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Journal of Business Studies, Vol. XXVIII, No.

1, June 2007

Corporate Governance and Reporting: An Empirical Study of the

Listed Companies in Bangladesh

Md. Hamid Ullah Bhuiyan*

Pallab Kumar Biswas**

Abstract: Corporate governance is a burning issue now-a-days. In Bangladesh,

a number of attempts have been made on part of different governmental and
non-governmental institutions for ensuring better corporate governance.
Considering the importance of this issue, this paper has tried to examine the
actual corporate governance practices in the listed public limited companies by
considering 45 disclosure items. A random sample of 155 listed Public Limited
Companies (PLCs) has been taken for this purpose. To facilitate the analysis, a
Corporate Governance Disclosure Index (CGDI) has been computed and a
number of hypotheses have been tested. The mean and standard deviation of
CGDI have been found to be 56.04 and 17.20 respectively. In this study,
significant difference has been found to exist among the CGDI of various
sectors. Financial sector has been found to make more intensive corporate
governance disclosure than the non-financial sector. In general, companies
have been found to be more active in making financial disclosures rather than
non-financial disclosures. Multiple regression result shows that corporate
governance disclosure index is significantly influenced (at 5% level of
significance) by local ownership, the SEC notification, and the size of the
company. Belonging to financial or non-financial institution, age, multinational
company, and size of the board of directors are not found to have any significant
impact on corporate governance disclosure.

Keywords: Corporate Governance, SEC notification, financial disclosure,

multinational company.


Corporate governance has evolved and grown significantly in the last decade. Following
the Enron Collapse there has been an increased emphasis on various aspects of corporate
governance, including its disclosure aspect. Numerous countries have already issued
corporate governance codes and the recommendations of these codes that typify “good”
corporate governance undoubtedly contribute towards increased transparency and

Md. Hamid Ullah Bhuiyan, Assistant Professor, Department of Accounting & Information Systems,
University of Dhaka, Dhaka-1000, Bangladesh.
Pallab Kumar Biswas, Lecturer, Faculty of Business Administration, Eastern University.

Electronic copy available at:

2 Journal of Business Studies, Vol. XXVIII, No.1, June 2007

disclosure (Mallin, 2002: 253). In case of Bangladesh, the Securities and Exchange
Commission (SEC), Bangladesh Bank (BB), the Institute of Chartered Accountants of
Bangladesh (ICAB), Bangladesh Enterprise Institute (BEI), the Institute of Cost and
Management Accountants of Bangladesh (ICMAB) are some of the pioneer bodies
working for ensuring better corporate governance in the country. Their efforts include
publication of code of corporate governance for Bangladesh, different reports,
organization of seminars, issuance of notification etc. Hence, the main motivation of the
current study is to explore whether listed public limited companies in Bangladesh are
paying attention to all these arrangements and to what extent such attention is being
resulted in annual report disclosure. With this end in view, this article at first briefly
discusses various aspects of corporate governance framework. Considering all these
aspects, different disclosure issues have been selected to examine the actual corporate
governance practices in Bangladesh. “The foundation of any structure of corporate
governance is disclosure. Openness is the basis of public confidence in the corporate
system, and funds will flow to the centers of economic activity that inspire trust.” This is
a famous quote made by Sir Adrian Cadbury (2000: vi) explaining the importance of
corporate governance disclosure. Without adequate reporting mechanisms, shareholders
and others cannot be confident that the affairs of the company are being run in a prudent
manner for their benefit. Also, there is inadequate assurance that the checks and balances
in place are effective. So the main objective of this study is to identify the extent of
corporate governance disclosure by Bangladeshi Companies in the annual reports. This
study is restricted to the public limited companies listed with the Dhaka Stock Exchange

This paper is organized into seven sections. The following section offers a discussion on
the conceptual framework of corporate governance. Section three focuses on the
environment of corporate governance in Bangladesh. The fourth section deals with the
historical aspect of corporate governance and the literature review. Section five presents
the data collection and research methodology. The sixth section discusses data analysis
and research findings. The final section concludes the paper with the scope of future

Corporate Governance: The Conceptual Framework

The essence of corporate governance is about how owners (principals) of firms can
ensure that the firm’s assets (and the returns generated by those assets) are used
efficiently and in their best interests by managers (agents) delegated with powers to
operate those assets. This problem is intrinsic to any arrangement where owners
themselves do not undertake the management functions directly. The corporate
governance problem arises due to the existence of separation of ownership and control

Electronic copy available at:

Corporate Governance and Reporting: An Empirical Study 3

rights, informational asymmetry, and incomplete or state-contingent contracts (Lin,


In such a regime, the prerequisite for effective corporate governance involves: Alignment
of risk-bearing and control (e.g. rights of shareholders in appointing management,
approval of strategy and cash-flow); Monitoring and oversight of management and firm’s
performance based on transparency, regular and reliable disclosures, and internal checks
and balances; and Incentives (managerial incentives to enhance effort and align interests
of management with those of owners).

