abdelsalam bryant& smith (2007)an examination of the comprehensiveness of corporate internet...

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JOURNAL OF INTERNATIONAL ACCOUNTING RESEARCHVol. 6, No. 22007pp. 1–33

An Examination of theComprehensiveness of CorporateInternet Reporting Provided by

London-Listed CompaniesOmneya H. Abdelsalam, Stephanie M. Bryant, and

Donna L. Street

ABSTRACT: Recent changes in the regulatory environment of the London StockExchange are aimed at prohibiting selective disclosure and enhancing the credibility ofreporting. Using an innovative 143-item disclosure checklist, we examine corporateInternet reporting (CIR) comprehensiveness and its determinants within this new reg-ulatory environment. We also extend the literature linking corporate governance mea-sures to CIR. Our findings indicate that despite this new regulatory environment, thereis considerable room for improvement in CIR by London-listed companies. For ex-ample, our sample companies provide only 58 percent and 70 percent, respectively, ofthe credibility and usability items assessed by our comprehensiveness index. Aftercontrolling for size, profitability, industry, and high growth/ intangibles, we find the CIRcomprehensiveness of London-listed companies is associated with analyst following,director holding, director independence, and CEO duality. Because prior research in-dicates the U.K. leads Europe in Internet reporting, our results may shed light on howCIR will evolve throughout Europe.

Keywords: corporate Internet reporting; selective disclosure; voluntary disclosure;timeliness of reporting; credibility of reporting; usability of Internetdisclosures.

Data Availability: Contact Professor Bryant at: [email protected].

I. INTRODUCTION AND MOTIVATION

The Internet provides a unique form of corporate voluntary disclosure that enablescompanies to provide information instantaneously to a global audience. However,despite its growing importance as a source of corporate information to investors, the

content, usability, and perceived credibility of the information provided on corporate web-sites varies greatly. Research reveals that even companies headquartered in countries tra-ditionally known for high levels of ‘‘hard copy’’ disclosure, such as the United Kingdom(U.K.), tend to fall short of their potential in regard to the quantity of information providedon the Internet and the level of sophistication of Internet utilization (Lymer 1999).

Omneya H. Abdelsalam is a Lecturer at Aston University and a Visiting Associate Professorat the American University of Sharjah, Stephanie M. Bryant is an Associate Professor atthe University of South Florida, and Donna L. Street is a Professor at the University ofDayton.

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Journal of International Accounting Research, Volume 6, No. 2, 2007

In this paper, we examine the association between the comprehensiveness, usability,and credibility of corporate Internet reporting (CIR) disclosures and corporate governancemeasures for a sample of 110 London-listed companies. Our analysis is motivated primarilyby recent changes in the regulatory environment of the London Exchange directed at, interalia, addressing the concerns of U.K. and European Union (EU) regulators prohibitingselective disclosure and the regulators’ desire to enhance the credibility of reporting. TheFinancial Services and Market Act of 2000 highlights the U.K. government’s desire tooverhaul financial market regulations and uphold the London Exchange’s status as one ofthe world’s leading exchanges (Al-Hawamdeh and Snaith 2005). Under the Act, whichbecame effective December 1, 2001, listed companies should review the scope, nature, andmethod used to disseminate information to the market. The general requirement of theFinancial Services Authority is that listed companies disclose all material developmentswithout delay (emphasis added). The Internet provides a unique means to achieve thisdisclosure objective. Furthermore, European Commission Directive/6/2003 recommendsspeedy dissemination of information to the market and prohibits private briefings. Accord-ingly, private briefings and other forms of selective disclosure are frowned upon, as theintent is for information to be made available to all investors at the same time. London-listed companies should thus be expected to increasingly turn to the Internet to achieve thewidespread disclosure of financial and other information to stakeholders in a timely andsimultaneous manner.

Our findings highlight the need for improvement in CIR by London-listed companies,especially with regard to improving the credibility of information provided on corporatewebsites and site usability. Specifically, the sample companies provide only 58 percent and70 percent, respectively, of the credibility and usability items assessed by our index. Further,after controlling for size, profitability, industry, and high growth/intangibles, our findingsindicate that the CIR comprehensiveness of London-listed companies is associated withanalyst following and several measures of corporation governance (e.g., director holding,director independence, and CEO duality).

Our study provides two important contributions. First, we provide insight into CIRdisclosure practices in the U.K. in this new regulatory environment of increased transpar-ency. Prior research indicates that while the U.K. lags the United States (U.S.) in Internetreporting, it leads Europe (Lymer 1999). Thus, our results may preview how CIR reportingthroughout Europe will evolve to address the concerns of EU regulators.

Second, we extend the emerging body of literature linking corporate governance mea-sures to CIR disclosure. While several prior studies examine corporate governance andvoluntary disclosure in general, ours is among the first to link Internet disclosures withcorporate governance measures. As noted previously, levels of Internet disclosure and so-phistication of use have historically lagged their potential even in countries associated withhigh levels of disclosure. Hence, in the absence of supporting empirical evidence, findingsfrom the voluntary disclosure literature should not be assumed to hold true within thespecific context of CIR.

Next, we briefly review prior CIR studies. This is followed by sections on hypothesesdevelopment, methodology, results, discussion, and conclusion.

II. CIR LITERATURE REVIEWThe extant studies on CIR can be categorized as either descriptive studies (i.e., provid-

ing statistics on how many items of a given disclosure checklist are disclosed/provided) orassociation studies (i.e., providing evidence of independent variables associated with thelevel of disclosure) addressing the determinants of CIR.

An Examination of the Comprehensiveness of Corporate Internet Reporting 3


Descriptive StudiesLymer (1999) provides a review of the CIR academic1 and professional2 literature

published during the 1990s. Concentrating on the former, Lymer concludes that, as ofthe late 1990s, European companies were considerably behind their U.S. counterpartswith respect to providing large amounts of corporate data on the Internet. Further,European companies were behind the U.S. in the sophisticated utilization of Internet tech-nology, and there appeared to be a wide divergence of corporate usage of the Internetwithin and between countries, with the U.K. being the closest to the U.S. model and Spainbeing the furthest away.3 A descriptive study by the Interactive Bureau (2003) concludedthat, based on an analysis of U.K. FTSE-100 company websites, 72 of the websites needed‘‘substantial attention’’ in terms of site design, usability, and content, and that the websitesfailed to meet the needs of key constituents.

Debreceny and Gray (1999) survey the corporate websites of 45 large, listed U.K.,German, and French companies to examine audit implications of electronic disseminationof financial information. Their findings raise significant issues regarding the format andusability of the information provided.

Lymer and Debreceny’s (2003) review of the extent of guidance on CIR provided bysecurities regulators and audit standard setters reveals that actual pronouncements issuedas of the date of the study represent an inadequate response to the challenges arising fromcurrent and future CIR. Several standard setters and professional groups have also sponsoredCIR studies. These include the International Accounting Standards Committee (Lymer etal. 1999), Canadian Institute of Chartered Accountants (CICA) (Trites 1999), and the U.S.Financial Accounting Standards Board (FASB 2000, 2004).

Association StudiesIn addition to describing CIR, researchers have more recently begun to conduct em-

pirical research focused on identifying company- and/or country-specific characteristicsassociated with CIR disclosure, focusing primarily on either content or presentation ofdisclosures. Table 1 summarizes studies from this body of work. Independent variablesstudied include, among other things, size, industry, free float, high growth/intangibles, andprofitability. Allam and Lymer (2003) examined CIR in five developed countries utilizinga 36-item disclosure index addressing general attributes and Financial /Annual Report-related attributes of CIR. With regard to U.K. companies, they found no significant differ-ences in the CIR quality of U.S. and U.K. companies or U.K. and Canadian companies;however, they did find differences in CIR quality between U.S. and Canadian compa-nies, with Canadian companies disclosing less. Additionally, the CIR of U.K. com-panies exceeded that of Australian and Hong Kong companies.

In summary, several prior studies describe CIR disclosure and presentation for com-panies headquartered in specific countries or listed on specific stock exchanges. Addition-ally, as summarized in Table 1, evidence links several company-specific characteristics with

1 Works reviewed include Petravick and Gilbert (1996); Gray and Debrecency (1997); and Louwers et al. (1996);and in Europe, Marston and Leow (1998); Lymer (1997); Lymer and Tallberg (1997); Flynn and Gowthorpe(1997); Deller et al. (1998); Molero Lopez et al. (1999); Deller et al. (1999); Gowthorpe and Amat (1999); andHedlin (1999).

