corporate governance turkey

8/7/2019 Corporate governance Turkey

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Critical Perspectives on Accounting 20 (2009) 635650

An analysis of the companies compliance withthe EU disclosure requirements and corporate

characteristics influencing it:A case study of Turkey

Turgut Curuk

University of Cukurova, Adana, Turkey

Received 19 March 2006; received in revised form 14 February 2007; accepted 11 May 2007

Abstract

One of the factors shaping accounting disclosure of countries in Europe is the EU Fourth Directive

(EUFD) which addresses individual company accounts. The EUFD has been claimed to have had an

impact on accounting, including accounting disclosure, of not only the EU countries but also non-EU

member European countries. Turkey is one of the non-EU member European countries claimed to beinfluenced by the EUFD and this study examined Turkish companies level of compliance with the

disclosure requirements of the EUFD over the years (1986, 1987, 1991, 1992 and 1995), and assessed

whether companies level of compliance had been influenced by their corporate characteristics, such

as company size, listing status and industry type.

Turkish companies level of compliance with the disclosure requirements of the EUFD was mea-

sured by an index (i.e. EUFD Disclosure Compliance IndexEUFDCDI). The index was developed

by; constructing disclosure scoring sheet; obtaining annual reports of 61 sampled Turkish companies

over the years; completing scoring sheet for each companies annual report; and creating disclosure

index. The index (EUFDCDI) scores was, than, analysed for each year to assess the companies

compliance with the EU disclosure requirements and both parametric and non-parametric test, were

conducted to determine if there were significant changes in the extent of disclosure in compliance with

the EUFD over the years. Furthermore, using the companies EUFDCDI score as dependent variable

and corporate characteristics as independent variables, the Ordinary Least Square regression was runfor each year to find out if the companies level of compliance with the EU disclosure requirements

were influenced by their corporate characteristics.

E-mail address: [email protected].

1045-2354/$ see front matter 2008 Elsevier Ltd. All rights reserved.

doi:10.1016/j.cpa.2007.05.003
mailto:[email protected]://dx.doi.org/10.1016/j.cpa.2007.05.003http://dx.doi.org/10.1016/j.cpa.2007.05.003mailto:[email protected]


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636 T. C ur uk / Critical Perspectives on Accounting 20 (2009) 635650

The results of this study revealed that Turkish companies compliance with the required disclosure

by the EUFD varied within the range of 3085%, but their compliance increased significantly from

one year to another throughout the selected period. The results further revealed that listing status isone of the important corporate characteristics of the Turkish companies affecting their compliance

with the EU disclosure requirements.

2008 Elsevier Ltd. All rights reserved.

Keywords: Turkish companies; Disclosure; EU Directive; Compliance; Ordinary Least Square

1. Introduction

Past studies have recognised that accounting disclosure requirements and practices do

not develop in a vacuum but are shaped by a number of influences (see, for example,

Adhikari and Tondkar, 1992; Choi and Mueller, 1992). Looking at disclosure from the

macro perspective, environment determinism theory (EDT) suggests that both internal and

external (or international) environmental factors are important factors affecting accounting

disclosure in a country.

Despite the view that the accounting system in a country should be country-specific,

i.e. should reflect environmental factors inherent in the country (Briston, 1978), there is

evidence in the EDT based literature which suggests that accounting, including disclosure,

in developing countries is likely to be influenced more by external factors (see, for example,

Cooke and Wallace, 1990).

International harmonisation efforts are amongst the suggested important external envi-

ronmental factors. Oneof the primary generators of such efforts is the EuropeanUnion (EU).

Accounting directives issued by the EU, particularly the EU Fourth Directive (EUFD), havebeen claimed to have had an impact not only on the EU member countries, but also on non-

EU member European countries (see for example Tay, 1989; Van Hulle, 1992; Alexander

and Archer, 1992). Suggested reasons for the influence of EU directives on non-EU member

European countries include such countries desire to join the EU and their close economic

and trade relationship with the EU.

On the basis of the above arguments, it may be possible to hypothesise that harmonisation

efforts by the EU are amongst the important external environmental factors that are likely

to have had an influence on accounting, including disclosure requirements and practices,

in a country like Turkey: a non-EU member European country which is a candidate to

join the EU and has a close economic and trade relationship with EU member countries.

Indeed, recent study by Curuk (2001a) indicated that accounting disclosure requirementsand practices of Turkey was influenced by the EU requirements, particularly the Fourth

Directives.