It is generally accepted that the governance problem entails a tension between

accountability and managerial initiative i.e. between the need for directors or
management to be accountable to shareholders on one hand and the need for management
to have the discretion to maximize profits. An apt analogy (with apologies to the Cadbury
Report) is in terms of unleashing the tiger (management) into the jungle of the market to
seek and exploit opportunities while ensuring that the tiger brings home the meat without
consuming it all himself, or that it does not eat up the owner in the process (Lin, 2001:6).
To address the corporate governance problem in practice, owners (and stakeholders) need
to devise a governance system comprising effective mechanisms of control, oversight and
monitoring over management and of incentives for management to behave in the owners’
interest. Such corporate governance system can be perceived as institutional attempts to
create a structured dialogue between companies and their shareholders and stakeholders
with the purpose of paving the way for understanding the company’s strategic and
operational goals, including critical success factors for achieving those goals (Parum,

Lin (2001) identifies a number of variables which constitute the design parameters. The
most critical of these include the scope of accountability and the desirable purpose and
benefits which determine the specific objectives or measures and criteria of whether
governance is good or bad. In a good corporate governance system, management should
be accountable to not only shareholders but also other stakeholders such as employees,
creditors, major suppliers and customers. The scope of accountability can be broadened
even further to include those with an indirect stake, i.e. “society” as a whole. Closely
related to the question of “to whom should the board be accountable” is the issue of the
advantages of corporate governance. A narrow conception of corporate governance deals
with safeguarding the interests of shareholders (and other security claimants). This seems
pretty much to be the dominant view among firms and institutional investors in Anglo-
Saxon countries. Good corporate governance in this context involves mainly enhanced
capacity for shareholders to perform oversight and monitoring functions through, for
example, approving (or setting) strategic and financial objectives, management selection,
decisions on directors remuneration, profit distribution, board representation, etc.
4 Journal of Business Studies, Vol. XXVIII, No.1, June 2007

A broader conception includes the narrow conception described above but in addition
considers the efficiency aspects from the perspective of national economic vitality. So
Lin (2001) suggested that the merits and demerits of any corporate governance system
should be evaluated not only in terms of adequacy of shareholders’ interests but should
include its capacity to raise financing (which may or may not be in the interests of
existing shareholders), productivity and competitiveness which contribute to the
dynamism of the economy overall.

The broad conception of corporate governance would imply going beyond using
shareholder value as the sole objective or criteria of satisfactory governance. 1The choice
of a judicious blend of indicators of firm performance and prospects, in this case, depends
on either the myopia or “vision” of stakeholders, especially institutional investors, in
making investment decisions. Even so, a long-term view requires considerable effort and
skills in monitoring and analysis. Under this long range view, a system of corporate
governance involves a firm’s three constituent decision-making bodies: the shareholders’
annual general meeting (AGM), the board of directors, and management. It is often
assumed that this architecture represents the corporate governance of a firm. But Lin
(2001) argues that it only provides a skeletal structure upon which corporate governance
could be exercised, and the effectiveness - indeed the very existence of - corporate
governance depends entirely on how the skeletal structure is fleshed out. How it is
fleshed out depends on (a) Statutory provisions, particularly those relating to the
definition and exercise of shareholders’ rights, oversight mechanisms and disclosure,
contained in the legal and other (especially financial and securities) regulatory framework
of the country or jurisdiction and replicated - and further developed - in the charter of the
company; (b) Monitoring, compliance and enforceability of these legal and other
statutory requirements. However, how governance works in practice and more crucially
how effective it is, depends on a host of internal characteristics (ownership and capital
structure) and external factors which act as enforcement mechanisms, of which the most
important are (c) Ownership concentration or dispersal, which determines whether a firm
is tightly controlled by a group of insiders (e.g. majority shareholders) or by a large
number of widely dispersed small shareholders governing largely through markets (e.g.
share price movements), and the balance of powers and interests between
majority/insiders and minority/outsiders shareholders; (d) Board attributes, such as the
composition, representativeness, independence and qualification of board members, as
well as the existence of sub-committees (headed by non-executive or independent

Consider, for example, a profitable firm, delivering high shareholder value to its investors, but engaged in
activities considered by some as socially and ethically irresponsible: such as, say, environmentally
damaging or arms sales to repressive regimes. In the shareholder model, the firm may be said to have good
corporate governance (in delivering high shareholder value), but in the stakeholder model, it can be said to
be badly governed (Lin, 2001: 8).
Corporate Governance and Reporting: An Empirical Study 5

directors) on audit, nomination and remuneration, to ensure that it can be an effective

oversight body on behalf of stakeholders; (e) Supporting checks and balances, such as
independent share registrars, company secretaries, internal financial controls and accurate
and timely information accessible to board members; (f) Accounting standards (including
auditing) and conventions which determine the type, detail and quality of information
disclosed to ensure transparency; (g) Product market competitiveness to instill
commercial discipline on management; (h) Efficiency and competitiveness of financial
markets, providing financial discipline and incentives, especially equity markets where
shareholders can exercise their “vote” in governance through entry and exit, and which
provides a market for corporate control as well as monitoring functions performed by
institutional investors; (i) Competitiveness of managerial job markets which make
managerial jobs “contestable” and thereby elicit managerial effort; and (j) Cultural and
historical factors, which, amongst other things, strongly influence business organization,
practices as well as the passivity or activism of shareholders in governance.