2 Practitioner studies include Jenkins (1993a) and (1993b); AICPA (1996); Chavez (1996); Helms and Mancino(1998); Debreceny and Gray (1999); CICA (1999); Spaul (1997); Green and Spaul (1997); Gowthorpe and Flynn(1997); and Gulliford et al. (1998).

3 Additional descriptive studies published in more recent years include Craven and Marston (1999); Jones (2003);and Davey and Homkajohn (2004).

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TABLE 1Overview of Empirical Studies Addressing Determinants of CIR Comprehensiveness

Author(s)Date of Data

Collection Sample

Number ofChecklist

Items Dependent Variables Significant Independent Variables

Marston andLeow (1998)

November 1996 U.K. FTSE-100 2 Presence of websiteDisclosure of any financial information

on website

Size (�)a

Ashbaugh et al.(1999)

November 1997throughJanuary 1998

290 U.S. companies(criticized byAIMR)

3 Website provides:• Comprehensive set of financial

statements (including footnotes andauditor report)

• Link to annual report elsewhere onInternet

• Link to U.S. SEC’s Electronic DataGathering, Analysis and Retrieval(EDGAR) system

Size (�)Profitability (�)AIMR highly ranked firm (�)

Craven andMarston(1999)

July 1998 206 largest U.K.companies

2 Presence of websiteDisclosure of any financial information

on website

Size (�)

Pirchegger andWagenhofer(1999)

December 1997andDecember1998

26/20 Austriancompanies 1998/1997

German DAX-301998 only

38 7-Content5-Timeliness

14-Technology12-User support

Size (�)Free Float (�)(both for Austrian companies only)

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Debreceny etal. (2002)

(IASCsponsored)

November 1998throughFebruary1999

660 large companiesin 22 countries(30 highestmarket capcompanies listedin each country inDow Jones GlobalIndex)

2 1-Presentation (type of website)1-Content (amount of disclosure)

For Content:• Size (�)• U.S. Listing (�)• Growth prospects / intangibles

(Market Value to Book Value)(�)

For Presentation:• Size (�)• U.S. Listing (�)• General cross listing (�)• Level of technology (particularly

being in pharmaceutical industry)(�)

• Disclosure EnvironmentEttredge et al.

(2001)February

through May1998

402 U.S. companies(AIMR rated, Bio-technology, andComputertechnology)

17 6 Accounting information items11 Other financial information items

Size (�)Industry(petroleum highest and

homebuilding lowest)

Ettredge et al.(2002)

Late 1997through early1998

193 U.S. companies(AIMR rated)

17 4 Financial information itemsrequired in SEC filings

12 Items of voluntary disclosure

For both:• Size (�)• Correlation annual earnings and

returns (�)For voluntary disclosure only:• Raising equity capital (if stock

issued during 1996 or 1997) (�)• Quality (AIMR measure) (�)


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TABLE 1 (continued)

Author(s)Date of Data

Collection Sample

Number ofChecklist

Items Dependent Variables Significant Independent Variables

Oyelere et al.(2003)

Not specified 229 N.Z. companies(123 withWebsites; 90included Internetfinancialreporting)

8 Financial and nonfinancial informationprovided on corporate website

Size (�)Liquidity (�)Ownership spread (higher the

proportion of shareholding bytop 40 percent of shareholders,lower the probability ofdisclosure)

Industry (primary industry groupsector: oil and gas and forestryhighest)

Marston (2003) 1998 plusfollow up inMay 2001

99 top Japanesecompanies

13 Whether company had websiteWhether any English website on

homepageWhether 11 items of financial

information disclosed on website

Size (�)Industry (�)(both related to existence of

website but not extent ofdisclosure on web)

Allam andLymer(2003)

End of 2001and early2002

250 companies(50 largest inadvanced capitalmarkets; U.S.,U.K., Canada,Australia, andH.K.)

36 12-General attributes24-Financial /Annual report attributes

Size (�) (only for Australia)Country(U.S., U.K., and Canadian

companies close and leading/Australian companies followwith small gap/H.K. laggedbehind


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TABLE 1 (continued)

Abdelsalam etal. (2004)

July 2004 30 Indian companieson BSE Sensex

114 64-Content50-Usability

For overall and content disclosure:• Big 4 auditor (�)• Free float (�)• Gearing (�)• PE (profitability) (�)• U.S. listing/filing (�)• Industry(manufacturing) [overall only] (�)None significant for usability

Marston andPolei (2004)

July 2000 andMay/June2003

50 Germancompanies (topquartile andbottom quartile ofDAX 100)

53 (2000)71 (2003)

Content (16-investor related,accounting and financialinformation, 5-Timeliness, 5-Contact details, 14-Corporategovernance, and 5-SocialResponsibility)

Presentation (10 Technology, 6navigation, 7 Structure and 3contact and information supplyservices)

For 2000:• Size (�)• Free Float (�)• For 2003• Size (�)• ROE (�)• Foreign Listing (�)• State Share Ownership (�)

Xiao et al.(2004)

August 2002 300 largest Chinese-listed companies(203 had awebsite)

82 58-Content24-Presentation

For the 203 with website:• IT Industry (�)• Size (�)• Legal person ownership (�)• Leverage (�)• State Share Ownership (�)

a Various measures of size have been used, including market capitalization, sales / turnover, number of employees, total assets. Results generally support any measure ofsize as being appropriate, but market capitalization is the most commonly used.



the level of CIR disclosure. Findings for the latter subset of research vary by country orexchange listing, clearly indicating that CIR determinants vary by institutional environment.The current research utilizes a richer, more comprehensive CIR index for evaluating thecomprehensiveness of information London-listed companies provide on their corporatewebsites. Additionally, we extend the research linking corporate governance factors to thelevel of disclosure to specifically address CIR (i.e., a subset of voluntary disclosure). Indeed,Gul and Leung (2004) suggest that the failure to include governance variables in priorstudies examining levels of voluntary disclosure may contribute to the mixed findings inregard to the association with control variables including profitability. A summary of theemerging body of work addressing the association of governance factors and voluntarydisclosure is incorporated within the following section on hypotheses development.

III. HYPOTHESESThe distinct characteristics of the institutional environment within which London-listed

companies now operate (i.e., as impacted by recent regulations and guidelines issued byU.K. and EC authorities), along with agency theory (particularly in regard to ownershipdiffusion and other dimensions of governance), provide the basis for our hypotheses.4

While governance factors have been assessed as determinants of voluntary disclosurein prior literature, the focus of this work has primarily been within the context of smaller,particularly emerging, capital markets. New regulatory requirements and pressures, how-ever, suggest that ownership diffusion and other dimensions of governance may also impactthe level of voluntary disclosure in general, and CIR in particular. Specifically, recent pro-hibitions in the U.K. on selective disclosure place tremendous pressure on listed companiesto communicate financial and other information to a vast audience at the same time thisinformation is provided to analysts following the company. Thus, in the current regulatoryenvironment of the London Exchange, analyst following and ownership diffusion both playa key role in defining the breadth of a company’s target audience for the dissemination ofinstantaneous information. It also logically follows that those companies with stronger gov-ernance structures should be more responsive to adhering to the spirit of these new regu-latory requirements and recommendations.

Ownership Diffusion: Major ShareholdingAgency theory suggests that in a more diffused ownership environment, companies will

be expected to disclose more information to reduce agency cost and information diffusion(Jensen and Meckling 1976). The potential for agency conflicts is greater for a companywith diffused ownership because of the divergence of interests between contracting parties.In a widely-held company, managers may provide additional information to signal they areacting in the best interests of the principles. Conversely, highly concentrated ownershipmay be linked to lower levels of disclosure. Recent regulatory requirements and pressureswithin the context of the London Exchange may magnify incentives for managers of widely-held companies to not only provide additional information, but to provide informationutilizing a timely vehicle capable of reaching a vast audience (i.e., the Internet). Wheninformation is made known to analysts, it should also be made simultaneously availableto all other interested parties. The Internet provides an obvious way to achieve thisrequirement.

4 For reviews of the voluntary disclosure literature, see Rowbottom et al. (2005); Healy and Palepu (2001);Verrecchia (2001); Debreceny et al. (2002); Ettredge et al. (2002); Xiao et al. (2004); Craven and Marston(1999); Rowbottom (2002); Wagenhofer (2003); Richardson (2001); and Verrecchia (1983).



