Journal of Accounting in Emerging EconomiesEmerald Article: Corporate Governance and Disclosure Practices of Ghanaian Listed CompaniesFrancis Aboagye-Otchere, Ibrahim Bedi, Teddy Ossei Kwakye

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To cite this document: Francis Aboagye-Otchere, Ibrahim Bedi, Teddy Ossei Kwakye, (2012),"Corporate Governance and Disclosure Practices of Ghanaian Listed Companies", Journal of Accounting in Emerging Economies, Vol. 2 Iss: 2 pp. 3 - 3

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Article Title Page

Corporate Governance and Disclosure Practices of Ghanaian Listed Companies Author Details Author 1 Name: Francis Aboagye-Otchere Department: Department of Accounting University/Institution: University of Ghana Business School Town/City: Legon Country: Ghana Author 2 Name: Ibrahim Bedi Department: Department of Accounting University/Institution: University of Ghana Business School Town/City: Legon Country: Ghana Author 3 Name: Teddy Ossei Kwakye Department: Department of Accounting University/Institution: University of Ghana Business School Town/City: Legon Country: Ghana Corresponding author: Francis Aboagye-Otchere Corresponding Author’s Email: faotchere@ug.edu.gh

Please check this box if you do not wish your email address to be published Structured Abstract: Purpose – The purpose of this study is to further increase the understanding of disclosure practices and the interrelationship between Corporate Governance (CG) and Corporate Disclosure (CD) of firms on the Ghana Stock Exchange (GSE). Design/methodology/approach – The study follows the trinary procedure of Aksu and Kosedag (2006) and use the Standard and Poor’s T&D items in the construction disclosure index. Audit Committee (AC) characteristics are the governance attributes. The study used a Random Effect panel regression analysis to establish the relationship between CD and CG of 20 listed companies covering a period from 2003-2007. Findings – The results indicate that albeit the improvement of disclosure practices over the years, the level of disclosure in Ghana is moderate/fair. The study also documents a significant positive relationship between the presence of accounting/finance expert(s) on the Audit Committees (ACs) and CD practices. Originality/value – In spite of the numerous researches on companies on GSE, this paper is the first study in the country that considers the impact of CG characteristics on disclosure practices. Keywords: Corporate Governance, Disclosure, Transparency, Audit Committee, Ghana. Article Classification: Research paper

For internal production use only Running Heads:

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Introduction

Corporate governance (CG), transparency and disclosure (T&D) practices are envisioned as

mechanisms of checks and balances that have evolved to mitigate conflict of interests and

imbalances of power and control between stakeholders (agency problems) that exist in modern

companies (Jensen and Meckling, 1976). Consequently, issues on CG and T&D have become an

important concern globally, especially after the collapse of giant companies in developed

countries and the Asian financial crisis. Good CG practices include a vigilant board of directors

and timely and adequate disclosure of financial information. T&D practices that firms follow are

a fundamental and important component and a leading indicator of CG quality (Aksu and

Kosedag, 2006; OECD, 1999). Impliedly, CG and disclosure practices are intertwined in that,

whiles T&D is an important principle of CG, a firm’s governance structure can influence the

nature of its disclosure practices. Theory and prior evidence indicate that several determinants

and factors affect a firm’s disclosure policy. These factors include firms’ characteristics such as

size, listing status, industry, ownership and control, leverage (Ahmed and Courtis, 1999; Coulton

et al., 2001; Ho and Wong, 2001; Bujaki and McConomy, 2002; Eng and Mark, 2003; Beeks and

Brown, 2005; Cheng and Courtenay, 2006, Aksu and Kosedag, 2006; Mangena and Tauringana,

2007; Tsamenyi et al., 2007) and CG structures (Shleifer and Vishny, 1997, Haniffa and Cooke,

2002). However, most of the empirical literature on the CG and T&D practices and the factors

affecting these practices have focused on developed countries and developed capital markets

(Mangena and Tauringana, 2007) and the use of unregulated disclosures such as earnings

forecasts, and environmental and social disclosures (Haniffa and Cooke, 2002). This study

examines the CG and T&D practices of listed companies in Ghana – a developing country and an

emerging economy which has a dearth of literature on these practices. Tsamenyi et al. (2007)

examined the CG and disclosure practices of companies listed on the Ghana Stock Exchange

(GSE) and the extent to which factors such as ownership structure, firm size and leverage affect

disclosure for two comparative years (2001 and 2002). Their study used T&D index of only 36

disclosure items but did not distinguish between mandatory and voluntary disclosures nor

examined the influence of CG on disclosure practices. The present study constructed a

comprehensive T&D index (i.e. consisting of 100 regulated and discretionary disclosure items)

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drawn from the T&D index developed by S&P (2002), Aksu and Kosedag (2006) and Mangena

and Tuaringana (2007) to allow for inference into the quality of disclosure at the international

level. Unlike Tsamenyi et al. (2007), this study also investigated the influence of CG on

disclosure practices over a 5 year period. Aksu and Kosedag (2006) in their study of

determinants of T&D of firms on Istanbul Stock Exchange also considered only one year and

proposed that subsequent studies should be for several years. This, they said, will ensure that

possible lead lag relationships are not ignored and also allow for longitudinal generalization. In

line with this, our paper made use of longitudinal data from 2003 to 2007 and thus, the present

study is differentiated from previous studies in emerging economies because the study pooled

time series and cross-sectional data. This paper aims to assist policy makers and practitioners to

understand the current CG and T&D practices in Ghana and formulate policies that will enhance

the effectiveness of these practices. It will also build on previous studies and contribute to the

limited literature on these practices in emerging economies, specifically, Ghana. Our paper

examined the disclosure practices of Ghanaian listed firms and how CG structures affect the

level of T&D of these firms by answering these questions:

1. What is the T&D level of Ghanaian listed companies?

2. Do CG structures of firms affect their T&D level?

The Ghana Stock Exchange (GSE)

As is the case of most stock exchanges on the African continent, the market size of the GSE is

small (Aksu and Kosedag, 2006). Despite the steadily increase in market size of GSE since 2004,

the market capitalization of the stock market at the end of 2008 was 179,000 billion cedis

(smaller size as compared to that of other developed countries). The apparent increase in market

capitalisation over the years is largely due to the result of price appreciations and the listing of

new shares on the market (GSE factbook, 2008). According to Tsamenyi et al. (2007), an

indispensable feature of the GSE is the higher level degree of concentration. For instance, the

four largest companies on the exchange constituted 77.95% of the market capitalisation at the

end of 2002. The degree of concentration has kept increasing since then, re-affirming the high

level of concentration on the Ghanaian stock market. The higher concentration on the market is

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believed to have resulted from the fact that majority of the companies were listed through the

privatisation process, where the government of Ghana sells a proportion or all of its interests in

the said companies to other investors (Tsamenyi et al., 2007). The privatisation process has aided

the existence of block control, as the sale of the government’s interests was done in blocks rather

than on a dispersed basis. In addition, GSE has seen several foreign companies listing on the

exchange as well as a couple of mergers and takeovers of listed firms for the past couple of

years. At the end of 2007, the GSE had 32 companies listed on the exchange comprising of the

Banking, Finance and Insurance sector (9); the Manufacturing sector (7); the Trading and

Distribution sector (5); the Food and Beverage sector (3); the Mining sector (2); Information

Communication Technology (ICT) sector (2); Pharmaceuticals sector (2); and Printing and

Publishing sector (2).1

CG and Disclosure Regulatory Framework in Ghana

The Ghanaian regulatory framework for both CG and T&D comprises the Ghana Companies Act

(1963), the Securities Industry Law, 1993 (PNDCL 333) as amended, and the Membership and

Listing Regulations of the Ghana Stock Exchange (GSE, 1990).