If the EU requirements have had an impact on the accounting disclosure practices in

Turkey, one should observe that Turkish companies must have been complying with the

EU disclosure requirements, particularly there must, at least, have been moves by Turkish

companies towards compliance with the EU disclosure requirements over the years. As the-

oretical arguments based on disclosure theories, (i.e. Agency Theory and Political Process

Theory) suggest and empirical studies in the literature indicate that companies extend of


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T. C uruk / Critical Perspectives on Accounting 20 (2009) 635650 637

disclosure may vary on the basis of their corporate characteristics, it may also be possible

that the Turkish companies compliance with the EU disclosure requirements have been

influenced by their corporate characteristics.This study, therefore, examines Turkish companies extent of disclosure in compliance

with the EU requirements over a period to find out:

1. whether companies had been complying with and there had been moves towards com-

pliance with the EU disclosure requirements over the years;

2. whether the companies level of compliance with the EU disclosure requirements had

been influenced by their corporate characteristics, such as company size, listing status

and industry type.

Theoretical arguments and review of literature related with the main concerns of the

study are presented below. Research methodology employed in this study together with the

analysis of research data and conclusion drown are provided in the following sections.

2. Theoretical arguments and literature review

Factors such as the development of international business on a global scale and inter-

nalisation of the capital markets are exerting pressure on countries for the adoption of a

more international accounting perspective. According to Adhikari and Tondkar (1992, p.

76) nowhere is this trend more manifest than in the effort currently underway to harmonise

accounting disclosure and reporting regulation.

Particularly over the last three decades, much effort has been devoted to harmonise

corporate financial reporting on a regional and international level. One of the primary

generators of international accounting harmonisation efforts within Europe has been theEU (Roberts et al., 1996).

The EU, which has been described as the most powerful source of change towards

harmonisation among leading countries in world accounting (Nobes and Parker, 1995, p.

140), has been active in achieving regional harmonisation of accounting principles through

a series of directives. The Fourth and Seventh Directives have been considered as the most

important EU directives affecting accounting in Europe (see Roberts et al., 1996).

As the EU member states are obliged to transpose the provisions of the directives into

national laws and the Fourth and Seventh Directives have already been implemented in the

national laws of all member states (Hopwood, 1994), these directives have had an impact

on, to a certain extent, accounting and financial reporting in member states. Addressing the

impact of the Fourth Directive, Tay (1989, p. 206) noted that given the diversity of finan-cial reporting practice in the EC member states, different aspects of the requirements of the

Directive have affected financial reporting in Member States in different ways. According

to Alexander and Archer (1992, p. 140) the achievements of the Fourth and Seventh Direc-

tives within the EC have been real, but more successful at the presentation level than at the

content, valuation and attitudinal level. However, a review of some of the empirical studies

that attempted to assess the impact of the FD on the harmonisation of accounting standards

and practices in the Europe (see, Surveys by Federation des Experts Comptables Europeens

(FEE) 1989 and 1991; Tay, 1989; Emenyonu and Gray, 1992; Walton, 1992; Herrmann and


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Thomas, 1995) do not provide conclusive evidence regarding the effectiveness of the FD.

The FEEs (1989) survey, which indicated a fairly high level of harmonisation in those areas

covered by the FD within the EU after the FD was implemented, and the study by Waltonwho found a lack of harmonisation in the application of the FD between and within the two

EU member states, exemplify the extremes of the mixed results of the reviewed studies on

harmonisation in the EU.

Even though EU harmonisation is of major concern for member countries, there are

arguments that the EU directives, particularly the Fourth Directive, also have had/will have

an impact on the accounting regulations and practices of non-EU member European coun-

tries. A number of explanations are proffered as to why and how. First, as pointed out

by Tay (1989, p. 215) the discussion among member states over alternative methods of

financial reporting, and the solutions chosen and formulated in the adopted directive, will

influence the thinking of legislators in other countries. The second explanation is related

to the non-EU member European countries close trade and economic relationship with the

EU. In this respect Tay (1989, p. 215) noted that the community trades with its European

neighbours and invests in their companies, so that eventual harmonisation with them will

be as logical as harmonisation within the Community, for the same reasons. Switzerland

is one of the non-EU member European countries that has had a close economic and trade

relationship with the EU. Raffournier (1995), who reviewed accounting and its environment

in Switzerland, pointed out that:

Switzerland. . . largely dependent on the EU because 72% of its imports and 58% of

its exports are with the EU member states. In the field of accounting, a consequence

of this influence is that more and more companies draw up their financial statements

in accordance with the Fourth and Seventh Directives (p. 1250).

Similarly, Adams and McMillan (1997), who examined accounting in Poland, claimedthat there has been a direct influence of the EU directives on the post-communist accounting

regulations, demonstrating the influence of political and economic ties.