Prior research addressing the level of voluntary disclosure supports the agency theoryhypothesis that level of disclosure is positively associated with wider ownership dispersion.Chau and Gray (2002), in a study of Hong Kong and Singapore companies, report a sig-nificant positive relationship between the proportion of outside ownership and level ofvoluntary disclosure. In a study of Indian BSE Sensex companies, Abdelsalam et al. (2004)find a significant positive association between free float and level of CIR. Three studies ofMalaysian companies utilize shares held by the ten largest shareholders as a surrogate forownership concentration. In these studies, Haniffa and Cooke (2002) identify a positiverelationship between the proportion of shares held by the ten largest shareholders and thelevel of disclosure; however, Hossain et al. (1994) find a negative association between thissame measure of ownership structure and the level of disclosure. Ghazali and Weetman(2006) do not find a significant association between the proportion of shares held by theten largest shareholders and level of disclosure. We note that the varying findings forMalaysian companies may be linked to modifications in governance regulations in thisjurisdiction. Furthermore, of the above studies, only Abdelsalam et al. (2004) examine theassociation of ownership dispersion and level of CIR reporting (as opposed to voluntarydisclosure in general).

Director HoldingA director who owns a substantial portion of the company’s shares bears the conse-

quences and reaps the benefits of managerial actions that destroy and create value; thus,agency costs may be reduced by director ownership (Jensen and Meckling 1976). Highdirector ownership aligns the interests of the agent and shareholder and reduces the needfor shareholder monitoring through disclosure. Empirical evidence supports this argument.Both Eng and Mak (2003), in a study of Hong Kong companies, and Ghazali and Weetman(2006), in a study of Malaysian companies, find that director ownership is significantlynegatively associated with the level of voluntary disclosure.

The following hypotheses test the relationship between ownership diffusion and com-prehensiveness of CIR.

H1a: Majority shareholding is negatively associated with CIR.

H1b: Director holding is negatively associated with CIR.

Major shareholding is measured by the percent of stock held by major shareholders(i.e., those holding at least three percent of the outstanding shares). Director holding ismeasured by the proportion of the company’s shares held by members of the board ofdirectors.

Other Corporate Governance Variables: Director IndependenceIn addition to ownership diffusion, prior research links other dimensions of governance

to voluntary disclosure. Fama and Jensen (1983) propose that the existence of independent(nonexecutive) directors should yield more effective monitoring of the board of directors,thereby limiting managerial opportunism and resulting in increased disclosure. Adams andHossain (1998), in a study of New Zealand companies, and Chen and Jaggi (2000), in astudy of Hong Kong companies, find a significant positive association between the propor-tion of independent directors and the level of voluntary disclosure, thereby supporting acomplementary association. Supporting a substitute relationship, Eng and Mak (2003), in



a study of Singapore companies, find a negative association, but note that their results maybe associated with the greater representation of outside directors on the boards of Singaporecompanies in comparison to other countries. Ho and Wong (2001) and Haniffa and Cooke(2002) do not find an association between the proportion of independent directors and levelof voluntary disclosure.

CEO Role DualityCEO role duality occurs when the CEO is also chair of the board of directors. Agency

theory supports the separation of these two roles to allow for checks and balances overmanagement’s performance (Haniffa and Cooke 2002). When the CEO is also chair, boardeffectiveness may be compromised because the CEO may be capable of controllingboard meetings, selecting agenda items, and selecting board members. Blackburn (1994)and Argenti (1976) support separation of these two roles. Gul and Leung (2004), in a studyof Hong Kong companies, find that duality is negatively associated with voluntary disclo-sure. In line with this body of research, the Cadbury Committee Report (1992) recommendsthat large companies separate the roles of CEO and chair of the board of directors.

Contrary to expectations, Haniffa and Cooke (2002) report a significant negative rela-tionship between having an independent, nonexecutive director as chair of the board andthe level of disclosure. However, Ghazali and Weetman (2006) highlight that Haniffa andCooke’s findings predate new governance rules in Malaysia; their study of Malaysian com-panies does not find a significant relationship between duality and level of disclosure.

The following hypotheses test the relationship between key governance factors andcomprehensiveness of CIR.

H2a: The proportion of independent directors is positively associated with CIRcomprehensiveness.

H2b: CEO dual role is negatively associated with CIR comprehensiveness.

Independence is measured by the proportion of nonexecutive directors to total directors.CEO dual role is coded 1 if the CEO is also the chair of the board. Otherwise, dual roleis coded as 0.

Analyst FollowingRecent research (Hope 2003; Cahan et al. 2005) provides evidence that the number of

analysts following a company is positively associated with the level of voluntary disclosurein corporate annual reports. As the Financial Services Authority cautions London-listedcompanies to avoid selective disclosure and has indicated that all material developmentsare to be disclosed to a widespread audience in a timely manner, it follows that London-listed companies with a larger analyst following will turn to the Internet as a key meansof ensuring that information previously provided first, or perhaps exclusively, to analystswill now be supplied to all investors in a timely manner. Based on recent research linkinganalyst following with disclosure in annual reports and the growing pressure for London-listed companies to disclose timely information to a wider audience, we anticipate a positiverelationship between analyst following and CIR. The following hypothesis tests the rela-tionship between analyst following and CIR comprehensiveness.

H3: Analyst following is positively associated with comprehensiveness of CIR.



IV. METHODSample Selection and Data Collection

We obtained the names of companies listed in London from the London Exchangewebsite. After sorting the list by market capitalization, we randomly selected 120 companiesfrom the top quartile and used Offline Explorer� software to download each of the websitesin our sample.5 By focusing on the top quartile of the London Exchange, we examine thosecompanies most likely to be have a larger analyst following, and accordingly, most likelyto be impacted by the new regulations and recommendations on selective disclosure.6

Because website content and design are frequently updated, analyzing the content andusability of all sample websites as of a specific date is important. Thus, to avoid temporaldifferences in website content, all downloads took place on a single day in mid-2005. UsingOffline Explorer software, we specified the starting page using the URL address of thecompany, and directed the program to download all files linked to the starting page fromthe starting server up to level five (e.g., any page that is five clicks away from the homepage). We assumed that the longer the number of clicks to find the information, the lessuseful it is to the user (Rubin 1994). While downloading files from web pages, the softwarecreates a folder for each web page in which files were downloaded. Every folder wasidentified by a folder name typical to the web page URL. This arrangement makes it easyto explore the files, which were downloaded from each web page separately (Usama andMatsumoto 2004).

Each download was examined for completeness. For every folder, we checked thedownloaded files to determine if the entire contents of the web page were success-fully downloaded.7 We discarded ten companies because the download process was unsuc-cessful. Thus, our sample consists of 110 London-listed companies with complete websitedownloads. Of the 110 companies in our sample, 80 (72.7 percent) are domiciled in theU.K. The appendix to the paper lists the sample companies and their country of domicile.

Description of CIR Comprehensiveness IndexThe dependent variable measures are derived from a new, more comprehensive CIR

index drawn primarily from our extensive review of the CIR literature, Loranger andNielson’s (2003) Internet reporting usability guidelines, and the investor relation literature.With few exceptions (Abdelsalam et al. 2004, 114 items; Xiao et al. 2004, 82 items; Marstonand Polei 2004, 71 items; and Allam and Lymer 2003, 36 items), previous studies generallyreviewed a very limited number of content and/or usability items.

5 Offline Explorer is a Windows offline browser that allows downloading an unlimited number of websites forlater offline viewing, searching, browsing or updating. (http: / /www.metaproducts.com/mp/mpProductsDetail.asp?id�1). The program automatically downloads all pages, images, and associated files within a website,thereby, providing a snapshot of the site for a given point in time. The snapshot can later be browsed offlinewithout Internet access and ensures that changes to the website made during the course of the research do notimpact the study. Though there are various types of software available to download the contents of web pages,Offline Explorer was found to be most reliable, fastest download, and easiest use software (Usama andMatsumoto 2004).

6 Indeed, for our sample companies the correlation matrix reveals that size is positively correlated at .622 withanalyst following.