CG Framework in Ghana

The increased emphasis on CG around the world has set out the Institute of Directors of Ghana

(IOD-Ghana) to promote compliance with the principles of good CG. Their efforts received a

boost with the publication of the SEC Corporate Governance Guidance of Best Practices in

Ghana and also with the various amendments to the GSE Membership and Listing Rules. The

regulatory framework provides for accessibility of information to shareholders and equitable

treatment of all shareholders (both majority and minority shareholders). For instance,

shareholders have the right to obtain relevant information on the firms on a timely and regular

basis and to be sufficiently informed on decisions concerning fundamental corporate changes

(The Companies Act, 1963). The Securities Industry Law also prohibits and penalizes insider

trading and abusive self-dealing. The Companies Act provides for the appointment, retirement

and removal of directors as well as the basic responsibilities of the board of directors of a

1 The number of companies in each of the sectors is in parenthesis

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company. These provisions are supplemented by the Listing Regulations of the GSE, which inter

alia requires all listed companies to establish and maintain audit committees (AC) to revise and

supervise their financial reporting and internal controls. It also recommends that other sub-

committees (including remuneration and nomination committees) be established to enhance the

effectiveness of the board. These requirements are in tandem with provisions of most CG codes

(notably, UK’s Cadbury Report and Combined Codes, SOX of the USA, OECD principles).

Despite recent developments in regulating CG practice in Ghana, the practice is still

unconvincing. Mensah et al. (2003) opines that, the mechanisms of CG which ensure that

managers of companies act in the best interest of shareholders and other stakeholders are

relatively inactive in Ghana as compared to those of developed countries. For instance, in Ghana,

there are limited markets for takeovers; proxy contests are almost non-existent; monitoring of

corporate behaviour is very limited; markets are fairly inactive and legal protections are poorly

enforced (Mensah et al., 2003). Furthermore, compensation systems, such as stock options, profit

sharing and bonuses, which could be used to align the interests of management and shareholders,

are not necessarily applied to this end in Ghana (Tsamenyi et al., 2007).

Disclosure Framework in Ghana

As a British colony before independence, Ghana has a common-law system and its accounting

system was largely influenced by British accounting practices. This system typically assumes

that transactions are conducted “at arm’s length” (Ho and Wong, 2001), i.e. by parties who do

not know each other. Such a system tends to require high standards of public disclosure which

applies particularly to public listed companies in a large stock market. Consequently, Ghana

follows a disclosure-based regime, with corporate disclosure and reporting being influenced by

the Companies Act (1963) and the accounting profession (Institute of Chartered Accountants,

Ghana) via the Ghana National Accounting Standards [and recently its adoption of International

Financial Reporting Standards (IFRS)]. It is supported by other industry specific regulations and

laws. The Companies Act requires that annual audited accounts and reports (prepared in

accordance with GAAP) are presented to shareholders at an annual general meeting. The Act

stipulates the minimum basic requirements of financial reports as the basic financial statements

(i.e. the income statement, the balance sheet and the cash flow statements) and the notes to

5

accounts. For quality presentation of the financial information, companies in Ghana are required

to comply with the standards adopted and issued by the Institute of Chartered Accountants,

Ghana (ICAG). Furthermore, the regulatory framework specifies the channels for dissemination

of information to the GSE, shareholders and the general public in the case of listed companies as

well as placing a continuing periodic reporting obligation on listed companies via publication of

interim reports (usually unaudited). The listing regulations also require listed companies to report

to investors any relevant and material information of price sensitive nature, necessary to enable

investors to evaluate the performance of companies (such as members of the board and key

executives and their remuneration, material foreseeable risk factors, major share ownership and

voting rights, material issues regarding employees and other stakeholders and the financial and

operating results of the company). In Ghana, the monitoring of financial reporting and

compliance with standards is the responsibility of the ICAG. However, the ICAG does not have

the power to enforce compliance with the standards it adopts, and only works through its

membership to persuade companies to comply. The GSE, on the other hand, has the power to

suspend or de-list non-complying companies from the exchange.

A Brief Literature Review

A number of studies have examined the CG and T&D practices of companies and the factors that

influence these practices. Most of these researches have focused on developed countries (Meek

et al., 1995 in USA and UK; Coulton et al., 2001 in Australia; Ho and Wong, 2001 in Hong

Kong; Bujaki and McConomy, 2002 in Canada; Eng and Mark, 2003 in Singapore; Beeks and

Brown, 2005 in Australia; Cheng and Courtenay, 2006 in Singapore). These studies concluded

that CG and T&D practices have improved over the years. They also identified various factors

that influence the CG and T&D practices of companies i.e. firm characteristics (such as firm size,

listing status, ownership and control, leverage), environmental and institutional factors (such as

culture, legal system, political system, efficiency of capital markets) and CG structures (such as

board characteristics, AC characteristics). However, the results from these studies are usually

mixed. Moreover, the findings of these researches may not be generalizable to other countries

with different developmental stages and business environments. Several studies on CG and T&D

practices have also been made in developing countries and emerging economies (Hossain et al.

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1994 in Malaysia; Owusu-Ansah, 1998 in Zimbabwe; Haniffa and Cooke, 2002 in Malaysia;

Barako et al., 2006 in Kenya; Aksu and Kosedag, 2006 in Turkey; Mangena and Tauringana,

2007 in Zimbabwe). In Ghana, limited studies have documented CG and T&D practices (Mensah

et al., 2003, Kyereboah-Coleman, 2007, Tsamenyi et al., 2007). However, most of these studies

in emerging economies and developed countries have focused on unregulated disclosures and

how CG practices affect the firm value and performance (usually using board characteristics as

proxy for CG structures and constructing disclosure index with fewer disclosure items). Studies

which also investigated the factors influencing T&D practices failed to examine the

interrelationship between CG and T&D practices and also did their studies using either one or

two comparative years (Aksu and Kosedag, 2006 ; Tsamenyi et al., 2007). This study examined

the CD and T&D practices of Ghanaian listed firms by investigating whether CG attributes

(specifically, AC characterisitics) in addition to firm specific characteristics are possible

determinants of T&D practices using pooled time series and cross-sectional data. In addition, the

disclosure items used and analysed in this study consisted both regulated and unregulated as the

disclosure index was constructed bearing in mind the regulatory framework in Ghana.