Thus, both internal and external enforcement mechanisms impact on corporate

governance (Lin, 2001:5-9). Depending on the above mentioned enforcement
mechanisms, different disclosure issues have been identified as a proxy for good
corporate governance in Bangladesh and attempts have been made to find out the nature
and extent of disclosure by the listed public limited companies in Bangladesh.

Corporate Governance in Bangladesh

The history of corporate governance in Bangladesh is not very old. About 60 years back
from now, the land, which is now Bangladesh, had a few bodies incorporated under the
Companies Act. At the time of independence of Bangladesh, many industries and
business houses owned by non-locals were abandoned and the government of Bangladesh
took possession of these industries by establishing corporate bodies like BCIC
(Bangladesh Chemical Industries Corporation) and BSEC (Bangladesh Steel and
Engineering Corporation). During 80s, Bangladesh Govt. took privatization policy and
since then, private sectors have a substantial impact on the pace and pattern of economic
growth (ICAB, 2003:6-7). In Bangladesh, though no remarkable corporate scandals
emerged to feel the necessity of corporate governance, yet the stock market crush of 1996
is worth remembering.2

Corporate governance is a function of regulation of corporate bodies through legislation

or self regulatory mechanisms such as those of stock exchanges. The current legal

The DSE all shares price index rose to 3648.75 on 5th November, 1996 starting from 865 on 1st June, 1996-
322% increase within a spate of only 158 days. The Market Capital that was T, 56.52 billion by end 1995
reached Tk. 168.11 (137% increase) by end 1996 (Mazumdar, 2006:64).
6 Journal of Business Studies, Vol. XXVIII, No.1, June 2007

framework surrounding corporate entities in Bangladesh include: The Companies Act

1994, Bangladesh Bank Order 1972, The Bank Companies Act 1991, Financial
Institutions Act 1993, The Securities and Exchange Ordinance 1969, The Securities and
Exchange Commission Act 1993, and The Bankruptcy Act 1997 (BEI, 2003: 28-29).

The Companies Act 1994 is the law which governs incorporated entities in Bangladesh.
The Companies Act 1994 plays a major role in corporate governance. It defines the rights
of not only majority shareholders but minority shareholders as well. The act provides for
certain supervisory functions to be undertaken by the shareholders in the form of these
rights to attend meetings, appoint and remove directors, and to obtain financial
information as well as approve the balance sheet annually. It also provides for various
mechanisms for shareholders to enforce these rights, the principal among them being a
suit for minority protection under section 233 of the act (vide Afroze, and Jahan,
2005:189). Besides, Director’s report in the annual report is prepared under section 184
of the Companies Act 1994, various issues relating to directors’ ( such as appointment,
removal, vacation etc) are addressed through section 90 to 110, issues relating to
management and administration are addressed through section 77-89. All these reflect
various issues of corporate governance.

The Securities and Exchange Commission (SEC) has promulgated different orders and
notifications from time to time to ensure good corporate governance practice in the
listed public limited companies. On 9th January and 20th February 2006, the
SEC has issued order (No. SEC/CMRRCD/2006-158/Admin/2-06) and notification
(No.SEC/CMRRCD/2006-158/Admin /2-08) for complying with a number of governance
codes. By doing all these, SEC strives to stimulate the listed companies to comply the
corporate governance guidelines issued by them so that suppliers of funds to assure
themselves of getting a return on their investment (Imam, 2006:34). All these guidelines
are issued on the basis of “Comply or Explain”. In other words, a company which has not
accepted with any of the SEC-issued corporate guidelines should include an explanation
for noncompliance in the company’s annual report to the shareholders (Ahmed, 2006:26).
Islam (2006) provided a highlight of few regulatory requirements which are of critical
significance for proper issuance and orderly trading in securities and also have direct
relevance to corporate governance that is presented in a table given in Exhibit-A1.
The Institute of Chartered Accountants of Bangladesh (ICAB) has accepted a number of
International Accounting Standards (IAS) and International Standards on Auditing (ISA)
in Bangladesh as Bangladesh Accounting Standards (BAS) and Bangladesh Standards on
Auditing (BSA) respectively. Moreover, it has published a report named “Corporate
Governance in Bangladesh” in 2003 after undertaking a study on the present scenario of
corporate governance in Bangladesh. In the report, various recommendations have been
Corporate Governance and Reporting: An Empirical Study 7

made for the improvement of corporate governance practice in Bangladesh (ICAB,


Besides the above two, some private firms have been working in this field for quite some
time in order to ensure better corporate governance. In August 2003, first such initiative
was taken by Bangladesh Enterprise Institute (BEI) by conducting a diagnostic study in
this field. Based on the study, BEI in March 2004 has published “The Code of Corporate
Governance for Bangladesh”. Subsequently, the ICAB has come up with principles and
rules to be followed (Mazumder, 2006: 67). Very recently, the Institute of Cost and
Management Accountants of Bangladesh (ICMAB) organized a two-day long Conference
on “Corporate Governance-Bangladesh Perspective” on March 14-15, 2006.

