ownership

Ownership is the state or fact of exclusive rights and control over property, which may be an object, land or real estate, or intellectual property. Ownership involves multiple rights, collectively referred to as title, which may be separated and held by different parties.

Ownership involves multiple rights, collectively referred to as title, which may be separated and held by different parties.

 

Structure

The arrangement of and relations between the parts or elements of something complex. Construct or arrange according to a plan; give a pattern or organization to.

Qualitative

Relating to, measuring, or measured by the quality of something rather than its quantity.

Information

The definition of information is news or knowledge received or given. An example of information is what's given to someone who asks for background about something.

Disclosure

The action of making new or secret information known. it means to reveal or expose information that has previously been kept a secret

Corporate

Relating to a large company or group.  formed into an association and endowed by law with the rights and liabilities of an individual

Report

A report is a specific form of writing that is organized around concisely identifying and examining issues, events, or findings that have happened in a physical sense, such as events that have occurred within an organisation, or findings from a research investigation.

Give a spoken or written account of something that one has observed, heard, done, or investigated. an account given of a particular matter, especially in the form of an official document, after thorough investigation or consideration by an appointed person or body.

 

 

 

 

 


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Paper Information

Format:ms word
Chapter:1-5
Pages:70
Attribute:Questionnaire, Data Analysis, Abstract
Price:₦3,000
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