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Determinants and value relevance of corporate disclosure Evidence from the emerging capital market of Ghana Godfred A. Bokpin Department of Finance, University of Ghana Business School, University of Ghana, Accra, Ghana Abstract Purpose – The purpose of this paper is to document the determinants and value relevance of corporate disclosure and transparency on the Ghana Stock Exchange (GSE). Design/methodology/approach – The paper employs the Fama and French model by relating firm value to firm level characteristics, with a sample of 27 firms on the GSE over a six-year period (2003-2008) Findings – The author found positive though statistically insignificant relationship between corporate disclosure and firm value represented by market to book value ratio and negative for stock price. Consistent with the political cost, signalling, agency and economic theories of corporate disclosure, the author found firm size, financial leverage, audit quality, age and profitability to be significant firm level characteristics determining corporate disclosure in Ghana. Though the adoption of IFRS is significant, it has marginally improved disclosure, though perhaps it is observed more in breach than in compliance and practical steps must be taken to improve disclosure practice on the GSE. Originality/value – The main value of the paper lies in providing further evidence of the value relevance and determinants of corporate disclosure using emerging data. Keywords Ghana, Disclosure, Stock exchanges, Capital markets, Corporate disclosure, Transparency, Firm value Paper type Research paper 1. Introduction The purpose of accounting is to generate financial information useful in decision making. The financial reporting disclosure decision is then one way that corporations communicate information to various users of the accounting information whether financial or non-financial, quantitative or otherwise concerning a company’s financial position and performance. Corporate disclosure is then key to the strategic link between accounting and business decision making. According to Borgia (2005), “Disclosure to the shareholders and to the market has long been a key mechanism in corporation and capital market law. Milestones in corporation law were the Gladstonian reforms of 1844 and 1845. One hundred years later the US American securities regulation of 1933 and 1934 gave to the world the blueprint for using disclosure in securities regulation”. But recent accounting scandals in the USA and other parts of the world, including globalisation and integration of capital markets and the need to access capital requires that firms disclose more information and adopt high-quality governance standards. The determinants and value relevance of disclosure is well grounded in theory including the agency and political costs theories ( Jensen and Meckling, 1976; Watts and Zimmerman, 1978, 1990), signalling theory (Ross, 1977; Morris, 1987), institutional theory (Meyer and Rowan, 1977; DiMaggio and Powell, 1983; Oliver, 1997), legitimacy theory (Carpenter and Feroz, 1992, 2001; Guthrie and Parker, 1990; Mezias, 1990), proprietary costs theory (Dye, 1985; Darrough and Stoughton, 1990; Verrecchia, 1983; Wagenhofer, 1990), contingency theory (Doupnik The current issue and full text archive of this journal is available at www.emeraldinsight.com/0967-5426.htm Journal of Applied Accounting Research Vol. 14 No. 2, 2013 pp. 127-146 r Emerald Group Publishing Limited 0967-5426 DOI 10.1108/09675421311291883 127 Determinants of corporate disclosure

Determinants and value relevance of corporate disclosure

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Page 1: Determinants and value relevance of corporate disclosure

Determinants and value relevanceof corporate disclosure

Evidence from the emerging capitalmarket of Ghana

Godfred A. BokpinDepartment of Finance, University of Ghana Business School,

University of Ghana, Accra, Ghana

Abstract

Purpose – The purpose of this paper is to document the determinants and value relevance ofcorporate disclosure and transparency on the Ghana Stock Exchange (GSE).Design/methodology/approach – The paper employs the Fama and French model by relating firmvalue to firm level characteristics, with a sample of 27 firms on the GSE over a six-year period (2003-2008)Findings – The author found positive though statistically insignificant relationship between corporatedisclosure and firm value represented by market to book value ratio and negative for stock price.Consistent with the political cost, signalling, agency and economic theories of corporate disclosure, theauthor found firm size, financial leverage, audit quality, age and profitability to be significant firm levelcharacteristics determining corporate disclosure in Ghana. Though the adoption of IFRS is significant, ithas marginally improved disclosure, though perhaps it is observed more in breach than in compliance andpractical steps must be taken to improve disclosure practice on the GSE.Originality/value – The main value of the paper lies in providing further evidence of the valuerelevance and determinants of corporate disclosure using emerging data.

Keywords Ghana, Disclosure, Stock exchanges, Capital markets, Corporate disclosure,Transparency, Firm value

Paper type Research paper

1. IntroductionThe purpose of accounting is to generate financial information useful in decision making.The financial reporting disclosure decision is then one way that corporationscommunicate information to various users of the accounting information whetherfinancial or non-financial, quantitative or otherwise concerning a company’s financialposition and performance. Corporate disclosure is then key to the strategic link betweenaccounting and business decision making. According to Borgia (2005), “Disclosure to theshareholders and to the market has long been a key mechanism in corporation and capitalmarket law. Milestones in corporation law were the Gladstonian reforms of 1844 and 1845.One hundred years later the US American securities regulation of 1933 and 1934 gave tothe world the blueprint for using disclosure in securities regulation”. But recentaccounting scandals in the USA and other parts of the world, including globalisation andintegration of capital markets and the need to access capital requires that firms disclosemore information and adopt high-quality governance standards. The determinants andvalue relevance of disclosure is well grounded in theory including the agency and politicalcosts theories ( Jensen and Meckling, 1976; Watts and Zimmerman, 1978, 1990), signallingtheory (Ross, 1977; Morris, 1987), institutional theory (Meyer and Rowan, 1977; DiMaggioand Powell, 1983; Oliver, 1997), legitimacy theory (Carpenter and Feroz, 1992, 2001;Guthrie and Parker, 1990; Mezias, 1990), proprietary costs theory (Dye, 1985; Darroughand Stoughton, 1990; Verrecchia, 1983; Wagenhofer, 1990), contingency theory (Doupnik

The current issue and full text archive of this journal is available atwww.emeraldinsight.com/0967-5426.htm

Journal of Applied AccountingResearch

Vol. 14 No. 2, 2013pp. 127-146

r Emerald Group Publishing Limited0967-5426

DOI 10.1108/09675421311291883

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and Salter, 1995; Fechner and Kilgore, 1994; Gray, 1988), and the positive accountingtheory (Watts and Zimmerman, 1978).