In spite of the existence of the above mentioned regulatory framework, in many cases, the
current system in Bangladesh does not provide sufficient legal, institutional, or economic
motivations for stakeholders to encourage and enforce good corporate governance
practices. As a result, there are few rewards for companies that institute good corporate
governance practices and no penalties for failing to do so (BEI, 2003: 1).While there is
increasing recognition of the need for corporate governance reform in Bangladesh, the
process has been slowed by the policy dimension of reform efforts, which often runs
counter to entrenched interests ( As a result, the poor
functioning of financial markets, opaque, unethical, illegal, or simply unprofessional
business practices raise the costs of doing business within the economy, distort domestic
investment decisions, and impede foreign investment in Bangladesh. Besides, failings in
institutions, government agencies, legal enforcement, and market behaviour, Mazumdar
(2006) found family owned business, lack of loyalty, misconception about delegation of
authority, and missing internal audit function to be the reasons behind poor corporate
governance in Bangladesh.

Corporate Governance: Historical Overview and Literature Review

Governance is a word with a pedigree that dates back to Chaucer and in his day the word
carried with it the connotation wise and responsible, which is appropriate. It means either
the action or the method of governing and it is in that the latter sense that it is used with
reference to companies. Its Latin root, “gubernare” means to steer and a quotation which
is worth keeping in mind in this context is: ‘He that governs sits quietly at the stern and
scarce is seen to stir.’ (Cadbury, 2002: 1). Though corporate governance is viewed as a
recent issue, there is, in fact, nothing new about the concept. Because it has been in
existence as long as the corporation itself (Imam, 2006: 32). Over centuries corporate
governance systems have evolved, often in response to corporate failures or systemic
crises. The first well-documented failure of governance was the South Sea Bubble in the
8 Journal of Business Studies, Vol. XXVIII, No.1, June 2007

1700s, which revolutionized business laws and practices in England. Similarly, much of
the securities law in the United States was put in place following the stock market crash
of 1929. There has been no shortage of other crises, such as the secondary banking crisis
of the 1970s in the United Kingdom, the U.S. savings and loan debacle of the 1980s,
East-Asian economic and financial crisis in the second half of 1990s. In addition to
crises, the history of corporate governance has also been punctuated by a series of well-
known company failures: the Maxwell Group raid on the pension fund of the Mirror
Group of newspapers, the collapse of the Bank of Credit and Commerce International,
Baring Bank and in recent times global corporations like Enron, WorldCom, Pramalat,
Global Crossing and the international accountants, Andersen. These were blamed on a
lack of business ethics, shady accountancy practices and weak regulators. They were a
wake-up call for developed countries on corporate governance. The result is found in
different regulatory actions and other reforms.3 Each crisis or major corporate failure –
often a result of incompetence, fraud, and abuse- was met by new elements of an
improved system of corporate governance (Iskander and Chamlou, 2000:1).

Governance has proved an issue since people began to organize them for a common
purpose. How to ensure the power of organization is harnessed for the agreed purpose,
rather than diverted to some other purpose, is a constant theme. The institutions of
governance provide a framework within which the social and economic life of countries
is conducted. Corporate governance concerns the exercise of power in corporate entities
( There are probably as many definitions of corporate governance
as there are corporations. The earliest definition of Corporate Governance is provided by
the Economist and Noble laureate Milton Friedman (1970) (vide Indian infoline, 2001:1).
According to him, Corporate Governance is to conduct the business in accordance with
owner or shareholders’ desires, which generally will be to make as much money as
possible, while conforming to the basic rules of the society embodied in law and local
customs (vide Indian infoline, 2001:1). This definition is based on the economic concept
of market value maximization that underpins shareholder capitalism. Apparently, in the
present day context, Friedman’s definition is narrower in scope. Over a period of time the
definition of Corporate Governance has been widened. It now encompasses the interests
of not only the shareholders but also many stakeholders. In fact, a much-quoted definition

In the UK the collapse of the Maxwell publishing group at the end of the 1980s stimulated the Cadbury
code of 1992, and cases through the 1990s such as Poly Peck, BCCI and recently Marconi stimulated a
series of further enquiries and recommendations. The cases of Enron, World Com and Tyco have initiated
major debate and legislation in the US.. In Germany the cases of Holtzman, Berliner Bank, and more
recently Babcok have served the same catalytic role as did the collapse of HIH (a large insurer), Ansett
Airlines and One Tel in Australia.1 Credit Lyonnaise and Vivendi have raised many governance issues in
France; and in Switzerland the events at Swissair have had a similar effect. Large failures of both financial
and non financial institutions in Japan have also led to regulatory responses and to legal changes (OECD,
Corporate Governance and Reporting: An Empirical Study 9

of corporate governance comes from Sir Adrian Cadbury, father of the core of the UK
Combined Code on corporate governance which regulates corporate governance in UK
companies. His definition of corporate governance is “the system by which business
corporations are directed and controlled (Cadbury, 2002: 1).” But the most authoritative
functional definition of corporate governance is provided by the OECD which is
consistent with the definition provided by Sir Adrian Cadbury:

"Corporate governance is the system by which business corporations are

directed and controlled. The corporate governance structure specifies the
distribution of rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and other
stakeholders, and spells out the rules and procedures for making decisions on
corporate affairs. By doing this, it also provides the structure through which
the company objectives are set, and the means of attaining those objectives
and monitoring performance” (OECD, 1999: 9).