Theoretical Framework

This research made used of the agency theory to establish the relationship between CG and

T&D. According to this theory, the basic agency problem in modern firms is primarily due to the

separation of ownership and management. Jensen and Meckling (1976) assumes that the

existence of a conflict of interest between managers (or controlling shareholders) and outside (or

minority shareholders) will provide the tendency for the former to extract “perquisites” (or

perks) out of a firm’s resources and be less interested to pursue new profitable ventures

(Kyereboah-Coleman, 2007). Furthermore, the agency theory sees the firm as a nexus of

contracts which are incomplete (i.e. shareholders do not specify completely the duties and

responsibilities of managers) hence, most residual control rights are held by managers due to

expertise and information asymmetry. Good CG and T&D practices are envisioned as

mechanisms of checks and balances that have evolved to mitigate these agency problems. CG –

the mechanisms and rules designed to align the interests of owners and managers of corporations

(Jensen and Meckling, 1976) – is to ensure that board of directors direct and operate the

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activities of the company from within as well as control and oversee from the outside the way in

which companies affect outsiders (Coyle, 2005). This will ensure that corporate performance and

accountability are improved leading to creation of long-term shareholder value and hence,

aligning the interest of both managers and shareholders. Again, agency theory postulates that the

agency relationship between managers and shareholders gives rise to the problem of information

asymmetry. Management therefore have the incentive to increase disclosure to convince

shareholders that they are acting optimally if they know that shareholders control their behaviour

through bonding and monitoring activities (Healy et al., 1999; Watson et al., 2002). One way

that managers can reduce such an agency cost is improved T&D practices – the effective

periodic disclosure of firm-specific information (both quantitative and qualitative), on a either

voluntary or mandatory basis, to interested parties mainly via published annual reports.

Accordingly, Healy and Palepu (2001) documented that disclosure helps to reduce agency

conflicts by bridging the information gap that exists between managers and shareholders and

between informed and uninformed investors (Leuz and Verrechia, 2000). The association

between a firm’s governance structure and its disclosure policies is based on the premise that

well-governed firms use increased disclosure as a means of mitigating agency problems between

managers and shareholders (Goodwin et al., 2007). Core (2001) suggests that a well-designed

governance structure can help ensure that the firm’s disclosure policy is ‘optimal’ via making

more disclosures (Beeks and Brown, 2005). The T&D practices that firms follow are also

fundamental, an important component and a leading indicator of a firm’s governance quality.

This is because, good CG ensures that clear, timely and reliable information is adequately

prepared, disclosure is made regarding all material matters concerning the corporation to various

stakeholders and these information are equally accessible to all stakeholders. Nonetheless, other

studies have established no relationship between CG and T&D practices (Coulton et al., 2001).

Hypothesis Development

Board Composition

Board composition (usually measured as the proportion of non-executive directors (NEDs) on a

board) indirectly reflects the independence of boards and the monitoring role of NEDs. Based on

the agency theory, boards are needed to monitor and control the actions of directors due to

8

opportunistic behaviour (Berle and Means, 1932; Jensen and Meckling, 1976) and NEDs are

believed to have more opportunity for control (Mangel and Singh, 1993). NEDs are therefore

seen as the check and balance mechanisms to enhance board effectiveness (Haniffa and Cooke,

2001). The quantity of information disclosed in the annual reports and the time the information is

released is influenced by the board. For this reason, if the board is independent and observe their

responsibility of accountability and transparency to stakeholders, they will disclose on time all

the relevant information. Again, NEDs may usually be considered as decision experts (Fama and

Jensen, 1983) who act as positive influence over board deliberations and decisions and according

to Weisbach (1988), NEDs will not be intimidated by the CEO. This means that, although NEDs

are seen as playing a monitoring and advisory role rather than decision-making role, they are

respected for their expertise and independence and thus, will be influential in decision making

and policy implementation (Haniffa and Cooke, 2001). More disclosure may therefore be

expected if NEDs actually carry out their roles, rather than their ‘perceived’ roles. Similarly,

their dominance (in terms of numbers) can empower them to enforce disclosure by management.

Leung and Horwitz (2004) examined voluntary segment data disclosures in Hong Kong and

concluded that NEDs have a positive impact on the level of voluntary disclosure, but only when

there is low executive stock ownership. Cheng and Courtenay (2006) found that boards with a

larger proportion of independent directors are significantly and positively associated with higher

levels of voluntary disclosure in Singapore. In addition, Chen and Jaggi (2000) in their study of

the association between independent directors and T&D, found a positive relationship between a

board with a higher proportion of independent directors and comprehensive financial disclosure.

These findings are consistent with agency theory view that a higher proportion of independent

directors enhance voluntary financial reporting (Barako et. al., 2006). However, Eng and Mak

(2003) argue that companies with a large proportion of independent directors could bring

conflicts and lack real independence (Demb and Neubauer, 1992) and thus, the extent of

disclosure may reduce since they will not be able to effectively carry out their actual roles. Ho

and Wong (2001) also found no relationship between the proportion of NEDs and information

disclosure. The following hypothesis was therefore examined

H1 There is no relationship between the proportion of NEDs on the board and the

level of disclosure practices of firms.

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AC Composition

Audit Committees (ACs) of board of directors are mechanisms for reducing information

asymmetry (McMullen, 1996), protecting investors (McDaniel et al., 2002), and maintaining the

quality of financial information disclosure and control systems (Barako et al, 2006). The board

usually delegates the responsibility for oversight of financial reporting to the AC to enhance the

relevance and reliability of annual report (DeZoort, 1997). Also, ACs are usually viewed as

monitoring mechanisms that enhance audit attestation function of external reporting (Bradbury,

1990). In this regard, ACs can be a monitoring mechanism that improves the quality of

information flow between firm’s management and shareholders, especially in the financial

reporting environment where ownership and management have disparate information levels

(Barako et. al, 2006). Various studies have documented a positive association between AC

characteristics and T&D practices (McMullen, 1996, Ho and Wong, 2001 in Hong Kong, Barako

et al., 2006 in Kenya). AC composition (the proportion of NEDs on the AC) also reflects the

independence of AC. An independent AC will increase the effectiveness and efficiency of the

board in monitoring the financial reporting process of a company. According to the agency

theory, the independent members in AC can help the shareholders to monitor the activities of

management and hence reduce benefits from withholding information. The existence of AC with

a higher proportion of independent directors should reduce the agency cost and improve the

internal control that will lead to greater quality of disclosures (Forker, 1992). As a result, the

independence of NEDs on the AC helps to increase the level of disclosure by listed companies.

