DISCLOSURE OF CORPORATE FINANCIAL INFORMATION IN MALAYSIA By AZHAR BIN ABDUL ...

491 Pages·2008·23.39 MB·English

6.4 User Groups and Their Information Needs 181

6.5 Development of Hypotheses 184

6.6 Information Items Included in the Scoring Sheet 186

6.7 Disclosure Index 188

6.8 Summary and Conclusion 194
CHAPTER SEVEN: DATA SETS

7.1 Introduction 196

7.2 Objectives of the Study 196

7.3 Data Sets Employed 197

7.4 Construction of the Questionnaire 197

7.5 Questionnaire Administration 198

7.5.1 Non-Response Bias 202

7.6 Selection of Sample Companies 204

7.7 Description of the User Sample 207

7.8 Data Analysis 210

7.9 Summary and Conclusion 212
V
CHAPTER EIGHT: RESULTS OF ANALYSIS ON PERCEPTIONS
OF USERS - SURVEY I

8.1 Introduction 214

8.2 Hypotheses for the Users' Perceptions Study 215

8.3 Purpose of Using the Annual Report 215

8.4 Ranking of Various Information Sources 218

8.5 Importance of Different Parts of the Annual Report 222

8.6 Influence of Different Parts of the Annual Report 225

8.7 Thoroughness in Reading the Annual Report 227

8.8 Summary and Conclusion 229
V
CHAPTER NINE: RESULTS OF ANALYSIS ON PERCEPTIONS
OF USERS - SURVEY II

9.1 Introduction 230

9.2 Ranking of Items 230

9.3 Comparison with Previous Studies on Users' Perceptions 239

9.4 Summary and Conclusion 244
CHAPTER TEN: RESULTS OF THE ANNUAL REPORT SURVEY

10.1 Introduction 258

10.2 Companies Chosen for the Sample 259

10.3 The Disclosure Index and Disclosure Pattern 259

10.4 Mandatory and Voluntary Disclosure 266

10.5 Disclosure of Individual Items of Information 271

10.6 Disclosure by Industry 274

10.7 Level of Corporate Disclosure and Expectation of Users 275

10.8 Comparison with Wallace (1987) and Karim (1995) Studies 277

10.9 Summary and Conclusion 280
CHAPTER ELEVEN: CORPORATE CHARACTERISTICS AND
EXTENT OF DISCLOSURE

11.1 Introduction 305

11.2 Hypothesis of the Study 306

11.3 The Dependent and Explanatory Variables 307

11.3.1 Dependent Variables 307

11.3.2 Explanatory Variables 308

11.4 Estimation Procedure 326

11.4.1 Results of Regression Analyses 330

11.4.1.1 Reduced Regression - Overall Disclosure Index 332
11.4.1.2 Reduced Regression - Mandatory Disclosure Index 334

11.4.1.3 Reduced Regression - Voluntary Disclosure Index 336

11.4.1.4 Full Regression - Overall Disclosure Index 338
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11.4.1.5 Full Regression - Mandatory Disclosure Index 340

11.4.1.6 Full Regression - Voluntary Disclosure Index 343

11.4.1.7 Regression for Fixed Explanatory Variables 345

11.4.1.8 Treatment for Firm Size Variables 350

11.5 Discussion of the Results 361

11.6 Comparison of Results with Other Studies 369

11.7 Test for Multicollinearity 371

11.8 Summary and Conclusion 372
CHAPTER TWELVE: CONCLUSIONS, LIMITATIONS AND
FUTURE RESEARCH

12.1 Introduction 376
12.2 The Background of the Study 376
12.3 Conclusions and Major Findings 378
12.3.1 Hypothesis 1: Users' Purposes of Using the Annual Reports 379
12.3.2 Hypothesis 2: Importance of Various Sources of Information 380
12.3.3 Hypothesis 3: Importance of Various Parts of the Annual

Reports 380
12.3.4 Hypothesis 4: Influence of Different Parts of the Annual
Reports 381
12.3.5 Hypothesis 5: Thoroughness in Reading the Annual Reports 381
12.3.6 Hypothesis 6: Users' Perceived Importance on Selected