Corporate governance is concerned with holding the balance between economic and
social goals and between individual and communal goals. The governance framework is
there to encourage the efficient use of resources and equally to require accountability for
the stewardship of those resources. The aim is to align as nearly as possible the interests
of individuals, corporations, and society. The incentive to corporations and to those who
own and manage them to adopt internationally accepted governance standards is that
these standards will help them to achieve their corporate aims and to attract investment.
The incentive for their adoption by states is that these standards will strengthen the
economy and discourage fraud and mismanagement (Cadbury, 1999: VI).The principal
characteristics of effective corporate governance are: transparency (disclosure of relevant
financial and operational information and internal processes of management oversight
and control); protection and enforceability of the rights and prerogatives of all
shareholders; and, directors capable of independently approving the corporation’s
strategy and major business plans and decisions, and of independently hiring
management, monitoring management’s performance and integrity, and replacing
management when necessary (vide Gregory, 2000: i). All these characteristics are there to
achieve the broad objective of good corporate governance: maximizing long term
shareholder value (Ahmed, 2006: 24).

A good number of theoretical and empirical researches on corporate governance

disclosure have been undertaken throughout the globe due to the continuing emphasis on
this. In conducting the research on corporate governance, annual reports have been used
as a main source of information. Karim et al. (1996) argued that annual reports of the
companies should be considered as the most important source of information about a
company and they used that for a variety of reasons. Bushman and Smith (2001) argued
10 Journal of Business Studies, Vol. XXVIII, No.1, June 2007

that a fundamental objective of corporate governance research in accounting is to provide

evidence on the extent to which information provided in financial accounting systems
mitigate agency problems. Research in the field of corporate governance disclosure
during the recent years has mainly focused on the disclosure practices found in the annual
reports by determining the extent of corporate governance disclosures in the annual
reports of the companies of a country. In the Twenty First Session of International
Standards of Accounting and Reporting (Geneva 27-29 October, 2004) UNCTAD
Secretariat presented a report (which was prepared after conducting a survey on 30
companies representing different geographical regions and industry) that found
increasing convergence among national and international corporate governance codes and
guidelines but it also reported significant deviation in terms of disclosure practices and
content of disclosure. Gompers et al (2003) used the incidence of 24 governance rules to
construct a “Governance Index” to proxy for the level of shareholder rights at about 1500
large firms in the USA during the 1990s. They found that firms with stronger shareholder
rights had higher firm value, higher sales growth, higher profits, lower capital
expenditures, and made fewer corporate acquisitions. But except for size and, to a lesser
extent, ownership structure, Réal Labelle (2002) did not find consistent and significant
relations between disclosure quality of governance practices and firm performance or
other corporate governance variables such as the proportion of unrelated director, the
CEO’s plurality of offices and the level of financing activity in Canada.

Similarly, a number of attempts have been made by various researchers throughout the
world regarding the determinants of corporate governance. Durnev and Kim (2005)
provide empirical and theoretical evidence that companies with greater growth
opportunities, greater needs for external financing, and more concentrated cash flow
rights practice higher quality governance and disclose more and the strength of their
influence depends in part on the country’s legal environment. On the other hand, Barucci
and Falini (2005) find that in Italian financial market, governance features are affected by
shareholders’ composition, balance sheet data and company features. Anand et al. (2006)
provide empirical evidence that the absence of a large empirical block holding and a high
need for external financing are the firm characteristics associated with the adoption of the
Canadian guidelines and when it comes to voluntarily adopting the U.S. Sarbanes-Oxley
Act (SOX) provisions, firm size becomes an important determinant.

From the context of Bangladesh, Hossain et al (2005) made a study on voluntary

disclosures on corporate social responsibility in Bangladesh by taking 75 sample
companies. They found that only 9 companies (12%) disclosed several issues on
corporate governance in their annual reports covering issues like Internal Financial
Control (including management structure, financial reporting, asset management,
functional reporting), Statement of director’s responsibilities for preparation and
Corporate Governance and Reporting: An Empirical Study 11

presentation of financial statements, Board Committees and Rights and relations with
shareholders. Besides, they also found 5 companies to highlight legal issues, 9 to disclose
about business ethics, 7 companies to report on the shareholder’s dialogue, 5 to report on
community relations, 14 to report on environmental sustainability and no companies to
report on human rights and labour standards. Al-Amin and Tareq (2006) found
significant statistical relationship between company size measured by annual turnover
and corporate governance disclosure after a survey of 30 companies. After conducting a
questionnaire survey of 151 companies in 2002, Centre for Policy Dialogue (CPD)
reported the adoption of corporate governance policy in 66.7 percent of the companies
and compliance with national and international benchmarks in 43.3 percent of the
companies. Hossain and Khan (2006) conducted an extensive survey of 100 sample
companies of DSE and/or CSE (Chittagong Stock Exchange) and found significant
relationship between corporate governance disclosures and some corporate attributes
such as multinational affiliation, linkage of auditor with big four audit firms, concentrated
ownership by sponsors and banking companies influence. In their survey, they considered
25 issues in developing corporate governance disclosure index. The present study has
been conducted considering 45 different issues that not only cover these 25 issues but
also other important issues considered by UNCTAD (2004).