According to Beasley et al., (2000), companies with financial reporting problems are less likely

to have ACs dominated by outside directors. Abbot et al. (2004) study on the impact of the AC’s

independence on the quality of financial reporting also found that companies with independent

AC were less likely to suffer sanctions by the SEC for fraudulent financial reporting.

Considering the influence of independent AC on disclosure and the content of annual reports, the

study hypothesized that:

H2 There is no relationship between the proportion of NEDs on the AC and the

disclosure practices of firms.

AC competence

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AC competence (represented by the presence of accounting/financial expertise on the AC) is

another important dimension of AC effectiveness that has gained the attention of regulators and

academics (DeZoort, 1997; SOX, 2002). Advocates propose that the presence of financial

experts in AC composition will assist the committee in critically analyzing accounting policies

and financial statements, identifying potential problems, and solving them. Accordingly, most

CG codes (UK’s Cadbury Report and Combined Codes, SOX of the USA, OECD principles)

mandate the membership of ACs for listed companies to comprise of at least one member who is

a financial expert or otherwise, and to disclose reasons for not adopting this requirement (DeFont

et al., 2005). Prior studies argue that financial reporting issues involve the highest level of

technical detail among AC effective areas and ideal AC members should have knowledge of

accounting concepts and the auditing process to enhance their understanding of the financial

reporting process, recognize problems, ask probing questions of the management and auditor and

make leadership contributions to audit committees (McDaniel et al., 2002). Carcello et al. (2006)

found that the presence of financial experts on a company’s AC made fraudulent reporting

appreciably less likely. However, they fail to document any evidence of a pronounced

association between AC accounting expertise and financial reporting quality. This study

hypothesized that:

H3 The presence of accounting/finance expert(s) on the AC has no relationship with a

company’s disclosure practices.

Ownership Structure

Ownership structure (in this study measured by the ownership concentration) has been

documented as one of the factors that influence the level of T&D of a firm (Owusu-Ansah, 1998;

Eng and Mak, 2003; Haniffa and Cooke, 2002; Barako et al., 2006; Mangena and Tauringana,

2007). According to Jensen and Meckling (1976), the potential agency conflicts due to the

separation of management and ownership in modern corporations becomes greater where

ownership are dispersed that if shares were held by the few. This is because if shares are widely

held there will be diverse interests between contracting parties (Fama and Jenses, 1983). T&D

(especially voluntary disclosure) provides management with the opportunity to demonstrate that

they are acting in the best interest of owners. Hence, management will disclose more information

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to reduce agency conflict with shareholders. On the contrary, other researchers are of the view

that dispersed ownership implies lack of monitoring and control due to the low ownership

percentage of individual shareholders (Shleifer and Vishny, 1986). In order to mitigate this

problem, Shleifer and Vishny (1986) argue for the concentrated ownership structure, which will

involve large shareholders (block holders) to monitor and control activities of management.

These block holders are also predicted to demand more information to be disclosed in annual

reports to reduce information asymmetry among the small shareholders. Findings on studies on

the relationship between ownership structure and disclosure have been mixed. For instance,

Hossain et al. (1994) and Tsamenyi et al. (2007) document a negative relationship in their

studies on listed companies in Malaysia and Ghana respectively by arguing that firms with

higher concentration of ownership structure may disclose less information to shareholders

through discretionary disclosure. Haniffa and Cooke (2002) studies in Malyasia, basing their

ownership structure on the proportion of shares held by the top ten shareholders (reflecting

diffusion), found a positive significant relationship. This is also corroborated by Barako et al.

(2006) studies on Kenyan listed companies. However, Eng and Mak (2003) found no

relationship between block holder ownership and disclosure for listed companies in Singapore.

The study therefore hypothesized that:

H4 The ownership structure of a firm has no relationship with a company’s

disclosure practices.

Firm Size

Researchers have argued that larger firms tend to have higher proportion of outside capital (i.e.

more dispersed shareholding) and higher agency cost (i.e. higher information asymmetry) which

could lead to higher cost of capital (Jensen and Meckling, 1976; Tsamenyi et al., 2007) Larger

firms, therefore, require more disclosure to mitigate these effects and impliedly, larger firms are

likely to have higher levels of disclosure than smaller firms. Moreover, gathering and disclosing

information are costly procedures and therefore it is easier for large companies (deriving

economies of scale and having more resources) to produce comprehensive and detailed

information (Firth, 1979; Tsamenyi et al., 2007). Firth (1979) also suggests that managers of

smaller firms may feel that fuller disclosure of their activities will put them at a competitive

12

disadvantage compared with larger firms in their industry. Large firms therefore have lower costs

of competitive disadvantage from voluntary disclosure compared with smaller firms. Based on

these arguments, it is expected that larger firms may disclose more information than small sized

firms because of relatively lower direct costs of disclosure, higher agency costs. Barako et al.

(2006) studied the factors influencing voluntary corporate disclosure by Kenyan companies and

found that size of the firm is one of the factors that positively influence a firm to disclose more

information. This was corroborated by studies of Bujaki and McConomy (2002) in Canada, Eng

and Mark (2003) in Sinagpore, Hossain et al. (1994) in Malaysia and Tsamenyi et al. (2007) in

Ghana by proposing that, managers of larger companies are more likely to realise the possible

benefits of better disclosure and small companies are more likely to feel that full disclosure of

information could endanger their competitive position.

H5 The size of a firm has no relationship with its disclosure practices.

Leverage

Agency theory again suggests a strong relationship between the leverage of a firm and disclosure

(Jensen and Meckling, 1976). Because the presence of debt holders in a firm’s capital structure

(especially, highly geared firms) exacerbates agency conflicts (i.e. more monitoring costs),

management seeks to reduce these costs by disclosing more information in their annual reports

(Jensen and Meckling, 1976). Highly indebted companies are also motivated to voluntarily

disclose more information to accommodate the interests of creditors. This information is used to

assess a firm’s future growth and enhance the firm’s chances of obtaining funds from financial

institutions (Barako et al., 2006). Whereas Bradbury (1992), Eng and Mark (2003) and Barako et

al. (2006) provide evidence that leverage is positively related to the extent of voluntary

disclosure, Hossain et al. (1994), Aksu and Kosedag (2006) and Tsamenyi et al. (2007) found no

relationship between leverage and disclosure. The study examined the following hypothesis:

H6 The leverage of a firm has no relationship with its disclosure practices.

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Methodology

This exploratory study was approached taking into consideration the results of Tsamenyi et al

(2007) for the Ghanaian economy and Mangena and Tauringana (2007) for sub-Saharan Africa,

and Aksu and Kosedag (2006) for a broader emerging market’s evidence on disclosure and CG.

