Stock Ownership Structure and Voluntary Disclosure of Quarterly Foreign Sales Data of U.S. Multinational Corporations

Article excerpt


The ownership structure of a corporation can alleviate the agency problem that arises between shareholders and managers of a corporation, which implies that the ownership composition of a firm may influence the level of voluntary disclosure. This study investigates whether the ownership structure of U. S. based multinational corporations affects the managerial decision to voluntarily disclose quarterly foreign segment data. The empirical results show that the three ownership variables of interest, institutional stock ownership, managerial stock ownership and outside blockholder stock ownership are inversely related to the level of voluntary disclosure of quarterly foreign segment data. Therefore, it is inferred that an increase in the proportion of outstanding common stock held by these ownership groups is accompanied by a decrease in the probability that a U.S. multinational firm voluntarily discloses quarterly foreign segment data.


The disclosure practices of multinational corporations and their economic consequences have received considerable attention in the financial accounting literature in recent years. Studies in this area have focused on (1) how disclosure patterns of multinational corporations are influenced by the adoption of new accounting standards (Herrmann & Thomas, 2000; Nichols, Street, & Gray, 2000; Street, Nichols, & Gray, 2000) (2) how investors value the geographic segment information disclosed by multinational corporations (Boatsman, Behn, & Patz, 1993; Bodnar & Weintrop, 1997; Christophe, 2002; Christophe & Pfeiffer, 2002), (3) how financial analysts use domestic and foreign earnings disclosure to formulate their forecasts (Khurana, Pereira, & Raman, 2003; Berger & Hann , 2002) and, (4) whether it is possible to generate abnormal returns using public information about multinational companies' domestic and foreign earnings (Thomas, 2000). However, considerably less attention has been given to understanding factors that affect the management decision to voluntarily disclose data on foreign operations. In their list of important questions for financial reporting and disclosure researchers, Healy and Palepu (2001) suggest investigating what factors affect the disclosure decisions of managers.

This paper examines the relationship between the ownership structure of U. S. multinational corporations and the level of voluntary disclosure of quarterly foreign sales data.1 We study quarterly foreign sales rather than quarterly foreign earnings because quarterly foreign earnings are seldom reported.2 Furthermore, Hossain and Marks (2005) report that voluntarily disclosed quarterly foreign sales data has information content for investors. They show that abnormal returns on the common stock of U. S. multinational companies around quarterly earnings announcements are associated with the change in quarterly foreign sales. Several other studies investigate corporate ownership characteristics and the overall level of disclosure by a company (e.g. Nagar, Nanada, & Wysocki, 2003; Eng & Mak, 2003; Haniffa & Cooke, 2002; Ho & Wong, 2001 ; Raftburnier, 1995; McKinnon & Dalimunthe, 1993). These studies focus on explaining managers' rationale for overall disclosure measures rather than focusing on just one type of disclosure. Francis (2001) points out that understanding the rationale behind a particular accounting choice can help us understand the economic determinants behind managers' decisions. For example, Aggarwal & Simkins (2004) outline the factors affecting the decision by managers of large U.S. companies to voluntarily disclose information on derivatives usage.

Based upon Jensen's (1993) observation that ownership is a key element in corporate control and governance, this study examines the relationship between voluntary disclosure of quarterly foreign sales data and three different measures of ownership, institutional ownership (El-Gazzar, 1998), managerial ownership (Jensen & Meckling, 1976) and blockholder ownership (Shleifer & Vishny, 1986). …


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