Another explanation put forward by Wallace (1990, p. 7) is the bandwagon effect: this

refers to those countries that have no historical and economic reason to be led, but decide

to follow the lead of a group of countries.1

The fourth, and probably the most important, explanation is the non-EU member

European countries desire and attempt to join the EU and accordingly such countries

preparation for eventual membership of the EU (Nobes and Parker, 1995, p. 137). Accord-

ingto Alexander and Archer (1992, preface), European countriesoutside the EC and hoping

to join it or to enjoy a number of benefits of membership are already aligning changes in

their accounting rules with the EC requirements. One of the most important signs that sup-ports this argument is the existence of indications regarding the impact of the EU directives,

particularly the FD, on accounting in EU member states prior to their accession to the EU

(see for example Tay, 1989; Lukas, 1992; Nasi, 1992).

For instance, according to Tay (1989, p. 215) Spain and Portugal had taken into account

the provisions of the Directive [FD] when updating their accounting rules, prior to their

1 Wallace (1990, p. 7) argues that one such effect is the possibility of the 4th and 7th Directives influencing a

change in the financial reporting of non-EEC countries in Europe.


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accession to the EU. Similarly, among the three relatively new members of the EU, Austria

in 1990 (long before it became a member of the EU) enacted an accounting regulation

(Rechnungslegungsgesetz) which conforms in principle to EU Directives (Lukas, 1992);and Finland in its accounting reform in 1990 also took into account the EUs Fourth and

Seventh Directives (Nasi, 1992). In a pilot study, Boross et al. (1995) found the move to

EU membership to be the second most important factor to have influenced the shaping of

the new Accounting Law in Hungary, enacted in 1991. Regarding the Polish case, there

are also arguments that accountancy law enacted in Poland in 1990s was modelled on the

EU directive, due mainly to the Polish governments desire to join the EU (see, Adams and

McMillan, 1997). On the other hand, FEE (1991) survey provided an overall indication

regarding the influence of the FD on accounting practices in the new EU Member States

prior to their accession to the EU (i.e. Finland and Sweden) as well as non-EU European

countries (i.e. Norway and Switzerland).

Another non-EU European country that has been an associate member of the EU since

1963 and the first non-EU member European country that applied to join the EU as a

full member is Turkey. Turkeys recent effort to bring her regulations in line with the EU

and EUs approach to give Turkey a deadline to start the negotiation for full membership of

Turkey do provide strong indication as regards to Turkeys desire to became a member of the

EU. On the other hand, there are same indications which suggest that Turkey is attempting to

bring her regulation, including those related with financial reporting and disclosure (Curuk,

2001a) and their application in line with the EU.

On the basis of the above provided theoretical arguments and results of the literature

review, it may be possible to hypothesise that harmonisation efforts by the EU could

be one of the important external environmental factors influencing accounting, includ-

ing accounting disclosure, in Turkey. If the EU requirements have had an impact on the

accounting disclosure practices in Turkey, one should observe that Turkish companiesmust have been complying with the EU disclosure requirements, particularly there must, at

least, have been moves by Turkish companies towards compliance with the EU disclosure

requirements over the years. One of the main concerns of this study, therefore, is to assess

Turkish companies level of compliance with the disclosure requirements of the EU over the

years.

On the other hand, theoretical arguments based on disclosure theories, (i.e. Agency The-

ory and Political Process Theory) suggest that companies extend of disclosure may vary on

the basis of their corporate characteristics (see, Haniffa, 1998; Curuk, 2001b). Indeed the

results of empirical studies do suggest that certain corporate characteristics of the compa-

nies, i.e. size (see, Singhvi and Desai, 1971; Cooke, 1989a;Wallace et al., 1994; Al-Mulhem,

1997; Giner, 1997), listing status (see Singhvi and Desai, 1971; Cooke, 1989a; Wallace etal., 1994; Al-Mulhem, 1997; Giner, 1997), and industry (see Stanga, 1976; Cooke, 1989a,

1992; Wallace and Naser, 1995; Al-Modahki, 1996; Al-Mulhem, 1997), are among the

important corporate characteristic of the companies influencing the extend of information

disclosed by companies in various countries. So much in line with results of the above men-

tioned studies, the results of longitudinal study on Turkish companies by Curuk (2001a)

also revealed that size, listing status and industry types were important corporate charac-

teristics affecting the extend of accounting information disclosed by Turkish companies in

their annual reports. It may, therefore, be possible that the Turkish companies extend of


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disclosure in compliance with the EU disclosure requirements have been influenced by their

corporate characteristics. The othermain concern of this study, therefore, is to assess whether

Turkish companies level of compliance with the EU disclosure requirements hadbeen influ-enced by their corporate characteristics, such as company size, listing status and industry

type.