Methodology of the Study

The main objective of this study is to examine the level of corporate governance
disclosures of the sample companies. So a disclosure index has been developed (mainly
on the basis of the papers prepared by the UN secretariat for the nineteenth session of
ISAR (International Standards of Accounting and Reporting), entitled “Transparency and
disclosure requirements for corporate governance” and the twenty second session of
ISAR, entitled “Guidance on Good Practices in Corporate Governance Disclosure”) for
the companies under study. Issues in corporate governance disclosure are classified into 5
broad categories. Financial disclosures, non-financial disclosures, annual general
meetings, timing and means of disclosure, and best practices for compliance with
corporate disclosure. Under non-financial disclosures, different headings such as
company objectives, governance structure and policies, members of the board and key
executives, material issues regarding employees, environmental and social stewardship,
material foreseeable risk factors, and independence of auditors are used. Under all these
broad and subcategories, a total of 45 issues have been considered (See Exhibit A-2 in

For this research, randomly selected 155 listed public limited companies have been
considered. The companies were classified into 11 categories under 2 broad headings:
12 Journal of Business Studies, Vol. XXVIII, No.1, June 2007

Financial sector and non-financial sector. Financial sector includes banks and insurance
companies. Non-financial sector includes engineering, food & allied, fuel & power, jute,
textile, pharmaceuticals & chemical, paper and packaging, service and miscellaneous.
The disclosure practices of selected companies are analyzed as of July1, 2006. The
primary sources used for the survey include company annual reports and internet.

With the help of the list of disclosure issues, the annual reports of the companies were
examined. A dichotomous procedure was followed to score each of the disclosure issue.
Each company was awarded a score of ‘1’ if the company appears to have disclosed the
concerned issue and ‘0’ otherwise. The score of each company was totaled to find out the
net score of the company. A corporate governance disclosure index (CGDI) was then
computed by using the following formula:
Total Score of the Individual Company
Maximum Possible Score Obtainable by Company
CGDI= × 100
By using the total CGDI the following hypotheses have been tested:

Hypothesis 1 There is no significant difference among the CGDI of 11 sectors.

Hypothesis 2 CGDI of financial and non-financial sectors are equal.

Hypothesis 3 Companies do not differ significantly in avg. financial and non-

financial disclosure index.

Hypothesis 4 There is no significant association between a number of corporate

attributes (viz, size of the company, local ownership (which includes
public ownership, institutional ownership, and government
ownership), multinational company, belonging to financial or non-
financial institution, age, the SEC notification, size of the board of
directors) and the extent of corporate governance disclosure.

To provide primary evidence of the impact of corporate attributes on corporate

governance disclosures of different companies in Bangladesh, this paper uses the
following multiple regression technique.

CG = C + β1LNSA+ β2LOCALt + β3MNCt + β4FINt + β5AGEt + β6NOTIt + β7BODt + et

Corporate Governance and Reporting: An Empirical Study 13

Table 1
Operationalisation of the Research Variables

Variable Acronym Operationalisation Expected Sign

Dependent Variable:

Corporate Governance CG Total score obtained by the

Disclosure Index company divided by the
maximum score obtainable
by one company multiplied
by 100
Independent Variables:

Sales (Proxy for size) LNSA Natural log of the sales of

the company

Local Ownership LOCAL The proportion of general

ownership (summation of
public, institutional and +
government ownership) in
the company

Multinational Company MNC Dichotomous with 1 if the

company is a multinational +
one and 0 otherwise
Financial Institution FIN Dummy Variable, 1 if the
company is a financial
institution and 0 otherwise
Age AGE Years of operation in the
market as a listed public +
limited company

The Securities and NOTI Dichotomous with 1 if the

Exchange Commission AGM of the company is
Notification held after the SEC +
notification (After March
2006) and 0 otherwise
Board Size BOD Number of directors in the
14 Journal of Business Studies, Vol. XXVIII, No.1, June 2007

Size: The size of the reporting company has been a major variable in most studies
examining disclosure variability and several measures of size may be annual sales, total
assets, fixed assets, paid up capital, shareholders equity, capital employed, and the market
value of the firm (Karim, 2006: 97). In this study, natural log of sales has been used as
the proxy for the size of the company.

Ownership pattern: In Bangladeshi PLCs, ownership pattern include sponsor ownership,

institutional ownership, government ownership, foreign ownership and public ownership.
In this study local ownership (which includes public ownership, institutional ownership,
and government ownership) has been used with the expectation to find any relationship
with corporate governance disclosure.

Company: In Bangladesh at present, a number of multinational companies are operating.

Because of their operation in different parts of the world, it is expected that multinational
companies will make more corporate governance disclosure than local companies. So a
dummy variable has been taken where 1 for the multinational listed companies in
Bangladesh, and 0 for other companies.

Age: In this paper, attempts have been made to find out if there exists any relationship
between the number of years of operation as a listed public limited company in the
market and the extent of corporate governance disclosure. Age has been calculated by
finding the difference between the annual report year and the year of listing.