But, empirical evidence on the link between corporate disclosure and firm value isdecidedly mixed. Leuz and Verrecchia (2000) assert that whilst economic theory ofcorporate disclosure is compelling the empirical result is mixed. According to Busheeand Leuz (2005), the literature on the economic consequences of mandatory disclosure islimited and somewhat ambivalent in its conclusions (see also Healy and Palepu, 2001).Survey of empirical evidence also suggests that prior studies investigated the impact ofincreased disclosure on firm value through lower cost of equity, market liquidity,and lower cost of debt. Example: corporate disclosure reduces cost of equity capital(see Botosan and Plumlee, 2002; Hail, 2002), increases stock liquidity (Healy et al., 1999;Leuz and Verrecchia, 2000), lowers the cost of debt (see Sengupta, 1998), decreases bid-ask spreads (Welker, 1995). We posit consistent with Hassan et al. (2009) that there islittle direct empirical evidence with regard to the relationship between voluntarydisclosure (corporate disclosure as a whole) and firm value in general and for emergingmarkets in particular. Besides, empirical evidence has been mixed with possible reasonsbeing the use of data from developed capital market such as the USA (Leuz andVerrecchia, 2000) or lack of theoretical relevance to developing countries (Lopesand Rodriques, 2007) or existence of complex interplay of different factors determiningthe relationship between disclosure and firm value (Hassan et al., 2009). The subject ofcorporate disclosure has not received nearly as much important empirical attention indeveloping emerging capital market as the case has been in developed capital market(see Hassan et al., 2009 for Egypt; Owusu-Ansah, 1998 for Zimbabwe; Barako, 2007 forKenya; Mangena and Chamisa, 2008 for South Africa; Tsamenyi et al., 2007 for Ghana).This is a non-trivial oversight given the institutional and legal reforms in the last coupleof decades led by World Bank, IMF, and IFC to improve the level of governance on thecontinent and the pre-eminence of the Ghana Stock Exchange (GSE) as an investmentdestination for investors both foreign and domestic. This is underpinned by the fact thatthe GSE was adjudged the “Most Innovative African Stock Exchange for 2010” at theAfrica investor (Ai) prestigious annual Index Series Awards held at the New York StockExchange (NYSE), the commencement of real-time data of the GSE by Thomson Reutersand the worldwide availability of GSE data on Bloomberg.

Whilst the economic consequences of increased disclosure remain largely unsettled,corporate disclosure in itself does not develop in a vacuum according to Choi andLevich (1990) but is determined by both external and internal factors. Whatever theoryon corporate disclosure that is considered – all imply firm characteristics to beimportant drivers for disclosure (Ahmed and Courtis, 1999). Firm characteristics arealso of great importance from an empirical point of view, where empirical researchtypically controls for endogenous determinants of disclosure policy that are notnecessarily part of the underlying theory (Core, 2001). Lopes and Rodriques (2007)contend that theories of corporate disclosure determinants originated in developedcapital markets and may not fully explain accounting and disclosure practices inPortugal, where the degree of family ownership is significant and financing policies arebank oriented. Mensah (2002) suggests that due to the characteristics of the economicand political systems of African economies, such as state ownership of companies,interlocking relationships with government and the financial sector, weak legal andjudiciary systems, absent or underdeveloped institutions, and limited human resourcecapabilities, they are ill-equipped to implement the type of corporate governance foundin the developed market economies. This paper argues consistent with Mangena and

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Chamisa (2008) that due to country differences, it is desirable and warranted that variousdeterminants of corporate disclosure should be separately examined in each country. Thiswould enable the evidence on the regularity of the determinants of corporate disclosure tobe generalised across countries, which would in turn buttress the theories that areproffered and refute any suggestion that the existing evidence is a consequence of theidiosyncrasies in the institutional, cultural, and regulatory environments in developedAnglo-Saxon countries (see Mangena and Chamisa, 2008). The paper therefore builds onthe work of Tsamenyi et al. (2007) which examines the level of corporate disclosure on theGSE over a two-year period. Tsamenyi et al. (2007) using 36 items in all to measurecorporate governance and disclosure in Ghana conclude that the level of corporatedisclosure is low. The paper argues that further studies is needed using a broad-basedapproach of disclosure index which compares the level of disclosure on the GSE at theinternational level and to also test the relevance of the existing theories of corporatedisclosure on the GSE in line with Lopes and Rodriques (2007). Bokpin and Isshaq(2009) examined the level of disclosure (using the S&P disclosure index) on the GSEbut related it to the impact on foreign equity participation whilst Tsamenyi et al. (2007)looked at ownership structure, dispersion of shareholding, firm size, and leverage as thedeterminants of disclosure practices. But in order to relate existing theories to developingcountries and confirm empirical regularity with developing data, the paper posits a revisitof the determinants of disclosure is needed by incorporating other factors such as extentof internationalisation, age, auditor type, profitability, etc. consistent with theory andempirics. Employing a panel regression for 27 firms over a six-year period under theframework of seemingly unrelated regression technique for firm value and random effecttechnique for disclosure determinants, we document a positive but statisticallyinsignificant relationship between corporate disclosure and firm value measured bymarket to book value ratio on one hand and statistically insignificant negative relationshipbetween disclosure and stock prices on another hand. For the determinants of corporatedisclosure and relevance of disclosure theories, we affirmed the political cost, economic,signalling and agency theories by documenting a statistically significant relationshipbetween firm size (political cost theory), financial leverage (signalling theory), audit quality(agency theory), profitability (signalling theory), age and corporate disclosure practices.But we could not establish a significant effect for risk and extent of internationalisationon corporate disclosure level in Ghana. Finally, we found corporate disclosure level tobe very low even after the adoption of the IAS. Consistent with Frost et al. (2002), thestudy provides potentially useful evidence to international standard setters and stockexchanges. International organisations such as the International Organization of SecuritiesCommissions (IOSCO) and the Organization of Economic Cooperation and Development(OECD) are seeking to harmonise and improve disclosure standards under the assumptionthat such initiatives will reduce the regulatory barriers to cross-border capital raisingefforts, and improve investor protection and market quality (Frost et al., 2002).