Information Items 382

12.3.7 Hypothesis 7: Disclosure Indexes - Disclosure Practices 382

12.3.8 Hypothesis 8: Compliance with Disclosure Regulations 383
12.3.9 Hypothesis 9: Disclosure Indexes - Disclosure Practices

Across Industries 383
12.3.10 Hypothesis 10: Users' Perceptions and Disclosure Practices 384
12.3.11 Hypothesis 11: Disclosure Indexes - Corporate Attributes 384

12.4 Limitations and Problems 385

12.5 Recommendations for Future Research 388

Bibliography 391
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LIST OF TABLES
Table 3.1 Previous Studies on the Perceived Importance of Information

Items by Different User Groups 96a
Table 3.2 Studies on Disclosure Index and Corporate Attributes Associated

with Disclosure Scores 96c

Table 4.1 Malaysia: Economic Growth Rates (1982-1998) 105

Table 4.2 Malaysia: Basic Economic Indicators (1994-1995) 107

Table 4.3 Malaysia: Structure of Merchandise Imports and Exports 109

Table 4.4 Direction of Trade (January - August 1995) 110

Table 4.5 Accounting Organisation Recognised by the MTA 112

Table 4.6 MIA Committee Divisions 117

Table 4.7 MACPA Committee Divisions 120
Table 5.1 MACPA Statement No. 4: Format for the Presentation

of Financial Statements 171

Table 5.2 Approved International Accounting Standards (lAS) 157

Table 5.3 MIA Exposure Draft 158

Table 5.4 Approved Malaysian Accounting Standards (MAS) 159

Table 5.5 lASs and MASs Being Considered for Exposure Draft 159

Table 6.1 Distribution of Disclosure Indexes 188

Table 7.1 Questionnaires Distribution 213

Table 7.2 Time of Reply to Questionnaire 203

Table 7.3 Distribution of Sample Companies 206

Table 7.4 Biodata of Respondents 208

Table 8.1 Purposes of Using Annual Report by User Groups 216

Table 8.2 Mann-Whitney Test on the Purposes of Using the Annual Report 217

Table 8.3 Other Purposes of Using the Annual Report 218

Table 8.4 Ranking of Information Sources 219

Table 8.5 Mann-Whitney Test on the Ranking of Information Sources 221

Table 8.6 Ranking of Parts of Annual Reports 222

Table 8.7 Mann-Whitney Test on Ranking of Parts of Annual Reports 224

Table 8.8 Degree of Influence of Parts of Annual Reports 225
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Table 8.9 Mann-Whitney Test on the Degree of Influence of Parts

of the Annual Report 227

Table 8.10 Degree of Thoroughness in Reading the Annual Report 228
Table 8.11 Mann-Whitney Test on the Degree of Thoroughness in Reading

the Annual Report 229

Table 9.1 Mean Importance of Disclosure Items 231

Table 9.2 Mann-Whitney Test on the Perceptions of Two User Groups 246

Table 9.3 Test of Difference (t-test) for Users Mean Scores 249
Table 9.4 Comparative Mean Perception Scores of Previous and

Present Studies 250

Table 9.5 Person Coefficient of Correlation 'r' for Mean Perception Scores 242

Table 9.6 Spearman rho Correlation Coefficient for Mean Perception Scores 242

Table 9.7 Degree of Disagreement Among Users Across Three Studies 243
Table 9.8 Previous Studies on Consensus Between Accountants and

Financial Analysts 256
Table 10.1 Applicability of Disclosure Items Based on Disclosure Index for

1974, 1984 and 1994 260

Table 10.2(a) Ten Top Ranking Companies for 1974, 1984 and 1994 261

Table 10.2(b) Ten Lowest Ranking Companies for 1974, 1984 and 1994 262

Table 10.3(a) Descriptive Statistics Based on Disclosure Index for 1974 263

Table 10.3(b) Descriptive Statistics Based on Disclosure Index for 1984 263

Table 10.3(c) Descriptive Statistics Based on Disclosure Index for 1994 264

Table 10.4(a) t-test of Difference in Mean Score for Overall Disclosure Score 281