7 The software notifies the user of any failed downloads with a red X next to the URL. If this sign was foundon any downloaded web page, we repeated the download until all the contents of all web pages were successfullydownloaded. To assure the success of downloading, we compared such web pages with the online web pagesto confirm that their entire contents were accurately captured in the download process. If the contents were stillnot successfully downloaded, this company was excluded from the sample (Usama and Matsumoto 2004).

http://www.metaproducts.com/mp/mpProducts_Detail.asp?id=1

http://www.metaproducts.com/mp/mpProducts_Detail.asp?id=1



FIGURE 1Taxonomy of Checklist Items

Content (n = 74 items)

Credibility (n = 55 items)

(CREDIBILITY) Examples:

• Timeliness • Code of ethics • Audit opinion • Audit logo on

audit report

General Content (n = 19 items) (GCONTENT)

Examples:

• Investor glossary

• Interactive stock/share charts

• Segment information

Usability (n = 69 items) (USABILITY)

Examples:

• Navigation buttons • Hyperlinks that

change color • FAQs • Built-in search

Full Checklist (CIR Comprehensiveness) (n = 143 items)

(COMPRE)

Our goal was to assimilate, in one instrument, as many items as possible (both financialand nonfinancial), identified by the relevant investor relations literature and prior CIR stud-ies as important components of CIR. To this end, our initial instrument contained 163 items.Following a pilot test, some items were deleted because we were unable to assess theapplicability of the content or usability item. Eliminating these items ensured that compa-nies were not penalized for nondisclosure of nonapplicable items. Our final checklist con-tains 143 items (74 content and 69 usability) and accordingly, represents the most compre-hensive assessment of CIR utilized to date, thereby providing for a richer assessment ofcontent and usability. Figure 1 depicts the checklist taxonomy.

Dependent Measures: ContentContent refers to what information is disclosed on the website. Our 74 content checklist

items are drawn from previous academic literature8 usability guidelines (e.g., Loranger andNielsen 2003; Nielsen 1999), and the investor relations literature.9 We extend prior research

8 These include Deller et al. (1998); Marston and Leow (1998); Ashbaugh et al. (1999); Craven and Marston(1999); Lymer (1999); Debreceny and Gray (1999); Deller et al. (1999); Pirchegger and Wagenhofer (1999);Ettredge et al. (2001); Hodge (2001); Ettredge et al. (2002); Debreceny et al. (2002); Oyelere et al. (2003);Marston (2003); Allam and Lymer (2003); Lymer and Debreceny (2003); Abdelsalam et al. (2004); Marstonand Polei (2004); Xiao et al. (2004); Davey and Homkajohn (2004); Fisher et al. (2004); and Mercer (2004).

9 These include CP (2003); Geerings et al. (2003); Gray (2001); IFAC (2003); Jones (2002, 2003, and 2004);Colman (2004); and Carey and Parker (2006).



by decomposing Content into two categories: General Content (19 items) and Credibility(55 items). Examples of general content items include investor glossary, interactive stock/share charts, segment information, and press releases.

The Credibility Primer (CP 2003) defines credibility as providing transparent, timely,full, and fair disclosure. Mercer (2004, 186) defines disclosure credibility as ‘‘investors’perceptions of the believability of a particular disclosure.’’ Mercer (2004, 187) further iden-tifies several influences on credibility, including:• Management’s credibility.• The degree of external and internal assurance.• Various characteristics of the disclosure, including its precision, venue, timing and amount

of supporting information.Based on these definitions, our Credibility content items include those related to the

timely presentation of information (see Mercer 2004; IFAC 2003; Ettredge et al. 2002;Ettredge and Gerdes, Jr. 2005) corporate governance (Jones 2002), or the audit opinion (seeLymer and Debreceny 2003; Fisher et al. 2004). Examples of timeliness checklist itemsinclude the use of webcasts to quickly disseminate information, the disclosure of quarterlyas opposed to semi-annual reports, and disclosure of time lags in updating various itemsonline. Credibility checklist items associated with corporate governance include disclosureof governance details such as names and contact information for corporate directors, re-muneration of executives and directors, and display of the company’s code of ethics online.Disclosures relative to the audit report are also an important indicator of credibility. Forexample, hyperlinking from audited to unaudited information within an annual report less-ens credibility of the information provided on the website, as many individuals do notnotice the difference when moving from audited to unaudited information through the useof hyperlinks (Hodge 2001). Additionally, displaying the audit firm logo with a hyperlinkto the auditor’s website enhances credibility. Likewise, having scanned original signaturesdisplayed on the audit report (as opposed to typed signatures) promotes credibility (Fisheret al. 2004).

UsabilityUsability addresses the specifics of website design and refers to how easy is it to

navigate the site and locate information (i.e., ease of use). Our usability checklist items aredrawn from prior literature (see Table 1), as well as the usability guidelines of Lorangerand Nielsen (2003). These authors surveyed individual and professional investors, financialanalysts, and financial journalists to develop guidelines for improving the usability of in-formation provided on corporate websites. Examples of usability items include easy to seeand use navigation buttons, hyperlinks that change colors when visited, FAQs (frequentlyasked questions), and built-in search features.

To calculate the dependent variables for the multivariate analyses, we categorized con-tent items as either general content items, GCONTENT, or items enhancing website cred-ibility, CREDIBILITY. Usability items are captured in the variable USABILITY. A measureof the overall level of disclosure comprehensiveness is provided by the variable COMPRE.The number of CIR comprehensiveness index items comprising the dependent measuresCOMPRE, USABILITY, GCONTENT, and CREDIBILITY is 143, 69, 19, and 55, respec-tively. We completed a checklist for each of the 110 companies in our sample. The disclo-sure index calculation is based on an adaptation of Camfferman and Cooke (2002, 13).

If an index item is disclosed on the website, general content and credibility items arescored as 1; otherwise, these items are scored as 0. To assess usability, visibility and fileformat of the corresponding content or credibility is assessed. Visibility is judged as good



and scored as 1 if the item is either clearly noticeable on the website or easily located usingsite map or search facilities; otherwise, visibility is scored as 0. When a content or credi-bility item is not located on the website, any corresponding visibility item is considerednot applicable and scored NA. Thus, a company is not penalized on usability when thecorresponding content item is coded as NA. File format is addressed by certain indexusability items. For these checklist items, PDF, HTML, and processable format files (i.e.,files that can be downloaded into a spreadsheet or database) are scored as 0, 1, and 2,respectively.10 After the initial scoring, each website was carefully reviewed a second timeto ensure accuracy and consistency of the CIR comprehensiveness index scoring. Eachdependent variable was calculated based on the ratio of the actual CIR comprehensivenessindex score for the company to the maximum possible index score for that company (basedon the number of applicable CIR comprehensiveness index items).

Independent VariablesData for test and control variables were obtained from several sources, including the

London Stock Exchange website, Manifest, Lexis-Nexis (i.e., Disclosure Incorporated,Worldscope, Hoover’s Company In-depth Records, and International Institutional Database),Bloomberg, and company annual reports. The test variables include major shareholding(MAJORHOLDING), director holding (DIRECTORHOLDING), director independence(INDEPENDENCE), CEO duality (DUALROLE), and number of analysts following thecompany (ANALYSTS).

Control VariablesThe extant literature identifies several company-specific characteristics as relevant to

the voluntary disclosure of financial information on the Internet. However, the results areinconsistent across studies, often depending on country and exchange studied. Some vari-ables such as company size are generally significant in prior literature, and should beincluded in the model.

Other variables, however, such as industry, are more problematic. While prior evidenceindicates industry is an important explanatory variable, the type of industry and directionof association is uncertain and appears to be driven by country-specific and/or exchange-specific factors. For example, in their study of the association of corporate governancevariables and voluntary disclosure, Ho and Wong (2001) report a positive association forthe control variable manufacturing industry. Conversely, Abdelsalem et al. (2004) report anegative association between being in the manufacturing industry and CIR. Examination ofthe bivariate correlations demonstrates that in our study, being in the manufacturing industryis positively associated with at least two of our dependent measures. Based on this analysis,we include manufacturing industry as a control variable in our models. Companies in the

10 PDF file format is coded as 0 on usability because this file format is the least flexible for users. For example,data contained in a PDF file is often impossible to copy and paste into a spreadsheet program for further analysis.HTML files are coded as 1, which is an improvement in usability over PDF files. Jones (2003) notes thatalthough HTML content takes longer to prepare, it is more flexible for companies and their end users. Companiescan take advantage of HTML’s ability to easily link related web pages, such as linking board committee chartersto sections of the proxy statement that highlight committee activities rather than just policies and procedures.Last, processable file formats such as Excel are coded as 2, which reflects the highest level of usability. Thisdata can be easily downloaded and further analyzed without having to copy and paste or otherwise transformthe data.



manufacturing industry (i.e., first-digit-SIC code 2 or 3) are coded as 1. Other companiesare coded as 0.11

Prior research also suggests an association between being in a technology-based in-dustry (Xiao et al. 2004; Debreceny et al. 2002) and level of CIR. In our study, level oftechnology is captured by the control variable high growth/intangibles. This variable wasintroduced into the CIR literature by Debreceny et al. (2002). These authors suggest thatcompanies with high-growth prospects and high intangibles arising from factors such astechnology, corporate strategy, and human resources will likely exhibit a high market-to-book-value ratio. Their study did not find an association between level of CIR disclosureand high growth/intangibles for a sub-sample of low-growth/intangible companies. How-ever, for a sub-sample of high-growth/intangible companies, they report a negative asso-ciation between growth prospects and intangibles and CIR. In the current study, high-growthprospects/ intangibles is measured by the natural logarithm of the ratio of market-to-book-value. Because our sample is not large enough to analyze along high- and low-growth lines,this control variable is measured utilizing a two-tailed test.12

Profitability has also been found to be a significant predictor of Internet disclosure (seeTable 1), although the direction of the association is unclear as the findings are mixed.Examination of the bivariate correlations in our study between ROA and the dependentmeasures reveals a correlation between ROA and at least one dependent measure,GCONTENT.