2. GSE and disclosure frameworkGhana is emerging as an investment destination in West Africa with the establishmentof the capital market and other financial arrangement since the wide ranging financialreforms initiated in the 1980s led by the World bank/IMF. The GSE was adjudged the“Most Innovative African Stock Exchange for 2010” at the Ai prestigious annualIndex Series Awards held at the NYSE on Friday, 17 September 2010 (www.gse.com.ghaccessed 10 December, 2010). Thomson Reuters announced on July 2010 that it hascommenced feeds of real-time data from the GSE thus increasing equity trading

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opportunities for its local and global clients (www.gse.com.gh accessed 10 December,2010). Attesting to its presence, the GSE data are now available worldwide onBloomberg. The All-Share Index, by the close of 2003, topped performance of stockmarkets in the world with yield of 154.7 or 142.7 per cent in dollar terms (Ghana StockExchange (GSE), 2005). After such a performance, the market share index hascontinued to fluctuate with an occasional rise or dip. In 1993, the GSE was thesixth best index performing emerging stock market, with a capital appreciation of 116per cent. In 1994 it was the best index performing stock market among all the emergingmarkets gaining 124 .3 per cent in its index level. All listings are included in the mainindex, the GSE All-Share Index. The number of listed companies increased to 13 in1991; 19 in 1995 and to 32 in 2007 (Ghana Stock Exchange (GSE), 2007). The increase inthe number of listings has also reflected in market capitalisation which increased froma little over US$2.6 million 2004 to about $11.5 billion. The stock market recorded itshighest turnover of equities in volume in 1997, with 125.63 million shares, from avolume of 1.8 million shares by the end of 1991. Foreign equity participation hasincreased over the last couple of years averaging 32 per cent (see Bokpin and Isshaq,2009). The stock exchange was established in July 1989 as a private company limitedby guarantee under the Companies Code of 1963. It was given recognition as anauthorised stock exchange under the Stock Exchange Act of 1971 (Act 384) in October1990 and commenced trading on the 12 November 1990 though it was officiallyinaugurated on 11 January 1991. The stock exchange was, however, changed to apublic company limited by guarantee in 1994. Market turnover during the first eightmonths of 2010 was 93.8 million shares valued at GHb60.6 million. This compareswith 55.4 million shares valued at GHb49.6 million traded during the same period in2009. Market capitalisation was similarly up by 17.0 per cent to GHb18,655.7 million asat 30 August 2010. Given, the prominence of the GSE, the disclosure practices and theregulatory framework ought to be clearly outlined.

Corporate disclosure and governance framework are enshrined principally in theCompanies Code of 1963 (Act 179). The Securities Industry Law, 1993 (PNDCL 333) asamended by the Securities Industry (Amendment) Act 2000 (Act 590), also providesamong other things for governance of all stock exchanges, investment advisors,securities dealers, and collective investment schemes licensed under by the Securitiesand Exchange Commission (SEC) and the membership and listing regulations of theGSE (Ghana Stock Exchange (GSE), 1990). It is supported by the Ghana NationalAccounting Standards and the codes of professional conduct imposed by the Instituteof Chartered Accountants (Ghana) on its members. The responsibility for goodcorporate governance at the firm level is placed on the board of directors (BOD). Underthe Companies Code of 1963 (Act 179), the business of a company is managed by theBOD except as otherwise provided in the company’s regulations. The companies codeenjoins directors to, at least once annually (at intervals of not more than 15 months),have prepared and send to each member and debenture holder of the company a profitand loss account and balance sheet, cash flow statement, notes to the account anddirectors’ and auditors’ report. These documents will be presented to shareholders atthe Annual General Meeting. The GSE listing regulations require more frequentdisclosure from listed companies. Listed companies must provide the GSE a half-yearlyreport as soon as figures are available (no later than three months after the end of thefirst half-yearly period in the financial year) and a preliminary financial statement assoon as figures are available (no later than three months after year end). The GSElisting regulations provide the timeframe within which annual reports should be

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circulated and also require investors to be provided with information such as members ofthe board and key executives and their remuneration, material foreseeable risk factors,major share ownership and voting rights, and the financial and operating results of thecompany. The Company’s Code requires the disclosure by directors of material interestsin transactions or contracts affecting the company. No explicit liability for the accuracy offinancial statements is imposed on the board by the companies’ code. This presupposesthat the ultimate responsibility for the preparation of the financial statements rest withthe board and cannot be delegated to the auditors. The law requires that before thecommencement of business the company should have auditors. Under the companies’code, the auditors of a company stand in a fiduciary relationship to the members of thecompany as a whole and should act in a way faithful, diligent, careful, and ordinarilyskilful auditors would act in the circumstances. Auditors are required, among otherthings, to report to shareholders their opinion as to the adequacy of information obtainedon the company and whether the company’s accounting books have been kept properly.

3. Literature review and hypothesis developmentThere are direct and indirect costs associated with increased corporate disclosure such asare the costs of preparing, certifying, disseminating corporate information (informationproduction and dissemination), and the use of the information by other parties, such ascompetitors, employees, politicians and regulators and litigation costs if the company issued as a result of information disclosed. Botosan (2000) argues that these costs ofdisclosure may dominate a company’s disclosure policy, so any decision to provide moreinformation to the public should be based on a careful cost-benefit analysis. The trade-offbetween costs and benefits of particular disclosures ultimately determines whether theyare beneficial to the firm; i.e. whether they increase firm value. Wagenhofer (2004) arguesthat the effects of disclosure depend on three factors; uncertainty, multiperson settingswith conflicts of interest, and information asymmetry. Depending on the assumptionsmade about these factors, it is possible to predict a negative relationship betweenincreased disclosure and firm value. But empirical evidence suggests that the benefit ofincreased disclosure far outweighed the costs. Most empirical studies relate disclosure tofirm value through a number of mediums such as reduction in cost of capital (Botosanand Plumlee, 2002), the reduction of information asymmetry (Healy and Palepu, 2001;Schrand and Verrecchia, 2004), improve liquidity (Verrecchia, 2001). Lambert (2001)documents that more transparency and better corporate governance increases firmvalue by improving managers’ decisions or by reducing the amount that managersappropriate for themselves. Healy and Palepu (2001) relate that disclosure generallyimproves transparency and thus reduces information problems (see also Schrand andVerrecchia, 2004). To them, disclosure of relevant information allows investors to closelymonitor firms’ operations and thus effectively evaluate whether managers have utilisedthe resources in the best interests of shareholders. Linking corporate disclosure to stockprices, Mitton (2002) shows that stock prices improved during the East Asian financialcrisis due to stronger corporate governance in the aspect of disclosure policy. Healy et al.(1999) also find that firms that expand disclosure experience significant contemporaneousincreases in stock prices that are unrelated to current earnings performance. Gelb andZarowin (2000) find that firms with high disclosure ratings have high stock priceassociations with contemporaneous and future earnings relative to firms with lowdisclosure ratings. Bens and Monahan (2004) report that strong disclosure practicescontribute to the excess value of diversification by enhancing corporate monitoringmechanisms and reducing contracting costs. Hassan et al. (2009) show using emerging

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African data that, after controlling for factors such as asset size and profitability,mandatory disclosure has a highly significant but negative relationship with firm value inthe case of mandatory disclosure but found statistically insignificant relationship betweenvoluntary disclosure and firm value. They emphasise the complex interplay of factorsdetermining disclosure effects perhaps consistent with Wagenhofer (2004) who arguesthat the effects of disclosure depend on three factors; uncertainty, multiperson settingswith conflicts of interest, and information asymmetry:

H1. Consistent with theory and empirics, we hypothesise that Ceteris paribus, thereis a positive relationship between corporate disclosure and firm value when thenet benefit of the disclosure is positive.