3. Research methodology

An examination of companies compliance with the EU disclosure requirements over

the years and assessment of the impact of the companies corporate characteristics on their

level of compliance, required measurement of Turkish companies extend of disclosure in

compliance with the EU requirements over the years.

3.1. Measurement of the extent of disclosure

According to Cooke and Wallace (1989, p. 51), disclosure is an abstract concept that

cannot be measured directly. It does not possess inherent specifications by which one cannot

indicate its intensity or quality, like the capacity of a car. Nevertheless, they argued that a

suitable proxy such as an index of disclosure can be used to determine the extent of infor-

mation disclosed by a firm. Indeed, the disclosure index has been widely used by previous

researchers to measure the extent of disclosure in company accounts. This study also used

disclosure index to measure the Turkish companies extent of disclosure in compliance with

the EU requirements. The procedure followed to measure the extent of disclosure (i.e. to

create disclosure index) is summarised as follows:

1. Construction of a disclosure-scoring sheet.

2. Scoring the disclosure items.

3. Creation of disclosure index.

3.1.1. Construction of disclosure scoring sheet

The first step in the development of a disclosure index to measure the extent of disclosure

is the selection of items to be included on a disclosure scoring sheet. Since there has been

no general theory regarding the number and selection of the items, previous studies have

used between 17 (Barret, 1976) to 289 (Spero, 1979) items. The scope of the selection of

information items usually depends on the focus of the study.As this study concerns with the measurement of the companies extend of disclosure

in compliance with the EU requirements, disclosure-scoring sheet was constructed on the

basis of a review of the text of the Fourth Directive of the EU (EUFD). The scope of this

study is limited to the EUFD which addresses individual company accounts rather than

the EU Seventh Directive, that address consolidated financial statements, as preparation of

consolidated accounts is not common practice in Turkey. The list of the disclosure-scoring

sheet, which was developed by this researcher and its accuracy was checked by two British

Academicians, covers 129 required disclosure items by the EUFD.


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3.1.2. Scoring the disclosure items

There are different approaches for developing a scoring scheme to capture levels of

disclosure. The most commonly used approach (see, for example, Cooke, 1989b; Soh,1996; Al-Modahki, 1996; Haniffa, 1998) is a modified dichotomous procedure, in which

an item scores one if it is disclosed, zero if it is not disclosed, and NA if it is not applicable.

A similar approach was also adopted in this study, that is, the contents of a companys

annual report are checked against the items on the scoring sheet and coded as one (for

disclosed) zero (for not disclosed) and NA (for not applicable) depending on whether the

report contained the item of information which is relevant to the particular company. To

overcome the problem of incorrectly penalising the company for not disclosing an item that

is not applicable, the content of the whole annual report was read before a decision was

made.

Having scored the disclosure sheet, for each company in the sample for each year, a

disclosure index (DI) was created to measure the extent of disclosure.

3.1.3. A disclosure index

Disclosure index (di) is a ratio computed by dividing the total actual score awarded to

a company by the total maximum score that particular company is expected to earn. The

disclosure score (DS) is additive:

DS =

m

i=1

di

Where di = 1 if the item in the scoring sheet is disclosed 0 if the item in the scoring sheet is

not disclosed, M: 129 items.

The maximum aggregate disclosure score (MAD) that a company can be expected toobtain is:

MDS =

n

i=1

di

Where di = expected item of disclosure included in the scoring sheet, n = the number of

items included in the scoring sheet which are applicable to the company (i.e. 129).

EUFD Disclosure Compliance Index (EUFDCDI) as a measure of theextent of disclosure

in compliance with the EU disclosure requirement is: EUFDCDI = DS/MDS. A disclosure

index was created for the sampled each company over the period covered in this study.

3.2. Selection of period covered

The period selected in this study was a 10-year span covering two years prior to the

enactment of the Capital Market Board Communique CMBC No. XI/1 (19861987), three

years subsequent to the enactment of the CMBC (19911992 and 1995). This study focused

on the period surrounding the year that the CMBC wasenacted, because the enactment of the

CMBC is one of the most important recent developments in the area of financial reporting

in Turkey, and this regulation, which has been claimed to be influenced by the EUFD,

increased substantially the minimum disclosure requirements for publicly owned Turkish


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companies (see Curuk, 2001a), the period surrounding the year that the CMBC was enacted

was considered to be one of the best periods to look at to assess the if there is a move

by Turkish companies towards the compliance with the EU disclosure requirements. Thereason for covering more than one year for pre- and post-CMBC periods is because looking

at more than one year would provide a better picture of the disclosure compliance patterns

of companies before and after the CMBC was introduced.

3.3. Selection of sample

The research sample (i.e. companies whose annual reports were analysed in this study)

consisted of 61 non-financial Turkish companies registered with the Capital Market Board

(CMB) during the 19861995 period.