Based on this analysis and prior literature, we include size (natural logarithm of totalassets), profitability (Return of Assets [ROA]), and two measures of industry (manufacturingindustry versus other, and high growth/intangibles) as control variables.13 We use a one-tailed test for size and two-tailed tests for the other control variables.

Regression ModelsTo test our hypotheses, we perform ordinary least squares regression using rank

transformation.14

The model estimated for all four of our ordinary least squares regressions is (Equation(1)):

DV � � � � MAJORHOLDING � � DIRECTORHOLDINGi 1 2

� � INDEPENDENCE � � DUALROLE � � ANALYSTS � � MFG IND3 4 5 6

� � ROA � � TOT ASSETS � � MKTCAP BV � ε7 8 9

11 The major findings in CIR related to industry reveal associations with manufacturing, service, and technologyindustries. In the current study, the relatively small number of sample observations in the two latter categoriesprecludes valid statistical inference regarding these two industries. Prior studies in CIR, however, useMKTCAP BV (market capitalization to book value) to assess high growth and intangibles. Incorporating thisvariable in the current study captures the technology / service dimension incorporated in prior studies. Thus, ourstudy assesses industry via manufacturing versus nonmanufacturing, and additionally via high-tech /new econ-omy versus other.

12 We attempted to develop additional measures of intangible asset holdings such as investment in advertising andresearch and development. However, we were unable to obtain this information (as at the time of our study,disclosure of these items of information was not required within this institutional environment) for a significantnumber of our sample companies, thus precluding analysis on these proxies.

13 We performed sensitivity analysis to determine which measures of size and profitability to include in our reportedmodels. Total assets and ROA yielded the best-fitting models. We omit other variables such as leverage, whichare not consistently significant in prior literature.

14 Cooke (1998, 211–212) notes that, ‘‘In the case of disclosure studies, the dependent variable is a metric ratioand therefore can be legitimately transformed, where necessary, and used in regression analysis.’’



where:

DVi � percent of applicable comprehensiveness index items supplied/satisfied for each of four dependent measures;

MAJORHOLDING � percent of stock held by major shareholders (those owningmore than five percent of the company stock);

DIRECTORHOLDING � percent of stock held by directors;INDEPENDENCE � proportion of independent, nonexecutive to total directors;

DUALROLE � 1 if Chairman of Board is also CEO, 0 otherwise;ANALYSTS � number of analysts following a company;MFG IND � 1 if company in manufacturing industry, otherwise 0;

ROA � return on assets;TOT ASSETS � natural logarithm of total assets in U.S. dollars; andMKTCAP BV � natural logarithm of the ratio of market to book value.

V. RESULTSCIR Comprehensiveness Index—Descriptive Results

Descriptive statistics for the test and control variables are provided in Table 2. Ap-proximately one quarter of companies are in the manufacturing industry. Average (mean)company size, measured by total assets, is 26.1 billion U.S. dollars. ROA is on average3.83. The CEO also serves as Chairman of Board of Directors for approximately one-quarter of the companies. On average, about one-third of the companies’ stock is held bymajor shareholders, while directors own about six percent of the stock. On average, about40 percent of the members of the board of directors are independent (i.e., nonexecutive),and an average of 13 analysts follow each company.

Overall CIR comprehensiveness in each of the three areas assessed by the dependentvariables is summarized in Table 2. Accordingly, Panel A of Table 2 represents a scorecardof CIR comprehensiveness. COMPRE has a minimum of 44 percent and a maximum of 86percent, with a mean of 66 percent and a standard deviation of .088. This finding representsnotable improvement in comparison to Craven and Marston’s (1999) analysis of CIR byU.K.-domiciled companies. However, none of the sample companies provided/satisfied 100percent of the 143 index items applicable to that company, thereby highlighting the oppor-tunity for further improvement in CIR practices.

Some additional insight is achieved by examining scores for the dependent variables,focusing specifically on USABILITY and each of the two content categories. On average,the companies perform best on GCONTENT, where they provide 79 percent of the items.Companies fare somewhat worse on USABILITY where, on average, they satisfy 70 percentof the items. On average, companies score only 58 percent on CREDIBILITY. Furthermore,there is considerable variation for GCONTENT.

OLS Regression Robustness TestsFor the multivariate analyses, four regressions were estimated, one for each of the four

main dependent variables (COMPRE, GCONTENT, USABILITY, and CREDIBILITY). Ourfinal regression model includes nine independent variables (five test and four control vari-ables). Bivariate correlations between all variables, including the control variables, are pre-sented in Table 3 (Panel A). A review of the tolerance and variance inflation factor statistics



TABLE 2CIR Comprehensiveness Index Descriptive Statistics, n � 110

(Untransformed)

Panel A: Dependent Variables

Dependent Variables Min. Max. Mean Std. Dev.

COMPRE (143 items)Percent of relevant content and usability items provided

or satisfied

0.44 0.86 0.66 0.088

GCONTENT (19 items)Percent of relevant general content items provided

0.25 1.00 0.79 0.149

CREDIBILITY (55 items)Percent of relevant content items relating to credibility

provided

0.31 0.80 0.58 0.097

USABILITY (69 items)Percent of relevant usability items satisfied

0.53 0.89 0.70 0.094

Panel B: Independent Variables

Categorical Variables Frequency Percent

DUALROLE 29 26.4MFG IND (control) 25 22.7

Continuous Variables Min. Max. Mean (Std. Dev.)

MAJORHOLDING 0 92.44 30.77 (19.79)DIRECTORHOLDING 0 60 5.69 (11.19)INDEPENDENCE 0 92.30 42.67 (19.04)ANALYSTS 0 49 13.28 (9.66)ROA (control) �32.04 32.76 3.83 (7.38)TOT ASSETS (in millions) (control) 11.724 1,030,000 26,152 (108,074)MKTCAP BV (control) �12.14a 130.25 3.61 (12.72)

a MKTCAP BV is negative for companies with negative book value.

provides no evidence of pro significant multicollinearity in the regression model (Table 3,Panel B).15

Prior to estimating the OLS regression models, we performed regression diagnostics todetermine if the assumptions of normality and equal variances were met for all dependentvariables. Diagnostics included Q-Q normality plots, examination of histograms of alldependent variables, scatter plots of residuals against the predicted values, and theKolmogorov-Smirnov Z-test with Lilliefors correction for each independent and dependentvariable. The Kolmogorov-Smirnov Z-test with Lilliefors correction for each independentand dependent variable indicated that some of the corporate governance independent vari-ables are not normally distributed; thus, following Cheng et al. (1992); Lang and Lundholm

15 According to Neter et al. (1989, 409), variance inflation factors (VIF) above 10 indicate serious multicollinearityand ‘‘result, on the average, in larger differences between the estimated and true standardized regression coef-ficients.’’ Such multicollinearity is problematic because it leads to unstable coefficients. The highest VIF in ourmodels is 2.524. Additionally, we examine the tolerance levels to determine whether they are acceptable. Tol-erance levels are all above .20, and are thus acceptable.