Firm capital structure has been identified both theoretically and empirically asdeterminant of corporate disclosure practices. The inclusion of debt (bondholders) in afirm’s capital exacerbates the agency conflict according to Jensen and Meckling (1976).Higher debt or financial leverage suggests higher agency costs and informationasymmetry. Consistent with the agency theory, Dichev and Skinner (2002) contendsdisclosure of debt covenants and other restrictions, such as on interest coverage andliquidity ratios, that accompany firms’ loans reduces the information asymmetrybetween firms and their lenders. Firms are inclined to provide information about debtcovenants and how these affect their financial position in order to gain investors’confidence (Holthausen, 1990). In this direction, a positive relationship between capitalstructure and corporate disclosure is adduced. The literature is also replete with theargument of a negative relationship. The argument is based on whether the financialsystem is bank based or market based. In bank-based financial systems, companieshave high leverage ratios because capital markets are not seen as a primary source ofcapital, and information about companies is more private (see (Abd-Elsalam andWeetman, 2003) and therefore given the special relationship between companies andbanks little information would be made public in their annual reports and financialstatements. The literature is divided between a positive relationship (Bradbury, 1992;Dichev and Skinner (2002) and negative relationship (Holthausen, 1990), based on thefact that the GSE is not well developed (Isshaq and Bokpin, 2009) and firms rely largelyon banks for financing (Aboagye, 1996):

H2. We hypothesis a negative relationship between financial leverage andcorporate disclosure practices holding all other factors constant.

Firm size whether measured by total assets or total sales or total revenue or marketvalue or market capitalisation has been supported theoretically and empirically as adeterminant of corporate disclosure. Large firms whether due to their more dispersedshareholding or higher information asymmetry (Tsamenyi et al., 2007) or due to possibleeconomies of scale in the production and storage of information (Stigler, 1961), tend toallocate relatively greater amount of resources to the production and dissemination ofinformation. Owusu-Ansah (1998) relate that generally, large companies tend to bemultiproduct business entities; operating over wider geographical areas with severaldivisional units and that central managements of such companies will require internalinformation system which will enable them to make operational and strategic decisionsconcerning the divisions, and to ensure that the divisions are performing adequately inpursuit of overall corporate objectives. Furthermore, large firms face higher demand

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for information from customers, suppliers, analysts, and the general public (Cooke,1989) that causes an increased pressure to disclose information. Thus, in line witheconomic and political cost theories (Watts and Zimmerman, 1990) and empiricalliterature (Lopes and Rodriques, 2007), we hypothesise that:

H3. Larger companies are expected to have higher levels of disclosure than smallercompanies.

The more internationalised a company is the more it has to show its shareholdersespecially in other countries, it is worth investing in or keeping their investment in thecompany. Firms with shareholding across different geographical boundaries willdisclose more information to meet the expectations of investors’ or disclose moreinformation to the market to signal managerial competence, decrease the asymmetry ofinformation which often exists between managers and other individuals, to optimisefinancing costs and to increase corporate value. Singhvi (1968) found that companies,in which foreigners owned a majority of stocks, present higher quality disclosure thanlocally Indian owned companies. Also Haniffa and Cooke (2002) found a significantpositive relationship between the proportion of foreign ownership and the level ofvoluntary disclosure by listed companies in Malaysia:

H4. A positive relationship is expected between extent of internationalisation andcorporate disclosure.

Auditors play an important role in information credibility of firms (Healy andPalepu, 2001) and the value of an external audit depends on how users perceive auditors’report in corporate annual report (DeAngelo, 1981). Auditor independence is importantin maintaining credibility. Chalmers and Godfrey (2004) state that, to maintain theirreputation and avoid reputation costs, high-profile auditing companies are more likely todemand high levels of disclosure. Fama and Jensen (1983) maintain that large independentaudit firms have many clients, their economic dependency on a particular client is minimaland such audit firms have greater incentives to maintain independence from their clients.Thus, large and independent audit firms have greater motivation to demand greaterdisclosure and compliance from their clients. Jensen and Meckling (1976) in their farreaching theory postulate that auditing is a way of reducing agency costs and thatcompanies that have high agency costs tend to contract high-quality auditing companies(Lopes and Rodriques, 2007). We hypothesise consistent with theory ( Jensen and Meckling,1976) and empirics (Lopes and Rodriques, 2007) that:

H5. The degree of disclosure is predicted to be higher in companies audited by theBig 4 auditors than in companies with non-Big 4 auditors.

Profitability is central to the discussion of corporate disclosure. More profitable firmswill be able to support the cost of information production and dissemination andtherefore will be in a position to disclose more information. Inchausti (1997) disclosethat profitability is capable of influencing the extent to which companies disclosemandatory information items in their annual reports (see also Cerf, 1961). Consistentwith the signalling theory that management when in possession of “good news” due tobetter performance are more likely to disclose more detailed information to the stockmarket than that provided by “bad news” companies to avoid undervaluation of their

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shares. Owusu-Ansah (1998) in an empirical study found a statistically significantpositive relationship between profitability and corporate mandatory disclosure.Consistent with theory and empirics, we hypothesis that:

H6. Disclosure practices are expected to be higher for highly profitable firms thanlow profitable firms.

Firms’ age is standard measure of reputation in the corporate finance literature especiallyin relation to capital structure. As firm ages, it establishes itself as a continuing businessand a measure of the stage of development as well and therefore it would be in a betterposition to disclose more information. Older, well-established companies are likely todisclose much more information in their annual reports than younger companies becausethey will not suffer any competitive disadvantage as compared to younger firms and thecost and the ease of gathering, processing, and disseminating the required informationmay be a contributory factor (Owusu-Ansah, 1998). Established firms with informationsystem already existing for mass production and circulation are at advantage in that theincremental cost of supplying non-proprietary data to the public is likely to be minimalcompared to newly established firms. Thus, we hypothesis that:

H7. Older firms are expected to disclose more information than younger firms.