However, unlike Tsamenyi et al. (2007), and as proposed by Aksu and Kosedag (2006), the

study made use of longitudinal data starting from 2003 to 2007. Panel data was used due to its

advantage of having a large potential for resolving issues and inherent limitations of cross-

section models. All companies listed on the Ghana Stock Exchange (GSE) constituted the

population of the study as these companies are all subjected to similar disclosure requirements on

the exchange (some industries may have other industry-specific requirements). However, due to

availability of information, data was collected and analysed on twenty (20) listed companies for

a 5-year period (i.e. 2003 – 2007).2 Table 1.1 gives the summary of the distribution of companies

by sector included in the sample. Data for this study was mainly collected from the annual

reports of the companies for the various years under study and the GSE fact book for years 2003

– 2008. Other relevant data for the study were collected from codes, guidelines and the various

laws and regulations in Ghana governing the T&D and CG practices of listed companies notably,

the Companies Code 1963 (Act 179), The Securities Regulations, Securities and Exchange

Commission (SEC) CG Guidelines, Bank of Ghana Act, 2002 and the Banking Act, 2004.

2 Although there were twenty-three (23) companies listed on the exchange at the end of 2003, Trust Bank (The

Gambia) Ltd., British American Tobacco (BAT) and Ashanti Goldfields Company (AGC) were excluded from the

sample for reasons of inadequate information, de-listing and re-listing respectively.

14

Table 1.1 Distributions of Companies by Sectors

Sector Number of

companies listed3

Number included

in sample % included

Food and Beverage 3 3 100.00

Manufacturing 6 6 100.00

Printing and Publishing 2 2 100.00

Distribution and Trading 5 4 80.00

Banking & Finance and Insurance 6 5 83.33

Mining 1 0 0.00

Total 23 20 86.96

The data collected was analysed using descriptive, correlation and regression (Random Effect

panel regression) analyses. The Hausman test was used to test the orthogonality between the

effects and regressors, specifically, to determine the extent of correlation between the

unobserved fixed effect (αi) and any of the regressors as well as the appropriate estimation

technique. The correlation matrix was also used to test for possible multicolinearity among

independent variables. The following panel regression model was developed to investigate the

relationship:

ititititit FATTRCGDISCL εββδ +++= 21

Where,

DISCLit represents the level of disclosure practices of a firm i in time t.

3 The list of companies and sector definitions are as contained in the GSE Fact book, 2004.

15

CGit is a vector for CG variables; Board Size (BDSIZE); AC Composition (ACCOMP); and

Competence of AC (ACEXPT)

FATTRit represents a control vector for firm specific attributes; Firm size (FSIZE); Ownership

Structure (OWNSTURE) of the firm; and Leverage (LEVRG)

εit is the error term.

The disclosure score of a firm was obtained in line with the studies of Aksu and Kosedag (2006)

as:

∑∑=k

jk

j TOTS

SDISCL

Where, j = the attribute category subscript, j =1, 2, 3,

k = the attribute subscript, k = 1. . . 100,

Sjk = the number of info items disclosed (answered as “yes”) by the firm in each category,

TOTS = the total maximum possible “yes” answers for each firm

Disclosure items used in scoring the firms were collected from the annual reports provided by

the companies for the period of the study. In all, the research used 100 items to measure the

disclosure levels of the firms. These items were drawn from the Standard and Poor’s (S&P)

transparency and disclosure instruments and the disclosure index developed by Aksu and

Kosedag (2006). Even though S&P’s study had 98 attributes and Aksu and Kosedag (2006)

study had 106 attributes, items of their disclosure index which do not pertain to the Ghanaian

environment were not included in the construction of the disclosure score index for this study. In

choosing the disclosure attributes, the disclosure requirements for Ghanaian companies, such as

the SEC Corporate Governance Guidelines on Best Practices disclosure requirements, GSE

Listing Rules disclosure requirements and disclosure provisions in Ghana’s Companies Code

were considered. T&D score index for this study was evaluated by the inclusion of best practices

information items (attributes) over the years of study. According to OECD principles (1999), CG

16

frameworks should ensure that timely and accurate disclosure is made on companies with

regards to “financial situation, performance, ownership and governance”. This formed the bases

of the S&P’s disclosure and transparency categorization and the categories of disclosure

employed in the study of Tsamenyi et al. (2007) and Aksu and Kosedag (2006). This study also

categorized T&D into ownership structure and investor relationship disclosures (20 attributes),

financial and transparency disclosures (45 attributes), and CG disclosures (35 attributes) – see

appendix. A disclosure score sheet was designed to score companies on their level of disclosure.

Each attribute was scored on a binary basis (1 for a ‘yes’ and 0 for ‘no’) for objectivity, and an

overall score assigned from the number of attributes present in the annual report. Table 1.2

shows how the CG and firm specific characteristics were measured.

Table 1.2 Measurement of CG Attributes and Firm Specific Characteristics

Characteristics/Attributes Measurement Criteria

Board Composition Proportion of NEDs on the board

Board Size Number of Directors on the board

AC Composition Proportion of NEDs on the committee

AC Competence Dummy variable - '1' for presence of at least a

financial/accounting experts and '0' for otherwise

AC size Number of AC members

End of year total assets Firm Size

End of year market capitalisation

Ownership Structure Proportion of shares held by substantial shareholders in

excess of 5% of total shareholding.

Leverage Debt to total capital ratio (debt excludes current debts)

In order to make the analysis robust, the T&D attributes were further classified into mandatory

and voluntary disclosure items based on the regulatory framework of disclosure practices in

Ghana. 45% of the total attributes to be examined were required by law and other regulatory

bodies, while the remaining was voluntary. Table 1.3 shows the number of attributes looked at in

each of the categories with regards to mandatory and voluntary disclosures.

17

Table 1.3 Distribution of Mandatory and Voluntary Disclosure Attributes in Each

Category

Ownership Disclosure Financial Disclosure Governance Disclosure

No. Of % of Total No. of % of Total No. Of % of Total Disclosure

Type

Attributes Attributes Attributes Attributes Attributes Attributes

Mandatory 11 55.00 27 60.00 7 20.00

Voluntary 9 45.00 18 40.00 28 80.00

Total 20 100.00 45 100.00 35 100.00

Empirical Results and Findings

Descriptive Summary Statistics

Table 1.4 gives the summary of the mean, standard deviation, minimum and maximum values

for the overall sample. The mean values of the variables for each year are also presented in Table

1.5.

CG Characteristics

The mean board size is 9 with the minimum and maximum directors on the board being 5 and 13

respectively. The average board size is above the minimum of 2 required by the Companies Code

of Ghana. In terms of board composition, the mean proportion of NEDs on board is 0.63. This

suggests that, on the average, only 37% of the board members of listed companies are executive

directors. Thus, more outsiders serve on boards as compared to insiders. The implication is that,

on the whole, boards of listed companies are relatively independent as they are mostly dominated

18

by NEDs. All the companies have ACs established in their companies with AC size ranging

between 3 and 6 and the mean size of about 4 members. This is consistent with most CG

guidelines on ACs which should consist of at least 3 members (OECD Principles; GSE CG

Guidelines; UK Combined Code; US SOX).