On the basis of the list obtained from the CMB and ISE and using Moser and Kaltons

(1979) formula, the required sample size was found to be 62. To allow for the possibility

of unobtainable annual reports, a total of 75 companies were randomly selected and full set

of annual reports of 61 companies (about equal to the required sample size) of which 32

listed on the Istanbul Stock Exchange and 29 unlisted for the five years were obtained. A

full set of the annual reports of these companies over five years covered in this study were

obtained from the ISE and the CMB. The total number of annual reports analysed was 305.

3.4. Data analysis procedures

Having measured the companies extent of disclosure in compliance with the EUFD by

an index (i.e. EUFDCDI), first, the index scores was analysed for each year to assess the

companies compliance with the EU disclosure requirements. To be able to test if there were

significant changes in the extent of disclosure in compliance with the EUFD over the years,the following hypothesis (H01) was set and both parametric paired-samples t-test and its

non-parametric version, Wilcoxon Matched-pairs signed-ranks test, were conducted.

H01. there are no changes in the extent of disclosure in compliance with the EUFD in the

annual reports of Turkish companies over the period 19861995.

Furthermore, using the companies EUFDCDI score as dependent variables and corporate

characteristics (i.e. size, listing status and industry type) as independent variables, multi-

variate analyses was run for each year to find out if the companies level of compliance

with the EU disclosure requirements were influenced by their corporate characteristics. The

multivariate analysis carried out in this study was the multiple regression. First, tests of

normality, multicollinearity, homoscedasticity and linearity on the independent variable foreach year covered in this study were conducted to ensure that the assumptions were not

violated. Then, the Ordinary Least Square (OLS) regression was run for each year covered

in this study to test the following main and sub-hypotheses (H0n), which were set up to

find out if the companies level of compliance with the EU disclosure requirements were

influenced by their corporate characteristics, i.e. size, listing status and industry type.

H0n. There is no association between a number of company-specific factors and the extent

of the disclosure in compliance with the EUFD in the annual reports of Turkish companies.


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H0n1. There is no association between total assets and the extent of the disclosure in

compliance with the EUFD in the annual reports of Turkish companies.

H0n2. There is no association between listing status and the extent of the disclosure in


H0n3. There is no association between industry type and the extent of the disclosure in


The regression equation used is as follows:

Y(15) = 0 + 1D1 + 2D2 + 3D3 + 4D4 + 5D5 + 6D6 + 7D7

+ 1X(15) +

Where Y= disclosure indices (Y1 for 1986, Y2 for 1987, Y3 For 1991,Y4 for 1992 and Y5 for1995); D1 = listing status; D2 = machinery and metal product company group; D3 = cement

and building equipment company group; D4 = textile product company group; D5 = glass,

glassware and forestry product company group; D6 = Food and services company group;

D7 = Chemical product company group; D1D7 = dummy 0/1 variables; X(15) = company

size total assets (X1 for 1986, X2 for 1987, X3 for 1991, X4 for 1992, X5 for 1995);

= error terms; 0 = intercept (constant); , = coefficient of the explanatory variables.

4. Companies compliance with the EU disclosure requirements

Descriptive statistics for the EUFDCDI, which provides a summary of sampled Turkishcompanies extent of disclosure in compliance with the EUFD over the years selected in

this study, are presented in Table 1.

As can be seen in Table 1, none of the companies in the sample fully complied with

the required disclosure by the EUFD over the period examined. The extent of disclosure

in compliance with the EUFD was observed to be within the range of 3085% during the

10-year period 19861995. It is interesting to note that, during the early years (1986 and

1987), the EUFDCDI scores of all the companies in the sample were within the range of

30% and 50%, but the EUFDCDI scores for all of the sampled companies with the exception

Table 1

Descriptive statistics of the EUFDCDI over the 5 years

1986 1987 1991 1992 1995

Mean 0.378 0.386 0.701 0.705 0.727

Maximum 0.495 0.495 0.843 0.848 0.849

Minimum 0.296 0.297 0.484 0.484 0.492

Range 0.199 0.198 0.360 0.365 0.357

S.D. 0.048 0.050 0.076 0.074 0.071

Standardised Kurt. 0.611 0.825 0.323 0.401 1.002

Standardised Skew. 1.451 1.474 1.866 1.683 1.950

KS Lilliefors 0.043 0.011 >0.2000 >0.2000 >0.2000


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Fig. 1. The extent and changes in the extent of disclosure in compliance with the EUFD (average across all

companies).

of one were over 50% in 1991, 1992 and 1995. In addition, the mean score of the EUFDCDI

was about 38% in 1986 and 1987, about 70% in 1991 and 1992, and just over 72% in 1995.