4. Model specification and dataThe paper investigates the basic question of what impact does corporate disclosurehave on firm value and to what extent does corporate disclosure determinants theoriesapply to Ghana. We tackle these questions bearing in mind the findings of Hassan et al.(2009) for the Egyptian market and Tsamenyi et al. (2007) for the Ghanaian market. Butunlike Hassan et al. (2009) and Tsamenyi et al. (2007), we adopt a disclosure index thatallows us to infer the GSE disclosure index at international level, thus aidinginternational comparison. This paper also differs from the above authors by adopting alongitudinal approach by pooling time series with cross-sectional observations. WhilstTsamenyi et al. (2007) used 36 items over a two-year period (2001-2002), this papercontends that an extension of the period will provide a more robust test and to also testthe extent to which the adoption of the IFRS in 2007 has improved the level ofcorporate disclosure and transparency among companies listed on the GSE. We alsoargue in tandem with Pinkowitz et al. (2006) that, to investigate the impact of corporatedisclosure on firm value requires a regression model relating firm value to firm-levelcharacteristics. According to Pinkowitz et al. (2006), Fama and French (1998) valuationregression, though is ad hoc in that it does not specify a functional form resultingdirectly from a theoretical model, it is well suited for relating firm value to firm-levelcharacteristics because it explains well cross-section variation in firm values. Thus,consistent with Fama and French (1998), we estimate the basic regression model:

FVit ¼ aþ wTDSit þ lTAit þ dFLEVit þ ZPRFit þ gDIVYit

þ WTOBINS0Qþ eit

ð1Þ

Consistent with Hassan et al. (2009), firm value (FV ) is the natural logarithm ofthe ratio of market value of equity to book value of equity at the financial year end.

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The paper additionally tests the impact of corporate disclosure on share prices, a markeddeparture from Hassan et al. (2009). As is in the second model, total asset (TA) is splitbetween liquid assets and non-liquid assets (see Fama and French, 1998). Financialleverage (FLEV ) is the ratio of total liabilities (short-term debt and long-term debt) to totalassets at the financial year end. Firm profitability (PRF) is measured by return on equity.Dividend yield (DIVY) is the percentage dividend returned annually to shareholders. Wealso control for the impact of investment opportunity set and risk in both models:

FVit ¼ aþ wTDSit þ lTAit þ fLAit þ dFLEVit þ ZPRFit

þ gDIVYit þ WTBINS0Qþ cRISK þ eit

ð2Þ

We approach our second objective bearing in mind the results of Tsamenyi et al. (2007) inthe case of ownership structure, dispersion of shareholding, and leverage as importantdeterminants of corporate disclosure on the GSE. Our model excludes these factorsexcept for leverage due to the use Fama and French (1998) valuation model and test forthe theoretical relevance of financial leverage, firm size, extent of internationalisation,profitability, auditor type, and age as important determinants of corporate disclosure onthe GSE. Following similar approach of Lopes and Rodriques (2007) for the Portuguesestudy, we estimate the specific model:

TDSit ¼/ SIZEit þ WINTLit þ uAUDITYPEit þ $PRFit

þ zAGEit þ bFLEV þ sRISKit þ eit

Firm size (SIZE) is measured by total sales for each firm over the period. Extent ofinternationalisation (INTL) is measured as the extent of foreign participation in thefirm. We used the percentage of foreign share ownership instead of foreign salesdivided by total sales as is in the case of Lopes and Rodriques (2007). Auditor type(AUDITYPE) is a dummy variable that takes the value 1 if the company is audited byone of the Big 4, and 0 if otherwise. Following the collapse of Arthur Andersen in 2002,the Big 5 became Big 4, namely: PricewaterhouseCoopers, Deloitte Touche Tohmatsu,Ernst and Young and KPMG. Firm profitability (PRF) is measured by return on assetswhich is a more powerful measure of performance as compared to return on equity.Return on assets is used here as a measure of overall earnings power of the company.Age is determined from the company’s date of incorporation regardless of the date ofcommencement of business. Risk is included to test whether firms’ earningsuncertainty will influence their disclosure policy. Risk, a measure of volatility ofincome is the three-year standard deviation of return on assets. Consistent with thesignalling theory management will be inclined to disclose good information to themarket that attest to their performance and perhaps disclose less if performance ispoor or firms’ future earnings is saddled with several uncertainties.

Corporate disclosure index has many and varied measurement. The disclosure scoretakes a dichotomous, adjusted for non-applicable items (see Raffournier, 1995) and theindex is un-weighted, though Chow and Wong-Boren (1987) have suggested thatweighted and un-weighted disclosure indexes are interchangeable because their effectsare equivalent. We follow the line of un-weighted in the literature (see Cooke, 1989) asagainst weighted disclosure index in the literature. The trinary procedure of Aksu andKosedag (2006) was followed and Standard and Poor’s transparency and disclosureitems were adapted. The disclosure index has three components namely; financialdisclosures, corporate governance disclosures, and voluntary disclosures.

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The disclosure score of a firm is obtained following the equation below (Aksu andKosedag, 2006):

TDS ¼X

j

X

k

Sjk

TOTS

where j is the attribute category subscript, j¼ 1, 2, 3; k is the attribute subscript,k¼ 1y109; Sjk is the number of info items disclosed (answered as “1”) by the firm ineach category, and TOTS¼ the total maximum possible “1” answers for each firm.

The seemingly unrelated regression was employed in the analysis of firm value.Given that, the difference between the two models (see equation (2)) is the dependentvariable being the average of the six months of the share price after the year end(practically companies release their annual reports after 31 December and thisperiod would allowed for that information to be reflected in the share price) and theratio of market to book value of firms. Estimating jointly the two models usingthe seemingly unrelated regression approach will yield a more efficient resultthan employing the normal fixed effect and random effects. But in the case ofdeterminants of corporate disclosure, the Hausman specification test was performedto ascertain the appropriateness of the fixed effects and random effects regression.The Hausman’s specification test which is a test of orthogonality is used todetermine the extent of correlation between the unobserved fixed effect and any ofthe regressors and the appropriateness of the estimation technique. See Table III forthe results of the Hausman’s specification test.

