This paper reports on voluntary disclosure practices of Indian manufacturing companies and relates the extent of disclosure to company size, profitability, extent of international operations and nature of industry. Voluntary disclosure varies with regard to different items and across companies. And extent of disclosure is significantly and positively related to company size and profitability.
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Corporate disclosure is of great significance in the accomplishment of financial accounting objectives and in contributing to the efficient allocation of resources through sound economic decisions. The quality of corporate disclosure influences to a great extent the quality of investment decisions made by the investors. With improved corporate disclosure practices, the investors' interest is protected against securities fraud and his confidence in the securities market is developed and maintained (Singhvi, 1967; and Meek et al, 1975). This in turn, eases the problem of raising long- term capital funds through the securities market (LaI, 2005). Management must engage and interact with investors and capital market intermediaries to project a clear and compelling picture of the company's prospects, which in turn should help both analysts and institutional investors become more effective monitors of firm's performance (Hutton, 2004).
In the long run, adequate disclosure is expected to enhance the market price of a company's share in the investment market, which in turn will have a favorable impact on the company's cost of capital (LaI, 1985; and Foster, 2002). Further, increased disclosure would prevent fraud and manipulations and would minimize chances of their occurrences and all investors would be treated equally as far as the availability of significant financial information is concerned. Meaningful disclosure of information has been inevitable in the context of changing profile of corporate ownership, with the increasing flow of foreign investment, preferential allotment of shares to the promoters of companies and the emerging role of mutual funds in the securities market. The fact that companies are raising capital outside India through American Depositary Receipts (ADRs) /Global Depository Receipts (GDRs) further strengthens the need for improving the quality of corporate disclosure on a continuous basis.
Besides investors, present and prospective employees may use the financial reports to assess the risk and growth potential of a company, their job security and promotional possibilities, which in turn will affect the allocation of human capital in the economy. Also disclosure is significant from the point of view of large number of other potential users including creditors, customers, legislators and above all the public at large.
High quality financial reporting contributes to the reputation of a firm in its product market as a dependable organization to do business transactions. Further, better corporate disclosure practices are instrumental in enhancing brand name and reputation, creating a cohesive corporate culture, mitigating frauds, and in avoiding litigations and fines (Narayanaswamy, 2006). Hence, it is inevitable that significant material information is disclosed in corporate annual reports. The corporate disclosure environment has also undergone a rapid change due to the advancement of new communication technology, emergence of international competitive forces and strong financial markets. With the introduction of liberalization concepts all over the world, the objectives of financial statements lie on greater movement towards a market driven governance of measurement and disclosure standards.
Information about a corporation can be disclosed to investors in several ways, but the annual report to stockholders is considered as one of the most important sources of information to investors for several reasons. Corporate annual report is considered as the most effective means of communicating to the various user groups and carries the relevant financial and non-financial information about the corporate performance. …