The Securities and Exchange Commission Notification: The Securities and Exchange
Commission (SEC) imposed several conditions on 20th February, 2006 with which each
and every public limited company is subject to abide by on ‘comply or explain’ basis. So
it is expected that the company whose AGM took place after March, 2006 would make
more corporate governance disclosure than other companies whose AGM took place
before March, 2006.

Financial Institution: In Bangladesh, Bangladesh Bank pays special attention to financial

institutions (banks and leasing companies) by different circular, audit, notification etc. So
in this study, attempts have been made to add one dummy variable (1 if the company is a
financial institution) in the multiple regression model to find significant relationship with
corporate governance disclosure, if any.

Board Size: Large boards are usually more powerful than small boards and, hence,
considered necessary for organizational effectiveness (Florackis and Ozkan, 2004). For
instance, as Pearce and Zahra (1991) point out, large powerful boards help in
strengthening the link between corporations and their environments, provide counsel and
advice regarding strategic options for the firm and play crucial role in creating corporate
identity. So the board size has been considered in the multiple regression model.
Corporate Governance and Reporting: An Empirical Study 15

Other than all these variables, natural log of assets (LNASST) has also been used to
develop a correlation matrix. Since multiple regression is used to test the hypotheses,
assumptions of multicollinearity, normality, homoscedasticity and linearity are also
tested. The Pearson correlation matrix is used to test the multicollinearity assumption,
while an analysis of residuals, plots of the standardized residuals against predicted values
are conducted to test for homoscedasticity, linearity and normality assumptions.

Before going for testing the above mentioned hypotheses, a Run Test has been performed
for testing the randomness of observed data. Besides Run Test, several statistics
techniques such as Kolmogorov-Smirnov goodness of fit test, Wilkoxon Rank Sum W test,
Analysis of Variance (ANOVA) have been applied in this study. For checking normality
of population Kolmogorov-Smirnov goodness of fit test has been conducted and Wilkoxon
Rank Sum W test has been conducted to test the equality of means where normality of
population can’t be ensured.

Findings of the Study

While there is increasing tendency to disclose different aspects of corporate governance,

the disclosure practices and the content of disclosures among the selected companies
varied greatly.

Table 2
Frequency Distribution of Total Score by Individual Company

Total Score N Cum. N % Cum. %

12-16 8 8 5.16 5.16

16-20 37 45 23.87 29.03

20-24 39 84 25.16 54.19

24-28 16 100 10.32 65.52

28-32 14 114 9.03 73.55

32-36 17 131 10.96 84.51

36-40 20 151 12.90 97.42

40-44 4 155 2.58 100.00

Source: Compiled and Computed from the Annual Report of the Concerned Company
16 Journal of Business Studies, Vol. XXVIII, No.1, June 2007

Table 3
Frequency Distribution of CGDI

CGDI N Cum. N % Cum. %

30-40 29 29 18.710 18.710

40-50 49 78 31.61 50.32

50-60 17 95 10.97 61.29

60-70 19 114 12.26 73.55

70-80 17 131 10.97 84.52

80-90 24 155 15.48 100.000

Source: Compiled and Computed from the Annual Report of the Concerned Company

As seen in above tables (Tables 1, 2), there is a significant range in the disclosure item
scores among the selected companies. With a maximum of 45 disclosure items and the
average score of 25, or 56%, four companies received the highest score of 40 or 89%
(from four different sectors with their AGMs after March 2006). At the low end, eight
received a score of 15, or 33% (from three different sectors with their AGMs before
March 2006). Test result of Run Test (Exhibit-A4) asserts that null hypothesis of
randomness of data can’t be rejected as P-value is more than α value which is 5%.

The majority of the selected companies have disclosed information that is consistent with
the disclosure items checklist. In general, the highest scores are associated with those
disclosure items that address financial results, accounting policies and the existence of
various governance structures and mechanisms. At the high end of the range, all selected
companies have disclosed financial and operating results, size, composition and change
in board structure, compliance with different rules and accounting policies, information
regarding ownership structure, auditor appointment & rotation, auditor fees and 99%
have disclosed the information regarding shareholder right (Exhibit-A2). Lower scores
concerned with various aspects of the board and key executives relating to organizational
hierarchy (16%), directors’ biography (6%), remuneration committee (14%), as well as
existence of a code of conduct (6%). In order to find out if the companies emphasize
more on financial disclosures rather than on non-financial disclosures, the following
hypothesis has been tested:
Corporate Governance and Reporting: An Empirical Study 17

Ho: Companies do not differ significantly in avg. financial and non-financial

disclosure index.

H1: Companies differ significantly in avg. financial and non-financial disclosure


The result is given in Exhibit-A5 and A7. From the exhibits, it is found that null
hypothesis of equal variance can’t be rejected (P value, 0.188, is more than α value of
5%). Under the assumption of equal variance, the null hypothesis of equality of means
can’t be accepted. It means that companies do differ significantly in average financial and
non-financial disclosure index.