4.1 Discussion of regression results4.1.1 Descriptive summary statistics. Average disclosure is minimal at 0.4876 andvaries over the sample period registering a minimum score of 0.3222 and a maximumof 0.6888. The level of corporate disclosure comprising financial disclosure,governance, and voluntary disclosure is low among Ghanaian listed firms. Non-liquid assets registers average mean of 0.3866 and also varies within the period andbetween firms. Average overall age of firms is 38.39 years indicating most companiesare relatively young. Majority of the listed firms are audited by the Big 4 accountingfirms namely; PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst and Young,and KPMG. We realised that foreign affiliation impact the choice of auditors. Firmswith foreign parent companies choose one of the Big 4 accounting firms either forharmonisation of audit practice or due to the fact that the parent companies are auditedby these accounting firms. The few companies audited by the non-Big 4 accountingfirms are predominantly home grown companies with relative size perhaps the reasonfor choosing these accounting firms was affordability and convenience. Financialleverage registers overall mean of 0.9015 indicating some firms are highly leverage, notsurprising though as financial firms and other firms in certain industries such asmining which by nature of their industries are heavily indebted are included in thesample (Table I).

Return on equity registers overall mean of 0.2326 with some firms posting negativereturns to shareholders. Average market to book value ratio is 2.0989 but variessystematically both within firms and between firms. Average foreign share or foreignequity participation records 31.9182 per cent with log of firm size registering 10.0155.Shareholders’ earn the overall mean dividend yield of 0.0455 over the study period eventhough this value varies over the period and between the firms as shown by the

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standard deviation. Average liquidity registers 5.8070 with average share price being20,116.38 (even though the cedi was redenominated in 2007 by equating 10,000 cedis toone Ghana cedi, the study did not take that into consideration). Investment opportunityset measured by Tobin’s Q registers overall mean of 0.1738 with average profitability(ROA) recording 0.0667 whilst overall mean for risk registers 0.1376.

It is expected that the adoption of IFRS in 2007 would impact positively the level ofcorporate disclosure in Ghana. As in Table II below, the level of corporate disclosurepicked up marginally after 2007 following the adoption of the IFRS. Selecting an equalnumber of firms for the two periods (pre-IFRS and post-IFRS) for suitable comparison,we find that the adoption of IFRS has improved marginally the corporate disclosurepractices of Ghanaian listed firms. The overall mean score of pre-IFRS is 0.4936whilst that of post-IFRS is slightly above at 0.4992 with a slight higher variation inpre-adoption as compared to post-adoption as shown in the standard deviation.The minimum overall score is low at 0.3370 compared to 0.3483 for post-adoption

Variable Observation Mean SD Minimum Maximum

Disclosure 158 0.4876 0.0961 0.3222 0.6888Fixed assets 158 0.3866 0.2355 0.0000 0.85505Age 158 38.3860 14.7884 10 83Auditype 158 0.7531 0.4325 0.0000 1.0000Financial leverage 158 0.9015 0.9361 0.0062 7.4469ROE 158 0.2326 0.2504 �0.51 1.0433MTBV 158 2.0989 2.9878 0.1708 20.84556Foreign share 158 31.9182 34.3944 0.1708 90.2400Firm size 158 10.0155 3.7074 0.0000 20.8455Dividend yield 158 0.0455 0.0917 0.0000 14.0770Liquidity 158 5.8070 1.1798 1.20063 8.2985Price 158 20,116.38 66,990.89 0.0000 300,000Tobin’s Q 158 0.1738 0.1960 0.0008 0.9502ROA 158 0.0667 0.0783 �0.1676 0.2964Risk 158 0.1376 0.1580 0.0000 0.9467

Source: Author’s compilation (2011)Table I.

Descriptive statistics

Variable Observation Mean SD Minimum Maximum

Pre-IFRS 26 0.4936 0.0974 0.3370 0.6833Post-IFRS 26 0.4992 0.0961 0.3483 0.6888Industry type Disclosure scoreFood and beverage 0.4732Mining 0.1103Manufacturing 0.4843Agro-processing 0.4826Banking and finance 0.5242Distribution 0.4651Printing 0.3402ICT 0.3720Publishing 0.3293

Source: Author’s compilation (2011)

Table II.IAS, industry

classification anddisclosure score

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again with firms disclosing their highest in the post-adoption at 0.6888 compared to0.6833 in pre-adoption. Again, the paper sort to ascertain whether industry andproduct factor conditions impact corporate disclosure practices in Ghana. We followthe popular industry classification by the GSE and calculated the average of the yearsadjusted by the number of firms in each industry. Firms in the banking and financeindustry (0.5242) lead in the level of disclosure followed by firms in the manufacturingindustry (0.4843). Perhaps firms in the banking and finance industry are betterpositioned to afford the cost of information production and dissemination as comparedto firms in other industries or perhaps the additional regulatory requirements fromBOG puts them ahead of their counterparts on the GSE especially the directive fromthe BOG that banks are to comply with the IFRS by 2008. Firms in the mining are inthe least with 0.1103. The paper argues that industry dynamism and demand inducefirms to disclosure more information.

With the exception of the banking and finance industry, the rest of the industriesdisclose less than half of the disclosure checklist.

Relating corporate disclosure to firm value is complex as the means of transmissioncould change the direction of the relationship. Relating mandatory disclosure to firmvalue using market to book value ratio, Hassan et al. (2009) reported a statisticallysignificant negative relationship between mandatory disclosure and firm valuesuggesting a complex interplay of factors determining disclosure effects. Combiningmandatory and voluntary disclosure, we report a positive but statistical insignificantrelationship between corporate disclosure and firm value. Perhaps, the differentmeasures of corporate disclosure could be an additional factor determining disclosure

Dependent variable

Variable Firm value (MTBV) Firm value (share price) DisclosureDisclosure 0.2474 (0.11) �0.7424 (1.35)Ratio of fixed assets �0.3759 (0.37) �6,776.74 (2.68)**Financial leverage 0.3976 (1.65)* �6,260.515 (1.05) �0.0039 (1.76)*Return on equity 0.5989 (0.69) �29,543.67 (1.38)Firm size 0.2838 (4.68)*** 1,286.895 (0.86) 0.4444 (3.58)***Liquidity �0.2750 (1.42) �18,664.07 (3.91)***Dividend yield 2.0729 (0.91) �106,526.6 (1.90)*Tobin’s Q 2.6818 (2.29)** 44,253.25 (1.63)*Risk 0.5115 (0.37) �18,255.22 (0.53) 0.005 (0.26)Age 0.0031 (3.38)***Auditype 0.0484 (2.00)**Internationalisation �0.0000 (0.08)Profitability (ROA) 0.0578 (1.60)*Constants 5.3429 (2.91)** 190,500 (4.21)*** 0.3256 (8.43)***Parms 9 9RMSE 2.5154 62,102.24R2 0.1972 0.1509w2 36.35 26.30p 0.0000 0.0018Prob. 4w2 (Hausman test) 0.6044Wald w2 (7) 28.09Prob. 4w2 (regression) 0.0002