Table 1.4 Summary Statistics of Overall Sample (Observations = 100)

Variable Mean Std. Dev. Min Max

Board Characteristics

Board Size (Number) 8.55 1.98 5.00 13.00

Board Composition (%) 0.63 0.13 0.33 0.86

AC Characteristics

AC Size (Number) 3.95 0.95 3.00 6.00

AC Composition (%) 0.87 0.16 0.33 1.00

AC’s Competence 0.85 0.36 0.00 1.00

Firm Specific Characteristics

Total Assets (GH¢ Million) 106.22 204.69 0.37 1142.12

Market Capitalization (GH¢ Billion) 63.58 84.87 0.30 457.50

Ownership Structure (%) 0.70 0.11 0.41 0.87

Leverage (%) 0.31 0.32 0.01 0.90

19

Firm Disclosure Scores (%)

Ownership Disclosure 55.90 1.34 20.00 65.00

Financial Disclosure 62.48 4.13 42.22 82.22

CG Disclosure 32.74 4.52 8.57 57.14

Overall Disclosure Score 50.76 8.13 30.00 64.00

In addition, these ACs are dominated by NEDs with an average proportion of 87% and thus, the

ACs are, to a large extent, independent. AC’s competence has a mean of 0.85. This means that

on the average the ACs of these firms are competent (i.e. have accounting/finance experts).

Impliedly, majority of the companies comply with the recommendations made by the notable CG

codes.

Firm Specific Characteristics

Firm size in terms of total assets and market capitalisation had mean values of GH¢106.22

million and GH¢63.58 billion respectively. However, there is a wide variation in the sizes of the

firms over the period as evident in their respective standard deviations. The average total assets

of the firms also increased remarkably over the period from GH¢70.94 million in 2003 to

GH¢160.31 million in 2007. Market capitalisation on the average also increased over the period

with the exception of 2005 where mean market capitalisation declined from GH¢73.59 billion in

2004 to GH¢58.42 billion (Table 1.5). Ownership structure has a maximum ratio of 0.87 and a

minimum of 0.41. The mean ownership structure is 0.70 which implies that significant

shareholders (with 5% or more) own 70% of the shares of the listed companies. Shareholding is

highly concentrated and the listed firms are characterised by large (block) shareholders.

Consistent with Tsamenyi et al (2007), these block holders are mostly companies/institutions and

in some cases government bodies. The minimum and maximum leverage of the companies over

the period was 0.01 and 0.90 respectively implying that on the average the companies finance

20

their operations largely with equity capital (i.e. mean leverage of 31%). However, the mean

leverage of the firms increased steadily over the period (Table1.5).

Disclosure Score

The mean overall disclosure score of the companies is 50.76% with maximum and minimum

scores of 64% and 30% respectively. T&D is therefore at a moderate level although some

companies show relatively high scores. Among the 3 disclosure categories, financial

transparency disclosure had the highest mean score index of about 62.48% of its possible

attributes. Ownership and governance disclosures had an average score index of 55.90% and

32.74% of their possible attributes respectively. This means that the firms disclose more of their

financial information than information on their ownership and governance structures.

Table 1.5 Mean of Variables for the Five Year Period (2003 – 2007)

Variables 2003 2004 2005 2006 2007

Board Characteristics

Board Size (number) 8.45 8.50 8.60 8.70 8.50

Board Composition (%) 0.59 0.58 0.63 0.62 0.63

AC Characteristics

AC Size (number) 3.90 3.90 3.90 4.00 4.05

AC Composition (%) 0.89 0.89 0.89 0.84 0.83

21

Firm Specific Characteristics

Total Assets (GH¢ million) 70.94 81.51 93.33 125.01 160.31

Market Capitalisation (GH¢ billion) 32.59 73.59 58.42 59.55 93.73

Ownership Structure (%) 0.63 0.70 0.71 0.71 0.71

Leverage (%) 0.28 0.29 0.30 0.32 0.35

Firm Disclosure Scores (%)

Ownership Disclosure 54.50 56.00 55.00 56.50 57.50

Financial Disclosure 60.44 61.78 62.33 63.33 64.56

Governance Disclosure 29.57 32.57 33.71 32.86 35.00

Overall Disclosure 48.45 50.40 50.85 51.30 52.80

Disclosure Practices of Firms

Table 1.6 shows a dispersion of mean disclosure levels of the companies and their respective

percentages. In general, two firms had a mean total disclosure score index of less than 40% of

the total disclosure attributes, three companies disclosed information on more than an average of

60% and the mean disclosure score index of the remaining firms was between 40% and 60% of

the disclosure items. Listed companies therefore exhibit fair/moderate disclosure practices. This

assertion is supported by the fact that, about 75% of the firms fall within the moderate disclosure

score index range, coupled with the mean overall disclosure score index of about 50.76%. The

level of disclosure among Ghanaian companies is akin to that of other emerging markets. For

instance, the Standard and Poor’s (S&P’s) average disclosure scores for South Africa, Hungary

and Thailand in year 2000 were 56.12%, 43.87% and 50.00% respectively (Patel et al., 2002 as

cited in Tsamenyi et al., 2007). Analysis of the trend of average disclosure scores showed that

22

there was a marginal increase from year to year over the five year period. This implies that even

though the average level of disclosure is moderate, the companies are improving on their T&D

practices although others recorded no improvement with only a few recording a decline in their

T&D level.

Table 1.6 Dispersion of Average Disclosure Levels made by Companies (2003-2007)

Average Disclosure Score Range Number of Companies % in the Sample

Less than 40% (Low level) 2 10.00

Between 40% and 60% (Moderate level) 15 75.00

Greater than 60% (High level) 3 15.00

Total 20 100.00

This corroborates the findings of Patel et al. (2002) and Tsamenyi et al. (2007) that T&D levels

of companies across economies improve comparatively over time. Tsamenyi et al. (2007) study

in Ghana observed that although disclosure levels for the companies they sampled improved for

a significant number of companies, others registered no improvements and a few experienced a

decline. Disclosure levels for each of the 3 disclosure categories also changed from year to year

within the period. To further enrich the analysis, the disclosure levels of the firms were analysed

with regards to the way disclosure was categorised for this study. As shown in Table 1.4, the

level of financial and transparency disclosure of listed firms is high (averagely 62.49%),

ownership disclosure level is moderate (averagely 55.90%) and governance disclosure is low

(less than 40%). The high and fair disclosure practices exhibited by the firms in terms of

financial and ownership disclosures respectively may be due to the fact that most of the attributes

in these categories are mandatory in nature as shown in Table 1.3. Companies are therefore

obliged to disclose these items to prevent sanctions and penalties from regulators. The low level

of governance disclosure score, on the other hand, is expected because of the principle-based CG

system in Ghana. This makes such disclosures voluntary since companies have to comply or

23

explain the reason for non-compliance unlike the rule based system where such disclosures

might be mandatory. This suggests that policy makers in Ghana could explore the possibility of a

hybrid model of CG (a balance between the rule-based and principle-based) to increase the level

of governance disclosures. It must be emphasised here that, although on the average the

governance disclosure practices were low, some companies exhibited fair governance disclosure

practices – especially those who have corporate institutions and government as their block

holders.