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TABLE 3Pearson Correlations and Collinearity Diagnostics for Dependent and Independent Variablesa

Panel A: Correlations

1 2 3 4 5 6 7 8 9 10 11 12 13

1 COMPRE 12 GCONTENT .785b 13 USABILITY .874 .609 14 CREDIBILITY .823 .575 .505 15 DUALROLE �.123 .026 �.071 �.230 16 MFG IND .246 .273 .201 .174 .020 17 INDEPENDENCE .429 .414 .323 .359 �.069 .133 18 DIRECTORHOLDING �.446 �.389 �.351 �.384 .276 �.093 �.391 19 MAJORHOLDING �.193 �.266 �.150 �.136 �.058 �.130 �.223 .096 1

10 ANALYSTS .514 .399 .449 .424 .012 .225 .413 �.349 �.267 111 ROA �.132 �.225 �.083 �.109 �.144 .075 �.135 .216 .270 �.099 112 TOT ASSETS .469 .417 .342 .438 �.003 .078 .372 �.533 �.428 .622 �.333 113 MKTCAP BV �.037 �.099 �.090 .043 .181 .231 �.023 .075 �.059 .059 .10 �.079 1

Panel B: Collinearity Diagnostics

Variable Tolerance VIF

MAJORHOLDING .906 1.345DIRECTORHOLDING .738 1.762INDEPENDENCE .750 1.359DUAL ROLE .902 1.204ANALYSTS .726 1.887MFG IND .943 1.137ROA .796 1.257TOT ASSETS .396 2.524MKTCAP BV .890 1.124

a Correlation matrix and collinearity diagnostics are performed on transformed variables (e.g., ranks).b Bold indicates coefficient is significant at .05, two-tailed.



(1993, 1996); Wallace and Naser (1995); and Cooke (1998), the continuous independentand dependent variables were transformed into ranks before running the regression analy-sis.16 We also computed normal score transformations as a supplemental analysis.17

We also investigated whether analyst following should be modelled as an endogenousvariable. If ANALYSTS is endogenous (i.e., correlated with the error term �) in Equation(1), ordinary least squares (OLS) will not provide consistent parameter estimates. A com-mon approach to test for endogeneity is to perform the Hausman (1978) test. Specifically,we regress each of our dependent measures on the residuals of a first-stage regression,along with the exogenous variables. The coefficient on the residual was not statisticallysignificant from zero, thus failing to reject the null hypothesis of exogeneity; therefore, weconclude that analyst following is not endogenous to any of our measures of CIR.

Full OLS Regression ModelThe OLS regression results for all models are shown in Table 4, utilizing both normal

scores regression and rank regression. All four regression models are significant at p � .000using both normal scores regression and rank regression. Unless otherwise noted, the fol-lowing discussion refers to the rank-regression results.

Hypothesis 1 predicts that ownership structure is significantly associated with CIRcomprehensiveness, as well as the general content, credibility, and usability of informationreported on corporate websites. With respect to major shareholding (H1a) for all four de-pendent variables, we cannot reject the null. Thus, we find no evidence that level of CIRdisclosure is associated with major shareholding for London-listed companies.

For hypothesis 1, however, we find a significant negative association between directorholding (H1b) and CIR comprehensiveness (p � .083), general content (p � .039), andusability (p � .079). We do not find a significant association between director holding andcredibility. Our findings are thus consistent with those of Eng and Mak (2003) and Ghazaliand Weetman (2006). Both of these studies indicate that, within the context of smaller,emerging markets, director ownership is significantly negatively associated with the levelof voluntary disclosure. Our findings extend this association to a larger, highly developedmarket and, specifically, to an important subset of voluntary disclosure—CIR.

Hypothesis 2 predicts that CIR is significantly associated with the governance featuresof director independence and CEO duality. With regard to director independence (H2a), asignificant positive association is supported for CIR comprehensiveness (p � .069) andgeneral content (p � .025). This finding is consistent with Adams and Hossain (1998)and Chen and Jaggi (2000), as both studies support a complementary relationship betweenthe proportion of independent, nonexecutive directors on the board and the level of vol-untary disclosure. We, however, find no evidence of a significant difference between director

16 Rank transformation is useful in some cases because it yields distribution-free data (Cheng et al. 1992; Wallaceet al 1994); is insensitive to outliers (Gray et al. 1998; Cheng et al. 1992); provides results similar to thosederived from ordinal transformation; mitigates the impact of measurement errors, outliers and residual hetero-scedasticity on regression results; and is useful when the relationship between the dependent and independentvariables is not strictly linear and there is no theoretical basis for suggesting a relationship between the dependentand independent variables (Cooke 1998).

17 Both normal scores and rank transformation are acceptable approaches to dealing with nonnormal or hetero-scedastic data. Cooke (1998, 214) notes that, ‘‘In effect, the ranks are being substituted by scores on the normaldistribution and so the normal scores approach may be considered to represent an extension of the rank method.’’The two analyses typically yield similar results.

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TABLE 4Determinants of CIR Comprehensiveness

Results of OLS Regression, Full and Reduced Models, n � 110

Full Model Reduced ModelNormal Scores Ranks Normal Scores Ranks

PredictedSign*

CoefficientEstimate p-value




Panel A: Dependent Variable—COMPRE

Intercept �.025 .802 34.296 .025 .007 .940 41.318 .000MAJORHOLDING (H1a) � .015 .430 .008 .463 �.004 .478 �.028 .367DIRECTORHOLDING (H1b) � �.186 .032 �.143 .083 �.240 .003 �.223 .008INDEPENDENCE (H2a) � .134 .068 .136 .069 .172 .025 .169 .030DUALROLE (H2b) � �.159 .185 �5.380 .188 �.179 .150 �4.675 .212ANALYSTS (H3) � .344 .001 .326 .002 .317 .0005 .332 .000MFG IND (Control) � /� .331 .078 11.344 .069 .255 .16 9.130 .131ROA (Control) � /� �.032 .698 �.028 .750 — — — —TOT ASSETS (Control) � .064 .298 .129 .146 — — — —MKTCAP BV (Control) � /� �.104 .199 �.064 .439 — — — —Adjusted R2 .350 .358 .337 .347F-Ratio 7.345

(.000)7.561(.000)

10.162(.000)

10.570(.000)


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TABLE 4 (continued)

Panel B: Dependent Variable—GCONTENT

Intercept �.139 .186 57.911 .000 �.105 .311 51.741 .000MAJORHOLDING (H1a) � �.071 .223 �.090 .171 �.090 .147 �.123 .075DIRECTORHOLDING (H1b) � �.179 .048 �.192 .039 �.214 .011 �.244 .006INDEPENDENCE (H2a) � .189 .025 .191 .025 .198 .018 .202 .017DUALROLE (H2b) � .132 .242 6.581 .153 .101 .293 6.551 .144ANALYSTS (H3) � .168 .070 .147 .099 .151 .057 .157 .05MFG IND (Control) � /� .199 .020 16.322 .014 .355 .069 12.494 .05ROA (Control) � /� �.108 .225 �.091 .320 — — — —TOT ASSETS (Control) � �.005 .484 .049 .353 — — — —MKTCAP BV (Control) � /� �.188 .032 �.152 .085 — — — —Adjusted R2 .256 .290 .228 .278F-Ratio 5.051

(.000)5.819(.000)

6.304(.000)

7.934(.000)


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TABLE 4 (continued)

Full Model Reduced ModelNormal Scores Ranks Normal Scores Ranks

PredictedSign*





Panel C: Dependent Variable—USABILITY

Intercept �.029 .784 49.420 .004 �.008 .938 41.471 .001MAJORHOLDING (H1a) � �.017 .429 �.026 .395 �.012 .447 �.008 .466DIRECTORHOLDING (H1b) � �.177 .054 �.160 .079 �.195 .021 �.170 .044INDEPENDENCE (H2a) � .056 .283 .084 .202 .072 .225 .095 .168DUALROLE (H2b) � �.006 .488 �1.001 .441 �.044 .409 �2.295 .361ANALYSTS (H3) � .375 .001 .375 .001 .332 .0005 .328 .0005MFG IND (Control) � /� .227 .269 8.741 .202 .166 .402 7.020 .288ROA (Control) � /� �.022 .813 .000 .996 — — — —TOT ASSETS (Control) � �.014 .459 �.030 .413 — — — —MKTCAP BV (Control) � /� �.157 .080 �.151 .099 — — — —Adjusted R2 .226 .226 .210 .214F-Ratio 4.430

(.000)4.443(.000)

5.797(.000)

5.896(.000)


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TABLE 4 (continued)

