Academic journal article European Research Studies

Internet Financial Reporting Quality and Corporate Characteristics: The Case of Construction Companies Listed in Greek and Cypriot Stock Exchange

Academic journal article European Research Studies

Internet Financial Reporting Quality and Corporate Characteristics: The Case of Construction Companies Listed in Greek and Cypriot Stock Exchange

Article excerpt

1. Introduction

Internet is undoubtedly one of the most significant means of communication in our days. Its use enables the worldwide dissemination of information and encourages investments (Aly, Simon & Hussainey, 2010). In addition, it supports better functioning of capital markets by enhancing companies' ability to provide investors with up to date, timely information (Abdelasalam, Bryant & Street, 2007). Consequently, its wide use in a business environment can have a significant impact on business activities and the related requirements for financial reporting.

According to the International Accounting Standards Board "the objective of financial reporting is to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders and other creditors in making decisions in their capacity as capital providers" (IASB, 2008). In this context, web based business information is considered helpful in making investment and other business decisions, (Financial Accounting Standards Board 2000). Companies have several potential motives to provide financial information on the internet, which among others include, the reduction of cost and time for the distribution of information, communication with previously unidentified consumers, supplementation of traditional disclosure practices, increase of the amount and type of information disclosed and improvement of access to potential investors for small companies, (FASB, 2000).

The objective of this study is twofold. On the one hand, it aims to examine the disclosure practices of listed construction companies and assess the quality of their financial reporting provided through the internet. On the other hand, it purports to investigate the association of selected firm characteristics with the level of internet financial reporting. For this purpose a disclosure index was constructed consisting of 51 items that cover 4 broad categories: content, technology, user support and timeliness.

Since 2009 and especially 2010, the deep concern on the solvency of European states has highly affected financial markets. Therefore, the study of internet disclosures in Greece and Cyprus presents an additional interest due to the specific financial conditions created by the economic crisis in these countries. Moreover, the financial reporting of Greek companies provided through the internet is perceived by auditors to be of moderate quality (Tasios & Bekiaris, 2012).

The findings of the study contribute to existing literature of internet financial reporting by strengthening the evidence on the relationship between the extent of disclosure and profitability, leverage, firm age and ownership dispersion. Furthermore, the index of the study could be a useful tool to the managers of the companies in their effort to improve the quality of internet reporting by identifying areas with weaknesses and inefficiencies.

The remainder of the paper is organized as follows: part two presents an overview of relevant research, while part three develops research hypotheses examined in the study. Research methodology is presented in part four, which includes the construction of the index and the development of the research model. The results of the study are included in part five and a summary of conclusions is presented in part six.

2. Literature Review

Internet financial disclosures are voluntary and as no relevant or common legal framework that regulates them exists, differences occur in corporate disclosure practices. Some companies disclose only a part of their financial statements using a low level of technology, while others disclose a whole set of financial statements using the technological advancements of the internet such as, multimedia and analytical tools, (Budisusetyo & Almilia, 2008). As the purpose of financial reporting is to provide information useful for decision making, timeliness consists another crucial element of internet financial reporting (Liapis, Katsianis and Galanos, 2013; Eriotis, 2004; Soltani, 2002). …

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