Table 10.4(b) t-test of Difference in Mean Score for Overall Raw Score 281

Table 10.4(c) t-test of Difference in Mean Score for Balance Sheet Items 282

Table 10.4(d) t-test of Difference in Mean Score for Profit and Loss Items 282
Table 10.4(e) t-test of Difference in Mean Score for Other Financial

Statement Items 283

Table 10.4(f) t-test of Difference in Mean Score for Accounting Policy Items 283
Table 10.4(g) t-test of Difference in Mean Score for Ratios and

Statistics Items 284
Table 10.4(h) t-test of Difference in Mean Score for Directors'

Statement Items 284
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Table 10.4(i) t-test of Difference in Mean Score for Projection and

Budgetary Items 285

Table 10.4(j) t-test of Difference in Mean Score for Social Reporting Items 285

Table 10.5(a) Descriptive Statistics for Disclosure Indices - 1974 266

Table 10.5(b) Descriptive Statistics for Disclosure Indices - 1984 266

Table 10.5(c) Descriptive Statistics for Disclosure Indices - 1994 267

Table 10.6(a) t-test of Difference in Mean Score for Mandatory Items 267

Table 10.6(b) t-test of Difference in Mean Score for Voluntary Items 268

Table 10.7 Disclosure of Mandatory Items 286

Table 10.8 Disclosure of Voluntary Items 288
Table 10.9 Combined and Segregated Disclosure Items for 1974, 1984

and 1994 272

Table 10.10 Items Disclosed by Less than 5% of Companies 290

Table 10.11 Items Disclosed by More than 95% of Companies 293

Table 10.12 Industry-wise Disclosure 274
Table 10.13 Summary of Users' Responses and Companies

Disclosure Practices 299

Table 10.14 Comparison of Item-wise Disclosure in Three Studies 303
Table 10.15 Comparative Disclosure Levels Between Three

Developing Countries Studies 279

Table 11.1 Distribution of Three Disclosure Indices 307
Table 11.2 Summarised Mean Disclosure Scores Based on Dummy

Variables (1974, 1984 and 1994) 323
Table 11.3 List of Variables , Their Code Names and Expected Signs

in the Regressions 324

Table 11 .4A Descriptive Statistics for All Variables - 1974 325

Table 11 .4B Descriptive Statistics for All Variables - 1984 325

Table 11 .4C Descriptive Statistics for All Variables - 1994 326

Table 11.5 (A-C) Correlation Coefficients Between Variables 327

Table 11 .5D Codes for Variables Used in Regression Analysis 331
Table 11.6 Results of the Reduced Regression of Overall Disclosure

Index on Firm Characteristics 332
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Table 11.7 Results of the Reduced Regression of Mandatory Disclosure
Index on Firm Characteristics 334
Table 11.8 Results of the Reduced Regression of Voluntary Disclosure
Index on Firm Characteristics 336
Table 11.9 Results of the Full Regression of Overall Disclosure

Index on Firm Characteristics 338
Table 11.10 Results of the Full Regression of Mandatory Disclosure

Index on Firm Characteristics 341
Table 11.11 Results of the Full Regression of Voluntary Disclosure

Index on Firm Characteristics 343
Table 11.12 Results of the Standardised Regression of Disclosure

Indexes on Firm Characteristics - 1984 346
Table 11.13 Results of the Standardised Regression of Disclosure

Indexes on Firm Characteristics - 1994 348
Table 11.14 Results of the Regression of Overall Disclosure

Index on Firm Size Variables - 1994 351
Table 11.15 Results of the Regression of Mandatory Disclosure

Index on Firm Size Variables - 1994 354
Table 11.16 Results of the Regression of Voluntary Disclosure

Index on Firm Size Variables - 1994 358
Table 11.1 7A Summary of Regression Results for Overall Disclosure
Index: Explanatory Power of Firm Characteristics Under
Three Regression Models 363
Table 11.1 7B Summary of Regression Results for Mandatory Disclosure
Index: Explanatory Power of Firm Characteristics Under