Table 1.7 Mean Mandatory and Voluntary Scores for the Firms

Mandatory Voluntary

Category of Disclosure

Mean Score (%) Mean Score (%)

Ownership Disclosure 80.36 26.00

Financial Disclosure 76.48 41.50

Governance Disclosure 68.29 23.86

Overall Disclosure 76.16 29.98

Furthermore, the study shows that disclosure level is high in terms of mandatory disclosures as

the mean overall mandatory disclosure score was 76.16%. This was the case for all the categories

as evidenced in table 1.7. The results also indicate that firms which exhibited a very high level of

compliance with mandatory disclosure requirements are largely owned by foreign institutions

and thus, companies with concentrated foreign ownership are more compliant with regulatory

requirements than locally owned companies. Ghanaian regulatory bodies are seen to be relaxed

and less stringent in dealing with non-compliance issues. The low level of education of

Ghanaians on the rights of shareholders can be a major contributing factor for locally owned

companies being less compliant. The level of mandatory disclosure practice exhibited by the

firms may suggest that Ghanaian listed companies are effective (on a scale of very ineffective to

24

very effective) in terms of compliance with regulatory requirements. It must be noted that, even

though on the average disclosure practices are high in terms of mandatory disclosures,

governance items that need to be compulsorily disclosed by companies had the least compliance

level – an additional evidence of the level of development of CG in the country. On the other

hand, with a mean voluntary disclosure score of 29.98%, it is very glaring that the firms hardly

disclose information voluntarily.

Regression Analysis

A multicollinearity test was also performed to identify possible correlations between the

independent variables in the model. The test results of the correlation matrix (shown in the

appendix) indicated that, although majority of these variables were somehow correlated but

insignificant, a firm’s total asset was significantly correlated with the market capitalization of the

firm. The leverage of the firm was also significantly correlated with the total assets of the firm.

Consequently, two regressions were run – one excluded both market capitalization and leverage,

and the other excluded total assets – and the results are as shown in Tables 1.8 and 1.9. The

results of the regression show that both CG characteristics exhibited by companies and the firm’s

specific characteristics - except firm size (both total assets and market capitalization) and AC

competence - are not significantly related to companies’ disclosure practices. As shown in Tables

1.8 and 1.9, AC competence has a positive significant association with disclosure practices at a

1% significant level. This implies that if more members of the AC are accounting/finance

experts, the disclosure practices of companies are greatly improved. A reason for this could be

that people with accounting/finance backgrounds are capable of understanding and interpreting

reports prepared by financial managers. Moreover, such people understand the rules and

standards governing such reports better than non-experts (McDaniel et al., 2002). As a result,

any non-compliance (in terms of mandatory disclosure) and non-disclosure of items relevant and

useful to stakeholders will be readily identified and discussed to enforce their disclosure in the

annual reports. The findings however are inconsistent with the results of the Carcello et al.,

(2006) study since they fail to document any evidence of a pronounced association between AC

accounting expertise and financial reporting quality.

25

Table 1.8 Random Effects Panel Regression of Estimates (2003-2007) – Dependent

Variable is Overall Disclosure Score and Independent Variables Exclude

Market Capitalization and Leverage

Independent Variables Estimated Co-efficient Z – Score P > |Z|

Board Composition 5.22 0.97 0.33

Audit Committee Composition -3.07 -1.14 0.25

Audit Committee Competence 8.60 4.31*** 0.00

Ownership Structure -5.43 -0.92 0.36

Total Assets 0.01 1.83* 0.07

Constant 46.21 7.25 0.00

R-Square

Within 0.1806

Between 0.3634

Overall 0.3464

Wald Chi-square (5) 25.73 P > Chi-square 0.0001

*** and * indicate that it is significant at 1% and 10% significant levels respectively.

The results also show that there is a positive and significant relationship between firm size (both

market capitalisation and total assets) and overall disclosure. This is to say that firms with higher

market capitalisation and total assets disclose more information than companies with low market

capitalisation and total assets on the stock market. The results are consistent with the findings of

Bujaki and McConomy (2002) in Canada, Eng and Mark (2003) in Sinagpore, Hossain et al.

(1994) in Malaysia and Tsamenyi et al. (2007) in Ghana. A possible reason could be that

managers of larger companies are more likely to realise the possible benefits of better disclosure

and so will disclose more. Small companies, on the other hand, are more likely to feel that full

disclosure of information could be very expensive and may also endanger their competitive

position.

26

Table 1.9 Random Effects Panel Regression of Estimates (2003-2007) - Dependent

Variable is Overall Disclosure Score and Independent Variables Exclude

Total Assets

Independent Variables Estimated Co-efficient Z – Score P > |Z|

Board Composition 2.80 0.51 0.61

Audit Committee Composition -3.24 -1.17 0.24

Audit Committee Competence 8.83 4.41*** 0.00

Ownership Structure -8.32 -1.40 0.16

Market Capitalisation 0.02 2.73** 0.01

Leverage 0.58 0.31 0.76

Constant 49.16 7.67 0.00

R-Square

Within 0.2009

Between 0.4403

Overall 0.4146

Wald Chi-square (6) 31.88 P > Chi-square 0.0000

*** and ** indicate that it is significant at 1% and 5% significant levels respectively.

The overall R2 of the regression indicates that only 45.95 % of the variations in disclosure can be

attributed to the independent variables and thus, there are other variables which result in the

differences in disclosure practices of listed companies. Again, the regression results show that H3

and H5 should be rejected since their computed z-scores exceed the critical value at a 1% and

10% significance level respectively. The study concludes that the presence of accounting/finance

expert(s) on the AC of companies and the size of a firm (in terms of market capitalization) are

both positively related to a firm’s disclosure practices. However, a firm’s board and AC

composition, ownership structure and leverage have no association with the level of disclosure of

the company.