Note: *,**,***Significant at 10, 5 and 1 per cent levels

Table III.Regression results of firmvalue and disclosuredeterminants

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effects. The paper further argues that the choice of dependent variable for firm valuecould be another factor. Regressing firm value represented by share price on thedisclosure index reveals a negative though statistically insignificant relationship. Wecould not confirm the findings of Mitton (2002) who shows that stock pricesimproved during the East Asian financial crisis due to stronger corporate governancein the aspect of disclosure policy. Additionally, we refute Healy et al. (1999) findingsthat firms that expand disclosure experience significant contemporaneous increasesin stock prices that are unrelated to current earnings performance. Perhaps, the levelof the development of the GSE could be a mediating factor or level of efficiency orconsistent with Osei (1998) who questioned whether companies divulge enoughinformation for investors compared with those of the industrialised nations andwhether traders devote enough time and resources to gather investment informationand to what extent can local investors analyse investment information.

On the determinants of corporate disclosure, both the fixed effects and random effectswere estimated after which the Hausman specification test was conducted. The Hausmanspecification test suggests we reject the null hypothesis that the differences in coefficientsare not systematic. The test statistics is insignificant suggesting that we accept the nullhypothesis that differences in coefficients are not systematic and that the errors do notcorrelate with the explanatory variables. The random effect model is therefore preferred tothe fixed effects. The paper documents a statistically significant negative relationshipbetween financial leverage and corporate disclosure level on the GSE. Given the relativedevelopment of the stock market in Ghana and the fact that the stock market developmenthas not led to the substitution of equity for debt (Bokpin and Isshaq, 2008), the result is notsurprising and we confirm our hypothesis of a negative relationship between financialleverage and corporate disclosure. Though, we refute the agency theory which predictshigher information asymmetry and agency costs if financial leverage is high and higherinformation disclosure will reduce this, we affirm the signalling theory in the Ghanaiancase. Though, Tarca et al. (2005) distinguishing public debt from private debt in redefiningfinancial leverage contend that companies with relatively more outside debt (definingoutside or public debt as the amount of long-term debt that is sourced from the publiccapital market) are more likely to use IAS and make more public disclosure of information,this is not the case in Ghana as the companies hardly issue public debt with the exceptionof HFC. The direction of the results is impacted more by the reliance of firms on financialinstitutions (bank-based financial system as against market-based financial system) thanthe prepositions of agency theory.

Both theory and empirics suggest size impacts positively the disclosure level ofcompanies. Consistent with theory and empirics we report a statistically significant atconventional levels a positive relationship between firm size and corporate disclosurelevel. The paper affirms the political cost theory (Watts and Zimmerman, 1990) thatpolitical costs are higher in larger companies, and so larger companies are more likelyto show higher levels of disclosure since it improves confidence and reduces politicalcosts. In line with the economic theory also, large companies due to possible economiesof scale in the production and storage of information, tend to allocate relatively greateramount of resources to the production of information (see Stigler, 1961). Large firmsalso have a more diverse ownership, and as a result, higher agency cost that they tryto reduce by higher voluntary disclosure levels (Meek et al., 1995). Verrecchia(1983) further contends that proprietary costs related to competitive disadvantages ofadditional disclosure are smaller as company size increases. Empirically, Lopes andRodriques (2007) document a positive relationship between firm size and disclosure

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level. Owusu-Ansah (1998) also found a positive relationship between company sizeand mandatory corporate disclosure (see also Wallace et al., 1994; Inchausti, 1997;Barako, 2007). Our result confirms the research hypothesis and affirms the relevance ofdisclosure theories and empirical evidence in Ghana and argues that both theories andempirics from developed capital markets are easily transferable to developingcountries such as Ghana.

Company age is positive and statistically significant determinants of corporatedisclosure. Age whether used as a measure of reputation or stage of developmentis significant determinant of corporate disclosure. The preposition that older,well-established companies are likely to disclose much more information in theirannual reports than younger companies because they will not suffer any competitivedisadvantage as compared to younger firms and the cost and the ease of gathering,processing, and disseminating the required information may be a contributoryfactor is affirmed in Ghana. Older firms would be eager to disclose more informationabout their reputation, market penetration, long presence and experience than newor younger companies hence the positive relationship is observed in line with ourresearch hypothesis. Consistent with the signal theory, when management is inpossession of such information as market presence, reputation, and experience theywould readily disclose such information in their annual reports and financialstatements. Empirically, we confirm the findings of Owusu-Ansah (1998) whoreported a positive and statistically significant relationship between company ageand mandatory disclosure.

Corporate disclosure literature is replete with the impact of audit quality. The hallmark of audit is independence and reputation. Auditors must not only be independentbut must be seen as independent and therefore Chalmers and Godfrey (2004) arguethat, to maintain their reputation and avoid reputation costs, high-profile auditingcompanies are more likely to demand high levels of disclosure. This presupposes apositive relationship between audit quality and corporate disclosure and would be oneof the ways of reducing agency costs according to Jensen and Meckling (1976). Ourrobust regression reveals a statistically significant positive relationship between auditquality (audit type) and corporate disclosure. Theoretically, we confirm the agencytheory ( Jensen and Meckling, 1976; Watts and Zimmerman, 1983) whilst empiricallywe follow the findings of Lopes and Rodriques (2007). A company discloses moreinformation in its annual reports and financial statements when audited by one of the“Big 4” than when audited by any other accounting firm. Malone et al. (1993) supportedthis argument by contending that small audit firms are more sensitive to loss of clientsand as such may not be prepared to demand greater disclosure.

More profitable firms would be in a position to afford increased disclosure than lessprofitable firms. Karim (1996) document a positive relationship between profitabilityand corporate disclosure (see also Owusu-Ansah, 1998). The signalling theory predictsthat management when in possession of “good news” due to better performance aremore likely to disclose more detailed information to the stock market than thatprovided by “bad news” companies to avoid undervaluation of their shares. Thus, weaccept the hypothesis that profitable firms disclose more information than non-profitable firms. Consistent with the signalling theory and empirical evidence wereport a positive and statistically significant relationship between profitability andcorporate disclosure. More profitable firms would be in a position to afford the cost ofinformation production and dissemination than less profitable firms. Juxtaposing thisresult in the context of industry dynamics makes sense as firms in the banking and

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finance industry (reputed as the most lucrative industry) disclose more informationthan any other industry on the GSE as discussed earlier.