The companies compliance pattern with the disclosure provisions of the EUFD over the

years can be seen in Fig. 1, which was developed based on the mean score and changes in

the mean score of the EUFDCDI.

The general trend that can be observed from the above figure is that the sampled com-

panies have, over the selected years, been providing in their annual reports increasingly

more information of which disclosure is required by the EUFD. The mean score of theEUFDCDI increased from 37.8% in 1986 to 72.7% in 1995. Despite the fact that the mean

score of the EUFDCDI has increased constantly from one year to another, only 0.8%, 0.4%

and 2.4% of the observed 34.9% total average changes in the EUFDCDI over the entire

period examined in this study occurred during the periods 19861987, 19911992, and

19921995, respectively. A dramatic increase was observed during the five-year span from

1987 to 1991 (the average change in the EUFDCDI was 31.5%).

In order to test H01, there are no changes in the extent of disclosure in compliance

with the EUFD in the annual reports of Turkish companies over the period 19861995,

the EUFDCDI scores were grouped into five pairs (19861987; 19871991; 19911992;

19921995 and 19861995), and the parametric paired-samples t-test2 and its non-

parametric version, Wilcoxon Matched-pairs signed-ranks test, were run. The results aresummarised in Table 2.

As can be seen the from the above table, the null hypothesis was rejected for each

pair of years which means that there were significant changes in the extent of disclosure

in compliance with the EUFD in the annual reports of the Turkish companies over the

2 To be able to use the parametric t-statistic, the assumption that the sample is drawn from a normally distributed

population must be satisfied. As indicated by the Kurtosis and Skewness statistics, which were within the range

of1.96 (see Table 1), the EUFDCDI for each year appear to be normally distributed.


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Table 2

Summary of the results of the paired-samples t-test and the Wilcoxon Matched-pairs signed-ranks test on the

EUFDCDI

Differences

between

Paired-samples t-test Wilcoxon test

Mean S.D. t-Value 2-Tail sig. Accept H01 Z 2-Tailed P Accept H01

19861987 0.008 0.020 3.28 0.00** NO 3.52 0.00** NO

19871991 0.315 0.078 31.36 0.00** NO 6.79 0.00** NO

19911992 0.004 0.014 2.33 0.02* NO 2.33 0.02* NO

19921995 0.021 0.038 4.40 0.00** NO 4.34 0.00** NO

19861995 0.349 0.072 38.02 0.00** NO 6.79 0.00** NO

*Significant at 5% level, **significant at 1% level.

period 19861995. As the mean score of the EUFDCDI increased from one year to another

(see Fig. 1), the above results show that the sampled companies extent of disclosure in

compliance with the EUFD increased significantly over the years (with the exception ofchanges from 1991 to 1992, which were significant at the 5% level, changes in other paired

years are significant at the 1% level).

5. Corporate characteristics influencing companies compliance

As pointed out above, multiple regression routines were conducted for each year using

EUFDCDI as the dependent and company size (measured by total assets), listing status and

industry type (based on six industry grouping) as independent variables to asses whether the

companies level of compliance with the EU disclosure requirements had been influenced

by their corporate characteristics. As this study covers five years, the data set may also be

considered to be panel data which may be analysed by a pooled method of regression anal-ysis. The suitability of pooled data analysis, however, depends on factors such as whether

there are any parameter shifts over the years (Johnson et al., 1989).3 As the analysis of

regression coefficients for each year revealed that the coefficients have shifted over time, a

pooled analysis approach is considered not suitable for analysing the data set (see Johnson

et al., 1989) and only cross-sectional regressions were conducted for each of the five years.

Such cross-sectional regressions allow us to identify not only if there is a significant associ-

ation between selected company-specific factors and the extent of disclosure in compliance

with the EUFD for each year but also if such a relationship is consistent over time.

One of the problems of undertaking any multiple regression analysis is that there may be

multicollinearity between independent variables. The possible occurrence of multicollinear-

ity was checked by running a complete correlation matrix for all five years and a majormulticollinearity problem was not observed between the independent variables in any of

the five years covered in this study. A second problem is that whilst the independent size

variable is continuous, the other two variables (listing status and industry type) are not.

Since multiple regression analysis is to be used, each category of these two independent

variables required dummy variables for each of the years covered in this study. Conse-

3 The pooled equation assumes that the coefficients (the structure of underlying equation) do not change over

the five years of the analysis (Johnson et al., 1989, p. 198).


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quently, there are two dummy variable within the independent variables listing status and

six dummy variables within the independent variable industry type. It should be noted that

for each independent variable with dummies, one of the dummies is left out of the equationto avoid perfect colinearity.