27

Conclusions

In conclusion, the study documents that Ghanaian listed companies fairly/moderately disclose

information to their stakeholders. Despite the moderate disclosure practices, disclosure on

information relating to CG practices of the firms is still very low. Furthermore, mandatory

disclosure practices of Ghanaian listed companies are very high. Yet, there is still an appreciable

level of non-compliance to some obligatory disclosure requirements. Again, smaller-sized firms

disclose less information to their stakeholders as compared to large companies. In addition, firms

listed on the GSE have an AC of which the board and ACs of these companies are dominated

with NEDs. Companies with accounting/finance expert(s) on their ACs disclose more

information than those without. Finally, even though CG practices of Ghanaian listed companies

have improved consistently over the years, the improved CG practices have concentrated much

on issues such as company-stakeholder relationship and financial reporting and auditing. Other

governance issues, especially information and communication, directors’ remuneration and risk

management are yet to be developed.

Policy Implications of the Study

The CG and T&D practices in Ghana call for a highly effective regulatory framework. Proper

enforcement of compliance with mandatory disclosure by regulatory bodies (through the

effective implementation of penalties and sanctions for non-compliance) could enhance the level

of disclosure of Ghanaian listed companies. Other institutions within the regulatory framework,

which lacks the legal backing for enforcement of best practices, should also be empowered. For

instance, the ICAG could enforce quality disclosure practices in the country via carrying out an

effective and a regular peer review of the work of its members, especially auditors, in ensuring

that good and standard governance and disclosure practices are adhered to by their clients (the

companies they audit). Moreover, increased education of all the major stakeholders of companies

on their roles and responsibilities would ensure good CG and T&D practices of their firms. For

example, management should be made to understand all aspects of their CG and T&D system

and see these practices as important systems to guide their policies and value added decisions.

28

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34

APPENDIX

DISCLOSURE ATTRIBUTES USED

Do annual reports contain information on the following:

Ownership and Investor Disclosures (20 attributes)

• No. of issued and o/s ordinary shares?*

• Shares issued at no par value?*

• No. of auth but unissued & o/s ordinary

shares?*

• Company's mission statement?*

• Information of company's registered

office and secretary?*

• A list of 20 largest shareholders?*

• Statement of percentage of total

shareholding of 20 largest

shareholders?*

• Number of shares held by 20 largest

shareholders?*

• Description of share classes?*

• Review of shareholders by type (class)?*

• Voting rights for each voting share?*

• Brief History of the company?

• Organisational Structure/chart?

• Existence of Corporate Governance

Charter or Code of Best Practice?

• Reproduction of its Corporate

Governance Charter/Code of Best

Practice?

• How or who nominates directors to

board?

• How shareholders convene an EGM?

• Procedure for proposals at shareholders

meetings?

• Review of last shareholders meeting

(e.g. minutes)?

• Shareholding by senior managers?

35

Financial and Transparency Disclosures (45attributes)

• Its accounting policies?*

• Accounting standards it uses for its

accounts?*

• Accounts according to the local

accounting standards / international

standards?*

• B/S according to international

accounting standard (IAS/GNAS)?*

• I/S according to international accounting

standard (IAS/GNAS)?*

• Income surplus account according to the

companies code?*

• C/F according to international

accounting standard (IAS/GNAS)?*

• Name of its auditing firm?*

• Reproduction of the auditors’ report?*

• How much it pays in audit fees to the

auditor?*

• Fees paid to auditors?*

• Consolidated financial statements (or

only the parent/holding company)?*

• Methods of asset valuation?*

• Information on method of fixed assets

depreciation?*

• Efficiency indicators (ROA, ROE,

etc.)?*

• Any industry-specific ratios?*

• List/register of related party

transactions?*

• List/register of group transactions?*

• Off balance sheet financing

information/contingent liabilities?*

• Period Financial highlights?*

• Chairman’s statement/Directors report?*

• Internal control/Risk Management?*

• Brief Description of Companies Lands

and Buildings (Freehold and leased)?*

• List of affiliates in which it holds a

minority stake?*

• Gearing ratio?*

• Any plans for investment in the coming

year(s)?*

• Characteristics of assets employed?*

• Accounts adjusted for inflation?

36

• Basic earnings forecast of any kind?

• Detailed earnings forecast?

• Financial information on a quarterly

basis?

• Segment analysis (broken down by

business line)?

• Ownership structure of affiliates?

• Details of the kind of business it is in?

• Details of the products or services

produced/provided?

• Discussion of corporate strategy?

• Detailed info about investment plans in

the coming year(s)?

• Overview of trends in its industry?

• Its market share for any or all of its

businesses?

• Social responsibility/CSR?

• Corporate governance statement and

awareness?

• Five year financial summary?

• Forward looking information?

• Managing director’s review?

• Value added statement/information

Corporate Governance Disclosure attributes (35 attributes)

• List of board members (names)?*

• Details about role of the board of

directors at the company?*

• Existence of an audit committee?*

• Existence of other internal audit

functions besides Audit committee?*

• No. of shares in the company held by

directors?*

• Specifics of directors’ salaries (e.g.

numbers)?*

• Form of directors’ salaries (e.g. cash,

shares, etc.)?*

• Changes in board directors?*

• Details about directors (other than

name/title)?

• Details about current

employment/position of directors

provided?

• Details about previous

employment/positions provided?

37

• When each of the directors joined the

board?

• Classification of directors as an

executive or an outside director?

• Photographs of board members?

• Details about the chairman (other than

name/title)?

• List of board committees?

• Names on audit committee?

• Existence of a

remuneration/compensation committee?

• Names on remuneration/compensation

committee?

• Existence of a nomination committee?

• Names on nomination committee?

• Existence of other internal audit

functions besides Audit committee?

• Existence of a

strategy/investment/finance committee?

• Review of last board meeting (e.g.

minutes)?

• Whether they provide director training?

• Decision-making process of directors’

pay?

• Decision-making of managers’ (not

Board) pay?

• Specifics of managers’ (not on Board)

salaries (e.g. numbers)?

• Form of managers’ (not on Board)

salaries?

• Specifics on performance-related pay for

managers?

• List of senior managers (not on the

Board of Directors)?

• Backgrounds of senior managers?

• No. of shares held by managers in other

affiliated companies?

• Specifics on performance-related pay for

directors?

• Separation of chairman and CEO

• Details of the CEOs contracted

Note: * Indicates mandatory attributes

38

CORRELATION MATRIX OF THE INDEPENDENT VARIABLES

DISCL BDCOMP ACCOMP ACEXPT FSIZEA FSIZEM OWNSTURE LEVRGE

DISCL 1.00

BDCOMP 0.29 1.00

ACCOMP 0.18 0.04 1.00

ACEXPT 0.46 0.15 0.20 1.00

FSIZEA 0.47 0.27 0.29 0.21 1.00

FSIZEM 0.61 0.24 0.23 0.27 0.71 1.00

OWNSTURE -0.20 -0.31 -0.07 -0.01 -0.15 0.07 1.00

LEVRGE 0.39 0.31 0.43 0.09 0.67 0.50 -0.14 1.00

39