Academic journal article The International Journal of Business and Finance Research

The Association between Firm Characteristics and Corporate Financial Disclosures: Evidence from UAE Companies

Academic journal article The International Journal of Business and Finance Research

The Association between Firm Characteristics and Corporate Financial Disclosures: Evidence from UAE Companies

Article excerpt

ABSTRACT

This paper provides empirical evidence of the impact of firm specific characteristics on corporate financial disclosures amongst UAE companies. A total of 153 public, joint-stock companies, listed and unlisted, were incorporated at the time of study. Both descriptive statistics and multiple regression analyses are used to test the relationship between the characteristics of UAE firms and the extent of their financial disclosure. Eight hypotheses were established to examine the relationship between a number of explanatory variables (namely, type of industry, listing status, return on equity, liquidity, market capitalization, foreign ownership, non-executive directors, and audit committee) and the extent of disclosure in corporate annual reports. The results of this study show that listing status, industry type, and size of firm are found to be significantly associated with the level of disclosure. This finding not only provides support for previous studies, but also is of relevance to those in the UAE who want to understand corporate disclosure and should also be of interest to UAE user-groups. Conclusions drawn from this study may be of interest to policy makers and regulators who want to improve corporate financial disclosure in their countries.

JEL: M4, M48, M49

KEYWORDS: Corporate Financial Disclosure, Firm Characteristics, UAE Firms, Corporate Annual Reports

(ProQuest: ... denotes formulae omitted.)

INTRODUCTION

The quality of information disclosed in corporate annual reports has received a great deal of attention in the last four decades, mostly in developed countries. The relationship between the extent/quality of disclosure in corporate annual reports and the characteristics of the firm has been extensively examined in the literature. Most of the studies in this area have used an index methodology, which is based on developing a general index and relating it to a number of explanatory variables (e.g., asset size, number of shareholders, profitability, listing status) in order to explain cross-sectional variation in the extent of disclosure in such corporate annual reports.

It is essential to have high-quality standards and reporting practices to provide users of financial information with what they need (Biobele et. al., 2013). Deficiencies in such standards and practices cause inconsistency, incomparability, reduced transparency and a lack of trust in the information provided, which lead to higher costs of capital and increased risks for different user-groups. As Jenkins (2002, p. 2) stated, 'High-quality financial reporting is essential to maintaining an efficient capital market system. A highly liquid capital market requires the availability of transparent and complete information so that all participants can make informed decisions as they allocate their capital among competing alternatives'.

The above-mentioned perceived benefits accrue to economically advanced nations. However, financial reporting is even more essential for developing countries which seek to build a strong economy by regulating financial practices, protecting the national economy from the control of a handful of influential investors, and encouraging citizens to invest locally. The purpose of this study is to examine the relationship between the extent of disclosure in corporate annual reports and selected firms' characteristics in The United Arab Emirates (UAE). UAE, which was established in 1971, is a new country that relies heavily on oil as its main source of income. Since its establishment, the UAE has adopted an open economic strategy, and it is one of the fastest growing countries in the world on various socioeconomic indicators, such as GDP per capita (Wikipedia, 2008). The country has witnessed remarkable progress and development in different economic aspects. However, the accounting profession is not well developed (Khasharmeh & Aljifri, 2010).

The government of the UAE has, since 1980, examined the potential benefits of establishing an official securities market. …

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