Risk is positive but statistically insignificant determinant of corporate disclosurein Ghana. Firms’ business risk, the risk inherent in their operating activities inducesmanagers to reveal this information in their annual reports and financial statementseven though the strength of the relationship is not statistically significant atconventional levels. We also found a weak relationship between internationalisationand corporate disclosure. Internationalisation weakly impacts corporate disclosurenegatively. The extent of foreign equity participation does impact positive corporatedisclosure policy of companies listed on the GSE.

5. Conclusions and implicationsThough, corporate disclosure has been part of securities market regulation since the early1900s, the recent corporate accounting scandals in the USA and other parts of the worldwhich also saw the collapse of Arthur Anderson (one of the Big 5 accounting firms) hasheightened the call for greater disclosure by companies. Regulators, industry practitioners,accounting standard setters, and academicians have responded to this phenomenon withinterventions such as swift regulations (Sarbanes-Oxley Act of 2002 in the USA),theorising and empirical studies especially from the developed capital markets. Though,Africa and Ghana for that matter cannot be isolated from the spillover of these scandals,theory (Lopes and Rodriques, 2007), and empirics (Leuz and Verrecchia, 2000) haveconcentrated on developed capital market. The paper sought to answer whether corporatedisclosure has any relevance to firm value in Ghana or is a consequence of interplay offactors that determine disclosure effects as Hassan et al. (2009) opined. Additionally, thepaper follow the lines of Lopes and Rodriques (2007) in testing the relevance of disclosuretheories in developing countries which would in turn buttress the theories that areproffered and refute any suggestion that the existing evidence is a consequence of theidiosyncrasies in the institutional, cultural, and regulatory environments in developedAnglo-Saxon countries consistent with Mangena and Chamisa (2008). Pooling time serieswith cross-sectional data over six-year period for 27 firms listed on the GSE whilstadapting S&P disclosure and transparency index, the paper sought to answer the abovequestions. Additionally, the disclosure policy of companies listed on the GSE ought to beexamined comprehensively than before (see Tsamenyi et al., 2007) given the globalpresence of the GSE with Thomson Reuters and Bloomberg providing feeds of real-timedata on the GSE. Investors all over the world would seek information and disclosurepractices to reduce information asymmetry on the GSE in addition to governance reformsand firm-level characteristics that would meet the expectations of investors.

Though corporate disclosure positively impact firm value, the relationship is notstatistically significant, emphasising interplay of multiple factors determiningdisclosure effects. Perhaps, the interplay of cost of information disclosure andbenefit could be another factor impacting effect of disclosure policy in Ghana.Depending on the balance, the effect could be positive as in our case or negative as inHassan et al. (2009) for voluntary disclosure. We could not affirm existing evidence of apositive relationship between corporate disclosure and stock prices as we found anegative though statistically insignificant relationship between corporate disclosureand stock prices. Perhaps, the stage of development of the market and the level ofefficiency could be the mediating factors determining the impact of corporatedisclosure on stock prices. On the determinants of disclosure practices, the paperaffirmed that theories of disclosure practices are not the results of idiosyncrasies in the

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institutional, cultural, and regulatory environments in developed Anglo-Saxon countriessuch as the USA but such theories can be generalised in developing countries such asGhana. Though, we could not confirm the relevance of the agency predictions in thecase of the impact of financial leverage given that we found a negative relationshipbetween financial leverage and corporate disclosure practices, the signally theory isupheld in our study. Though, not surprising given the stage of development of thestock market in Ghana and the fact that it has not led to the substitution of equityfor debt and the greater reliance of firms on bank financing, the direction ofthe relationship is expected to change as the stock exchange fully develops both inquantity (effectiveness-volume of shares traded) and quality (efficiency). Consistentwith the political cost and economic theories, the paper found a statistically significantand positive relationship between firm size and corporate disclosure level. Large firmsdisclose more information than smaller firms consistent with theory and empirics(see also Lopes and Rodriques, 2007). Age is a significant determinant of corporatedisclosure in Ghana. Older firms have the capacity and are better positioned not tosuffer from competitive disadvantage from disclosing more information to the publicrelative to younger firms. Theoretically, we confirm the agency theory of Jensen andMeckling (1976) and the empirical findings of Lopes and Rodriques (2007) in the case ofthe impact of audit quality on corporate disclosure. We found a statistically significantpositive relationship between audit quality (if a firm is audited by one of the “Big 4”)and corporate disclosure level in Ghana. Profitability is a positive and statisticallysignificant determinant of corporate disclosure in Ghana. Consistent with signallingtheory, managers of profitable firms are motivated to disclose more information toappease shareholders, to enhance company image leading to marketability of shares,and above all to justify their compensation (see Zubaidah and Koh, 1999). Empirically,we followed the findings of Owusu-Ansah, 1998; Karim, 1996) of a positive relationshipbetween profitability and corporate disclosure level. We also found risk and extent ofinternationalisation to be insignificant determinants of corporate level in Ghana.Several policy and managerial implications emerge as a result of this study. We arguethat though corporate governance is taking root in Africa and Ghana for that matterafter several reforms in the continent following World bank/IMF-led economic reforms,it cannot be said that corporate governance is independent of corporate disclosure.Any policy of corporate governance must be pursued along disclosure practices aswell. The integrity of corporate disclosure sustains investor confidence in tradingsecurities at fair prices, and hence should be at the heart of any policy of making theGSE a well-functioning capital markets. Though the adoption of the IFRS has beenhailed as significant, compliance remains very low. IAS has marginally improved thelevel of disclosure practices contrary to expectations. Practical efforts must be madetowards compliance with IFRS based on annual reports published by companies andimplement actions towards non-complying companies (see Lopes and Rodriques, 2007).Annual ranking of companies based on good corporate governance and disclosurepractices could be adopted to stimulate healthy competition among firms which in turnwill also increase the awareness of information disclosure and its impact on investors’decisions among local investors.

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Further reading

Botosan, C.A. (1997), “Disclosure level and the cost of equity capital”, Accounting Review, Vol. 72No. 3, pp. 323-349.

Ghana Companies Code (1963), “Ghana Companies Code (Act 179), Act of Parliament, Accra.

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Corresponding authorGodfred A. Bokpin can be contacted at: [email protected]

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