Panel D: Dependent Variable—CREDIBILITY

Intercept .033 .749 19.187 .229 .064 .534 42.963 .000MAJORHOLDING (H1a) � .075 .208 .084 .184 .024 .390 �.005 .479DIRECTORHOLDING (H1b) � �.092 .191 �.015 .443 �.189 .022 �.153 .058INDEPENDENCE (H2a) � .124 .094 .099 .152 .189 .023 .141 .072DUALROLE (H2b) � �.372 .024 �17.069 .004 �.351 .030 �13.822 .015ANALYSTS (H3) � .237 .018 .229 .023 .234 .008 .297 .0015MFG IND (Control) � /� .271 .169 6.859 .293 .209 .280 5.368 .405ROA (Control) � /� �.029 .739 �.051 .573 — — — —TOT ASSETS (Control) � .172 .091 .277 .017 — — — —MKTCAP BV (Control) � /� .026 .761 .084 .335 — — — —Adjusted R2 .253 .283 .242 .251F-Ratio 4.999

(.000)5.656(.000)

6.757(.000)

7.038(.000)

* The p-values are one-tailed when a sign expectation is provided.Model: DVi � � �1MAJORHOLDING � �2DIRECTORHOLDING � �3INDEPENDENCE � �4DUALROLE � �5 ANALYSTS � �6MFG IND � �7ROA�

� �8TOT ASSETS � �9 MKTCAP BV � ε.Variable Definitions:

DVi � percent of applicable comprehensiveness index items supplied / satisfied for each of four dependent measures;MAJORHOLDING � percent of stock held by major shareholders;

DIRECTORHOLDING � percent of stock held by directors;INDEPENDENCE � percent of stock held by outsiders;

DUALROLE � 1 if Chairman of the Board is also the CEO;ANALYSTS � number of analysts following a company;MFG IND � 1 if company in manufacturing industry; else 0;

ROA � net income/ total assets;TOT ASSETS � natural logarithm of total assets in U.S. dollars; andMKTCAP BV � natural logarithm of the ratio of market to book value.



independence and usability or credibility. This finding confirms that prior research shoulddisaggregate the dimensions of CIR.

A significant negative association with dual role (H2b) is supported only for the cred-ibility model (p � .004). Interestingly, while the dual role variable is insignificant in theother three models, it is highly significant in the credibility model. This finding is consistentwith Gul and Leung’s (2004) results indicating that duality is associated with lower vol-untary disclosure. Again, we extend prior findings regarding director independence anddual role to hold for a large, developed market and specifically to CIR, and furthermoreprovide support for the argument that research should disaggregate the dimensions ofCIR.

Our findings provide evidence supporting hypothesis 3 for all four models. Specifically,we find a significant positive association between the number of analysts following thecompany and CIR comprehensiveness (p � .002), general content (p � .099), usability (p� .001), and credibility (p � .023). Hence, our findings are consistent with prior researchproviding evidence that the number of analysts following a company is positively associatedwith the level of disclosure (Hope 2003; Cahan et al. 2005), and we extend this finding tohold in particular for CIR. Given the prohibition on selective disclosure, this finding is ofparticular relevance within the institutional setting of the London Exchange.

As a form of sensitivity analysis, results utilizing normal scores regression are alsoreported in Table 4. As noted above, the findings are highly similar, with one exception.Using normal scores, we additionally provide marginal evidence of a positive associationbetween CIR credibility and director independence (p � .094). Additionally, utilizing nor-mal scores regression, the association between director holding and CIR comprehensivenessand CIR usability is significant at p � .05 as opposed to p � .10.

For our control variables, contrary to Abdelsalam et al. (2004), we find evidence of apositive association between CIR and being in the manufacturing industry. Both normalregression scores and rank regression scores yield a positive and significant association forCIR comprehensiveness (p � .078 and .069, respectively) and general content (p � .020and .014, respectively) and manufacturing industry. Profitability (ROA) is not significant inany model. Both the normal scores regression and rank scores regression provide evidenceof a positive association between size (total assets) and CIR credibility (p � .091 and .017,respectively).

We also find a negative significant relationship between high growth/intangibles andCIR. Using both normal scores regression and rank regression, the association is significantfor general content (p � .032 and .085, respectively) and usability (p � .080 and .099,respectively). This indicates that high-growth/intangibles companies perform lower on thesedimensions, while low-growth/intangibles companies perform better. Thus, consistent withDebreceny et al. (2002), we provide additional evidence that the volatile environment ofhigh growth/intangibles companies contributes to lower performance in CIR.

As a final sensitivity test, we investigate whether the results hold for both U.K. andnon-U.K.-domiciled firms. First, we split the sample between U.K. (n � 80) and non-U.K.-domiciled (n � 30) firms and re-ran all regressions. While the U.K.-domiciled sampleretains statistical power and integrity, the small sample size for the non-U.K.-domiciledfirms leads to an over-fitted model without statistical integrity. This is evidenced by thefact that the adjusted R2s drop sharply in this sub-sample in all regressions. Similar resultsare obtained for all other variations in our models. Second, we added an indicator variable(1 � U.K.-domiciled, 0 � non-U.K.-domiciled) to further test whether country of domicile



appeared to be a significant variable. This variable was insignificant in all variations of ourmodels. Thus, we find no evidence of a domicile effect.18

Supplemental Analysis—Reduced OLS Regression ModelWe also report a reduced model based on the variables found to be significant in the

full regression model, as well as additional variables we selected based on evidence fromthe correlation matrix. This method is utilized by Haniffa and Cooke (2002) in their studyof corporate governance and voluntary disclosure, and is described in more detail in Pindyckand Rubinfeld (1981, 117–120). The reduced regression model contains all of the five testvariables in the full model and the manufacturing industry control variable, which wassignificant in two of the four regression models. We do not include the size variable in thereduced regression, as it is only significant in one of the four full-model regressions(CREDIBILITY). Additionally, although the variance inflation factors do not approach theproblematic range, the size variable does have the highest variance inflation factor (2.524)and lowest tolerance (.396). The correlation matrix reveals that size is correlated at .622with analyst following; therefore, we estimate the reduced models without the size variable.As expected, without the size variable, analyst following becomes even more significant.Profitability was also dropped from the reduced model, as it was not significant in any ofthe full models.

The reduced model regressions are all significant (p � .000), with F-ratios and adjustedR2s ranging from 10.570 and .347 for COMPRE to 5.656 and .283 for USABILITY. Theresults are similar to the full model, and as in the full model, results across independentvariables are similar for the normal scores regression and the rank scores. We highlight oneexception—our reduced model provides some evidence supporting H1a. Using our fullmodel, we did not find evidence of an association between major holding and CIR for anyof the four models; however, in our reduced model, major holding is marginally significantfor the general content model in the rank regression (p � .075). Thus, we find someevidence that ownership dispersion is positively associated with CIR general content. Inline with the full model, however, major holding is again insignificant using normal scoresregression.

VI. DISCUSSIONThe findings reveal that despite recent regulatory pressure in the U.K. to enhance, inter

alia, the timeliness of information dissemination, London-listed companies still have sig-nificant deficiencies in CIR and are not heeding Jones’ (2002) advice for enhancing thequality of their investor communication and the completeness of their CIR. Cognizant ofthe limitations of today’s financial reporting, major international organizations includingthe EC and IFAC have expressed concerns and issued recommendations in regard to bothhard copy and CIR reporting. For example, in Directive 2004/109/EC, the European Par-liament addresses the transparency of information disclosed to investors, noting:

The disclosure of accurate, comprehensive and timely information about security issuers buildssustained investor confidence and allows an informed assessment of their business performanceand assets. This enhances both investor protection and market efficiency. (European Union 2004,38) (emphasis added)

18 As a form of sensitivity analysis, we devoted substantial effort to collect the variable ‘‘number of shareholders.’’However, this information was only available for 61 sample companies. We reran our full model for these 61companies and added the variable number of shareholders. Number of shareholders was not significant at p� .10 for any of the four dependent variables. Therefore, we conclude there is very little evidence to supportan association between ownership diffusion and CIR (H1a) within the context of the London Exchange.



Our study reveals that many companies listed on the EU’s largest exchange are fallingshort of Parliament’s expectations in regard to comprehensiveness, including its timelinessdimension.

IFAC (2003) notes that globalization of markets continues to be a major factor bothfor goods and services and for the provision of capital needs. Securities offerings are nolonger limited to an entity’s home country, but are frequently offered in multiple jurisdic-tions. One of the most critical issues raised in IFAC’s strategic plan is the need to enhancethe credibility of financial reporting worldwide (Colman 2004). Focusing specifically onCIR, IFAC (2003) recommends that companies develop a policy to address, among otherthings, how to differentiate audited and nonaudited financial information and the frequencyof updating financial information. Our study provides several examples of poor CIR per-formance for London-listed companies in these key areas highlighted by IFAC.