In order to undertake multiple linear regression, the data must fulfil certain conditions i.e.

normality, homoscedasticity (equal variance) and linearity. An examination of the scatter-

plots of the regression standardised predicted values against the residuals for each year did

not indicate any relationship. Hence, the conditions of linearity and homoscedasticity were

not violated (Kinnear and Gray, 1995, p. 174). Furthermore, an examination ofQQ plot of

residuals for each regression model indicates that the distributions of residuals are approx-

imately normal. Thus, the assumption of normality was also satisfied (See Norusis, 1995).

The OLS regression models for each of the five years were conducted using the enter

all variables routine. A summary of results for all five years are shown in Table 3.

As can be seen in Table 1, the results of the multiple regression routines for 1986,

1987, 1991, 1992 and 1995 yielded F values of 2.325, 1.971, 3.146, 3.863, and 5.808

respectively. The observed significance level (sign. F) was found to be less than the 0.05

over the selected four years and less than 0.10 for 1987. This means that collectively three

independent variables significantly explain the variations in EUFD Disclosure Compliance

Index (EUFDCDI index) at 0.05 significance level for 1986, 1991, 1992 and 1995, and 0.10

level for 1987. Thus, the results reject the main hypothesis H0n, suggesting that Turkish

companies level of compliance with the required disclosure by EUFD had been influenced

by their three corporate characteristics listing status, sizes and industry (collectively)

for each year selected in this study.

Despite the fact that the association between the companies extent of disclosure in

compliance with the EUFD and three variables (collectively) was found to be significant

for each year, Table 3 reveals that the degree of explanation by the selected independentvariables was different for the five years. In terms of adjusted R2, the 1986 model explains

about 13.4% of the variability in the EUFDCDI, the 1987 model 10.2%, the 1991 model

20.0%, the 1992 model 25.0% and the 1995 model 35.9%. Hence, these results provide

strong indication which suggest that influence of companies three corporate characteristics

on their level of compliance with the required disclosure by the EUFD increased over the

years covered in this study.

An examination of T statistics and its observed significance level of the independent

variables (see Table 3) showed that, listing status was significantly associated with the

companies extent of disclosure in compliance with the EUFD at the 0.05 level in years

1988, 1991, 1992 and 1995. That is, the sub hypothesis H0n2 There is no association

between listing status and the extent of the disclosure in compliance with the EUFD in theannual reports of Turkish companies was rejected for four years. Thus, the results suggest

that Turkish companies level of compliance with the required disclosure by EUFD had

been influenced by listing status.

Since listed companies were coded (1) and unlisted companies coded (0) when the

dummy variable for listing status was constructed, the unlisted category which is left out

of the equations, is the yardstick against which the other (listed companies) is measured.

Since the (partial regression coefficient) for the listing status variable is positive for each

of the five years, it can be concluded that listed companies compliance with the disclosure


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Table 3

Result of multiple regression routines

1986 1987 1991 1992 1995Multiple R 0.485 0.455 0.542 0.581 0.659

R square 0.235 0.207 0.294 0.338 0.434

Adjusted R square 0.134 0.102 0.200 0.250 0.359Standard error 0.045 0.047 0.068 0.064 0.0569

F value 2.325 1.971 3.146 3.863 5.808

Sig. F 0.038** 0.071* 0.007*** 0.002*** 0.000***

Variables Years Coefficient () S.E. () T Sig. T

Listing status 1986 1.977E02 0.013 1.562 0.124

1987 3.095E02 0.013 2.319 0.024**

1991 6.738E02 0.019 3.498 0.001***

1992 6.782E02 0.018 3.701 0.001***

1995 6.587E02 0.016 4.099 0.000***

Company size 1986 2.196E07 0.000 1.636 0.1081987 9.849E08 0.000 1.045 0.301

1991 2.272E09 0.000 0.149 0.8821992 5.106E09 0.000 0.537 0.5931995 3.672E10 0.000 0.464 0.644

Machinery company group 1986 2.249E02 0.024 0.954 0.3451987 2.775E02 0.025 1.111 0.272

