Financial disclosure practices : theoretical foundation, and an empirical investigation on Jordanian printed and internet formats

Abstract

This thesis proposes a theoretical framework of financial disclosure practice as a step to fill the gap in the theoretical background of financial disclosure research. Codification theory, Dye’s (1986) theory and disclosure transformation theory are proposed in this framework as explanatory theories of the mandatory and voluntary financial disclosure developments in practice.  To examine aspects of this proposed framework, this thesis carried out an empirical investigation on the printed and Internet financial disclosure practices in Jordan. This empirical study measures the extent of financial disclosure practices by Jordanian companies before and after the extension of disclosure requirements in 1998, and after the existence of new technology developments in 2000. The study compares the level of printed mandatory, voluntary and overall financial disclosure of 51 Jordanian manufacturing companies listed on Amman Stock Exchange (ASE) in 1997 and 2002, and investigates the relationship between these levels of printed financial disclosure and company characteristics (size, age, profitability, industry type, ownership structure, and auditor size). Also this study examines the level of Internet financial disclosure by Jordanian companies listed on ASE in 2004, and its relationship with printed financial disclosure practices as well as company size.

It was found that the overall level of financial disclosure by Jordanian manufacturing companies improved after the introduction of mandatory disclosure requirements in 1998.  However, these companies did not fully comply with mandatory disclosure requirements in 1997 and 2002.  On the other hand, they disclosed a considerable level of voluntary information in both years, and the mean level of voluntary disclosure increased in 2002. This is considered empirical evidence supporting Dye’s (1986) theory.  Also the results reveal a strong association between voluntary disclosure practices in 197 and new mandatory disclosure requirements in 1998, which provides evidence for codification theory.  Furthermore, some improvement in the level of compliance with the generic requirements of International Accountancy Standards’ (IAS) financial statements was observed between 1997 and 2002 as a result of an increase in company familiarity with these requirements, although this study provides evidence of IAS-lite in 1997 and 2002.  None of the company characteristics were positively associated with mandatory disclosure in 1997, whereas after the developments in 1998 company size, company age and auditor size were positively associated. This result provides strong evidence for Environmental-Cause Theory.  Also voluntary disclosure in 1997 was positively associated with company size, profitability, and the natural resources and food and clothing industries.  In 2002, foreign ownership appears to have affected the level of voluntary disclosure.  Moreover, the current findings provide evidence that Jordanian companies have yet to exploit the full potential of Internet financial disclosure. A positive relationship between printed and Internet financial disclosure was found, which provides evidence for disclosure transformation theory. Finally, company size had a positive impact on the level of Internet financial disclosure.

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