Our research reveals that many London-listed companies are ignoring the views ofIFAC, the EC, and U.K. Financial Services authorities and have a long way to go withrespect to enhancing both their online usability and credibility disclosures. Specifically,many London-listed companies clearly have not implemented policies to ensure that thedrivers of quality investor communication (i.e., comprehensiveness, usability, andverifiability/credibility) are incorporated in their CIR reporting. Thus, our findings mayprompt U.K. regulators to specify the means by which London-listed companies are todisclose transparent, credible information. For example, the U.K. government is proposingthat Company Law be modified to further promote timely reporting by requiring companiesto make their financial results available online within four months of the reporting date(DTI 2002). Thus, our findings indicate that U.K.-listed companies must more seriouslyconsider widespread impressions regarding the low credibility of financial reporting andtake voluntary action to enhance the credibility of hard copy financial information and theinformation reported on their corporate websites. Alternatively, more regulation may beforthcoming.

While Directive 2004/109/EC spells out requirements for improving the quality ofonline disclosures, there are no apparent requirements for the disclosure of corporate gov-ernance information. In contrast, the Securities and Exchange Commission (SEC) requiressignificant corporate governance disclosures for U.S. companies listed on the New YorkStock Exchange (NYSE) or National Association of Securities Dealers Automated Quota-tions (NASDAQ). For example, a U.S. company listed on one of these exchanges mustdisclose whether it has adopted a code of ethics for its principle officers. Furthermore, anysuch code must be made publicly available on the company’s website. Additionally, U.S.companies listed on the NYSE or NASDAQ are required to post corporate governanceguidelines and charters for the most important board of director committees (e.g., auditcommittee, compensation committee, and nominating/corporate governance committees)online (Matheson and Reynolds 2004). Our research, therefore, reveals that London-listedcompanies have room for improvement with regard to improving their online credibilitydisclosures, such as timeliness and corporate governance requirements, if they are to achievea level of online disclosure comparable to that required of U.S. companies listed on theNYSE or NASDAQ. Regulation may be necessary to achieve this goal.

We find that in this new regulatory environment, both analyst following and corporategovernance disclosures are associated with CIR. After controlling for size, profitability, andindustry assessed via both manufacturing versus other industries and high growth/intangi-bles, we find the CIR comprehensiveness of London-listed companies is associated with



analyst following, director holding, director independence, and CEO duality. By disaggre-gating total CIR disclosure into three components, we are able to also specify the com-ponents of CIR impacted by various determinants.

VII. CONCLUSIONThis study provides practical insight into the comprehensiveness of disclosures by

London-listed companies and highlights the need for improvement in CIR comprehensive-ness in many areas, including credibility and usability. We additionally extend the emergingliterature linking governance factors and voluntary disclosure to specifically address CIRdisclosure within the institutional environment of a large, highly developed market—theLondon Exchange. Prior work in this area has focused on voluntary disclosure in general,and the samples have been pulled from smaller, primarily developing, markets.

Our findings suggest that the EU should consider requiring, as opposed to simplyrecommending, the disclosure of credible, timely information via the Internet and otheroutlets. Furthermore, the U.K. Financial Services Authority should consider additional ac-tion to enhance not only the timeliness but other components of the credibility of financialand other information disclosed to investors.

Our research suffers from some limitations. The sample of 110 companies was selectedrandomly from the top quartile of companies listed on the London Stock Exchange websitebecause the time required to hand-collect data for the dependent variable made study of alarger, more diverse sample impracticable. Accordingly, the results may not generalize tosmaller companies listed on the exchange; however, one would expect companies from thetop quartile of the London Exchange to be the most receptive to regulatory pressure fromU.K. and EU sources and to therefore be among the top CIR performers within this insti-tutional environment. For many of the sample companies, data were not available for certainvariables that might have proven interesting, such as number of shareholders and researchand development expenditures. Additionally, while our study captures both manufacturingversus other, as well as high-technology influences, the relatively small number of obser-vations from certain industries precludes testing for a finer industry effect.

Despite these limitations, the current study provides a contribution to understandingdisclosures of companies traded on the London Stock Exchange, and is especially relevantgiven recent changes in the institutional environment in which London-listed companiesoperate. As the information age is evolving daily, CIR is an important area of study. Themore we know about why and how companies disclose information on their websites, theless agency and information transfer costs investors and other users will bear. Our studyprovides a springboard for future research in the area of CIR.

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APPENDIXSample Companies, n � 110

Panel A: Sample Companies and Country of Domicile

Company NameCountry of

Domicile Company NameCountry of

Domicile Company NameCountry of

Domicile

Total S.ALilly(Eli) & CoLukoil OAOBASF AGCaterpillar IncCentricaKoninklijke KPN NVMorrison (Wm.) SupermarketsAEGON NVINCOAlliance UnichemHammersonEMAPBurberry GroupRank GroupPersimmonCobhamBBA GroupLiberty GroupMeggittMFI Furniture GroupPremier FarnellAtkins (WS)OTECosmote MobileVT GroupCrest Nicholson

FranceU.S.A.RussiaGermanyU.S.A.U.K.NetherlandsU.K.NetherlandsCanadaU.K.U.K.U.K.U.K.U.K.U.K.U.K.U.K.South AfricaU.K.U.K.U.K.U.K.GreeceGreeceU.K.U.K.

TBIShaftesburyCandover InvestmentsRegal PetroleumNorthgate InformationWhatmanSecurities Trust of ScotlandKier GroupEnterpriseUnite GroupSOCO InternationalCox Insurance HldgsMucklow (A.& J) GroupBloomsbury PublishingAutonomy CorpITE GroupTed BakerSSICountryside PropertiesHSBC HldgsNTT Docomo IncSchlumbergerBHP Billiton Limited

Electrolux ABBritish Sky Broadcasting GroupCadbury Schweppes

U.K.U.K.U.K.U.K.U.K.U.K.U.K.U.K.U.K.U.K.U.K.U.K.U.K.U.K.U.K.U.K.U.K.U.K.IndiaU.K.U.K.JapanNetherland

AntillesAustraliaSwedenU.K.

TPG NVWolseleyXstrata PLCDaiwa Securities GroupTorchmark CorpEsprit HldgsAMVESCAPRoyal Sun & AllianceTomkinsTate & LyleKesa ElectricalsSKFIndependent News & MediaPennon Group

HMV GroupMatalanRIT Capital PartnersKonami CorpNorthumbrian Water Group

PLCBenfield GroupEspirito Santo Financial GroupHiscoxGreat Portland EstatesWestburyJurys Doyle Hotel Group

U.K.NetherlandsU.K.U.K.JapanU.S.A.BermudaU.K.U.K.U.K.U.K.U.K.SwedenRepublic of

IrelandU.K.U.K.U.K.U.K.Japan

U.K.BermudaLuxembourgU.K.U.K.U.K.


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APPENDIX (continued)

Orascom ConstructionsIndustry

Second Alliance TrustYule Catto & CoMerrill Lynch European

InvestScottish Radio HldgsAfrican Rainbow MineralsPipex CommunicationsSpeedy HireRobert Wiseman DairiesLondon Scottish Bank

Republic ofIreland

EgyptU.K.U.K.

U.K.U.K.South AfricaU.K.U.K.U.K.

AmstradAvivaSabmillerITVOld MutualCable & WirelessFriends ProvidentKeldaBPBBank HapolalimSignet

U.K.U.K.U.K.U.K.U.K.U.K.U.K.U.K.U.K.IsraelU.K.

Dairy FarmBradford & BingleyUnited Business MediaInvensysSomerfieldWood GroupAvis-EuropeStanley LeisureAcambisHouse of FrasersMelrose

U.K.BermudaU.K.U.K.U.K.U.K.U.K.U.K.U.K.U.K.U.K.

Panel B: Frequency Counts of Country of Domicile

CountryNumber of Companies

Domiciled

U.K. 80U.S.A. 3Netherlands, Japan, Bermuda 3 eachSouth Africa, Greece, Sweden, Republic of Ireland 2 eachFrance, Russia, Germany, Canada, India, Netherlands

Antilles, Australia, Luxemburg, Egypt, Israel1 each



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abdelsalam bryant& smith (2007)an examination of the comprehensiveness of corporate internet...

Documents

credibility of information

sample companies

cir disclosure practices

londonlisted companies

disclosure objective

corporate websites

londonlisted companiesomneya

forms of selective disclosure