1991 1.860E02 0.036 0.516 0.6081992 2.353E02 0.034 0.687 0.495

1995 5.284E02 0.030 1.756 0.085*

Cement and building equipment

company group

1986 1.398E02 0.025 0.560 0.5781987 8.762E03 0.026 0.332 0.741

1991 8.555E03 0.038 0.224 0.823

1992 3.480E03 0.036 0.096 0.9241995 1.432E02 0.032 0.448 0.656

Textile company group 1986 7.869E03 0.027 0.291 0.772

1987 1.564E02 0.029 0.547 0.5861991 2.280E02 0.041 0.552 0.584

1992 3.418E02 0.039 0.876 0.385

1995 8.311E02 0.035 2.403 0.020**

Glass glassware and forestry

prod. company group

1986 7.247E03 0.024 0.299 0.766

1987 3.711E03 0.026 0.145 0.8861991 3.460E02 0.037 0.932 0.356

1992 3.802E02 0.035 1.083 0.284

1995 6.369E02 0.031 2.052 0.055*

Food and services company group 1986 1.984E02 0.028 0.716 0.477

1987 2.234E02 0.029 0.762 0.4491991 3.112E02 0.042 0.733 0.467

1992 2.322E02 0.040 0.576 0.5671995 3.281E02 0.035 0.925 0.359

Constant 1986 0.353 0.023 15.056 0.000***

1987 0.351 0.025 14.147 0.000***

1991 0.676 0.036 18.877 0.000***

1992 0.684 0.034 20.201 0.000***

1995 0.737 0.030 24.575 0.000***

***Significant at 1% level, **significant at 5% level, *significant at 10% level.


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provisions of the EU directives is significantly higher than the unlisted companies for the

years 1987, 1991, 1992 and 1995.

An important point to note is that, there was an increase in the and Tvalue of the listingstatus variable from one year to another, and decrease in sig. T, suggesting that there was an

increase in explanatory power of the independent variable listing status over the years. As

the disclosure compliance level of listed companies was significantly greater than unlisted

companies, the increase in explanatory power of variable listing status indicates that Listed

companies moves towards compliance with the EU disclosure requirements over the years

is greater than unlisted companies.

An examination of regression statistics (i.e. T statistics and sig. T, see Table 3) of the

independent size variable showed that assets size was not significantly associated with the

companies extent of disclosure in compliance with the EUFD at the 0.05 level in any year

covered in this study. The results which do not reject the H0n1, suggest that size is not

one of the factors influencing Turkish companies level of compliance with the disclosure

requirements of the EUFD.

As far as industry type is concerned, the regression statistics indicated that only the

textile category of industry was significantly associated with the EUFDCDI at the 0.05

level in 1995 (H0n3) was rejected only for the textile category of industry in 1995). That is,

the results provide strong indication suggesting that industry type is not one of the factors

influencing Turkish companies level of compliance with the disclosure requirements of the

EUFD.

6. Conclusion

Accounting disclosure practices of countries are shaped by a number of factors. Oneof the factors shaping financial reporting, including accounting disclosure, in the EU is

accounting directives, in particular the EUFD. The EUFD has been claimed to have an

impact on not only the EU countries but also non-EU member European countries like

Turkey: A non-EU member of European country which has an inspiration to join the EU

and close economics and political relationship with the EU. This study examined Turkish

companies level of compliance with the disclosure requirements of the EUFD over the

years and then assessed whether companies level of compliance had been influenced by

their corporate characteristics, such as company size, listing status and industry type.

The results of this study established that Turkish companies level of compliance with the

disclosure requirements of the EUFD were within the range of 3085% over the years and

increased significantly from one year to another throughout the selected period. A dramaticincrease, however, occurred during the five-year interval (from 1987 to 1991) which was the

period that spans the year that the CMBC was enacted. Since the CMBC, enacted in 1989,

laid down detailed disclosure requirements for publicly owned Turkish companies and there

were strong indications that the disclosure provisions of the CMBC was influenced by the

EUFD (see Curuk, 2001a), the observed dramatic increase in the Turkish companies level

of compliance with the disclosure provision of the EUFD over the period 19861995 seems

to be mainly due to the enactment of the CMBC. Hence, these results indicate a degree of

indirect impact of the EUFD on corporate disclosure practices of Turkish companies.


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The results of this study further revealed that Turkish companies level of compliance

with the required disclosure by the EUFD had been influenced by their corporate charac-

teristics. Significant association found between listing status and EUFDCDI for each of thefive years covered in this study revealed that listing status is one of the important corporate

characteristics of Turkish companies influencing their level of compliance with the EUFD

disclosure requirements. On the other hand, the results of this study do not provide any

evidence suggesting that Turkish companies level of compliance was influenced by their

size. Similarly, the results did not provide strong evidence lead us to conclude that industry

type is one of the important corporate characteristics of Turkish companies influencing their

compliance with the EUFD disclosure requirements.

There is no perfect study and this study is no exception. One of the main limitation of

this study is related with the period covered. This study focused on the examination of

Turkish companies compliance with the EU disclosure requirements for five years over the

19851995 period, for the above pointed out reasons. Future research may, therefore, be car-

ried out by focusing on recent years to provide up-date evidences as regards to Turkish com-

panies level of compliance with the EU disclosure requirements and factors influencing it.

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