Three Regression Models 363
Table 11.1 7C Summary of Regression Results for Voluntary Disclosure
Index: Explanatory Power of Firm Characteristics Under

Three Regression Models 364
Table 11.18 (A-C) Summary of Regression Results Using One Size

Variable at a Time for 1994 364
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LIST OF FIGURES

Figure 1.1 Research Methodological Flowchart 9

Figure 2.1 Disclosure Dimensions 13
Figure 2.2 Factors Influencing Corporate Financial Disclosure 35
Figure 2.3 Corporate Typologies, by Orientation and Ownership 36

Figure 6.1 Criteria for Scoring Disclosure Items 195
LIST OF APPENDICES

Appendix 7.1 Copy of Questionnaire on Perceptions 417

Appendix 10.1 Check List of Disclosure Items 438

Appendix 10.2 Disclosure Indices 443

Appendix 10.3 Components of Disclosure Index 445

Appendix 10.4 Item-wise Disclosure by Companies 449
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LIST OF ACRONYMS AND ABBREVIATIONS
AFA ASEAN Federation of Accountants
ASEAN Association of South East Asian Nations
CAPA Confederation of Asian and Pacific Accountants
ECOSOC Economic and Social Council
EEC European Economic Community
EU European Union
FTC Foreign Investment Committee
lAS International Accounting Standard
IASC International Accounting Standards Committee
ICA International Congress of Accountants
ICFTU International Confederation of Free Trade Unions
IFAC International Federation of Accountants
IFTU International Federation of Trade Unions
IMF International Monetary Fund
'OSCO International Organisation of Securities Commissions
KLSE Kuala Lumpur Stock Exchange
MACPA Malaysian Association of Certified Public Accountants
MAS Malaysian Accounting Standard
MIA Malaysian Institute of Accountants
MNC Multinational Corporation
NIB Newly Industrialised Economies
OECD Organisation of Economic Cooperation and Development
ROC Registrar of Companies
SC Securities Commission
UK United Kingdom
UN United Nations
US/USA United States of America
UNCTAD United Nations Conference on Trade and Development
UNCTC United Nations Centre on Transnational Corporation
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ACKNOWLEDGEMENTS
Praise to Allah, the Most Gracious, the Most Merciful who gave me the physical,
mental and spiritual strength to complete this research amidst many difficulties.
I would like to convey my sincere thanks and appreciation for those people and
institutions that have contributed directly or indirectly in no small measure to the
completion of this research.
It is a pleasure to acknowledge the financial assistance provided by the Malaysian
Government especially Universiti Utara Malaysia (UTJM) who have provided the
scholarship for the whole duration of the study under its training scheme and also the
UTJM's Research and Consultancy Centre for providing the research grant for this
study. Several courses provided by UTJM on research methodology and manuscript
writings prior to coming to UK have proved to be very useful in carrying out the
research project.
I owe a great deal to Professor A. R. Appleyard who agreed to supervise me
throughout the period of the research. He provided me with helpful comments on the
scope and methodologies of this research and the design and content of this thesis. His
constructive criticism and prompt feedback on the writing up of the chapters
especially for the submission of the first draft of the thesis were an invaluable asset.
The helpful comments and suggestions from Professor Dr. Hamzah Ismail (National
University of Malaysia) on the design and content of the questionnaire at the early
stage of the study, and from Professor R. 5. 0. Wallace (Middlesex University) for his
suggestions and for sending me his journal articles relating to questionnaire design are
gratefully acknowledged. The Faculty of Law, Environment and Social Sciences of
the University of Newcastle provided me with the opportunity to present my research
proposal in its Post-Graduate Research Training Programme. My colleagues in the
School of Accountancy also provided helpful comments and suggestions that further
clarified and sharpened the focus, hypotheses and methodologies of this research. Mr.
Abdul Razak Lah (former MIA council member) also helped in verif'ing the
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