In this paper, the selected companies have been classified into 11 sectors. The reason
behind classification is to find out extent of disclosure by different sectors. The sector
wise disclosure is shown in the following table:

Table 4
Sector-wise CGDI Distribution

No. of Avg. Kolmogorov-

Sector Companies Minimum Maximum CGDI S.D. Smirnov z P value

Miscellaneous 22 33.33 88.89 55.35 16.41 0.93 0.36

Service 3 44.44 77.78 56.30 18.64 0.63 0.82

Jute 3 37.78 42.22 39.26 2.56 0.67 0.77

Fuel & power 5 42.22 82.22 60.00 19.53 0.71 0.70

Pharmaceuticals 15 37.78 88.89 62.22 17.07 0.63 0.82

Textile 20 33.33 88.89 55.67 23.75 1.18 0.12

Engineering 15 37.78 82.22 54.67 14.30 0.77 0.60

Food 24 33.33 82.22 46.28 14.75 0.91 0.37

Paper 4 33.33 35.56 34.44 1.28 0.61 0.85

Insurance 18 40.00 71.11 53.46 10.11 0.96 0.32

Institution 26 44.44 88.89 68.35 11.39 0.80 0.55

N=155 56.04 17.20

Source: Computed and Compiled from Annual Reports

18 Journal of Business Studies, Vol. XXVIII, No.1, June 2007

The above table shows that among 11 sectors considered, banking sector has ranked the
highest (69%) and paper and packing has ranked the lowest with only 34% disclosure.
Considering these 11 sectors hypothesis has been tested to find out whether there is any
difference in the average CGDI among these sectors.

Ho: There is no significant difference in the avg. CGDI among various sectors.

H1: Significant difference exists in the avg. CGDI among various sectors.

The test result is shown in Exhibit-A8. Test result shows that null hypothesis of no
significant difference in the avg. CGDI among various sectors can’t be accepted. In other
words, various sectors differ significantly among themselves in respect of average CGDI.

In Bangladesh, financial sectors (Banks and Insurance companies in this study) are
subject to close monitoring and supervision by Bangladesh Bank and the SEC. As a
result, more restrictions are imposed on this sector while the non-financial sectors are a
little bit relaxed to some extent. So, attempts have also been made to distinguish financial
and non-financial sectors’ CGDI.

Ho: There is no significant difference between financial and non-financial sector

avg. CGDI.

H1: Significant difference exists between the financial and non-financial sector avg.

The result is given in Exhibit-A5 and A7. At 5% level of significance, null hypothesis of
equal variance can’t be assumed because significance value (.036) is less than the α value
of 5%. By assuming un-equal variance, null hypothesis of equality of means can’t be
accepted at 5% level of significance. So null hypothesis of difference in average CGDI
between financial and non-financial sector can’t be accepted.

Finally, attempts have been made to find out the impact of various corporate
characteristics on the corporate governance disclosure. For this, a multiple regression
model is run. The descriptive statistics for the independent and dependent variables are
given in Exhibit-A9. A correlation matrix of various independent variables along with
dependent variables is constructed which is shown in Exhibit –A10. The correlation
matrix shows that other than size of the board and age, all the independent variables are
significantly correlated with corporate governance disclosure index at 1% or 5% (MNC)
level of significance. High correlation has been found between natural log of asset and
natural log of sales (.704), belonging to financial and non-financial institution (FIN) and
natural log of asset (0.675). Due to the existence of high correlation between natural log
Corporate Governance and Reporting: An Empirical Study 19

of asset and some other independent variables, natural log of sales has been selected to
act as proxy for size of the firm. The results of multiple regression (Exhibit-A11) show
that the corporate governance disclosure is significantly influenced (at 5% level) by size
of the company (represented by the natural log of sales), local ownership, and the SEC
notification. The multiple correlation coefficient (R) is 0.649 (R2 = .421) and the adjusted
R2 is 0.393, meaning that more than one-third of the variation in corporate governance
disclosure index can be predicted from the selected independent variables. It has also
been found that the variable SEC Notification (NOTI) has both the highest correlation
with CGDI (0.50) when other predictor variables are ignored (i.e. the highest zero-order
correlation) and the highest unique correlation with CGDI (0.420) when its shared
variation with the other predictor variables is taken into account (i.e. the highest beta
value). The beta weights suggest that other than local ownership (-.185) and age (-.026),
all the independent variables are positively contributing towards predicting audit
committee disclosure. As the SEC notification has been found to exert significant
influence on corporate governance disclosure practice, so it is important to make the
compliance of the conditions mandatory in the place of voluntary compliance (comply or
explain basis) on part of the listed companies. Again, the positive beta value of natural
log of sales implies that larger the size of the firm, the greater will be the extent of
disclosure. So law is necessary to reduce the gap between large and small firm level
disclosure practice. On the other hand, though local ownership has been found to be a
significant independent variable in explaining the extent of corporate governance
disclosure practice, its beta value is negative meaning that corporate governance
disclosure decreases as local ownership portion increases in a company. So policies
should be devised so that corporate governance disclosure increases with the increase in
local ownership portion in the company. Moreover, from the multiple regression model
output, it has also been observed that belonging to financial or non-financial institution,
age, multinational company, and, size of the board of directors do not contribute
significantly towards predicting the corporate governance disclosure. It means that for
Bangladesh, these variables are not significant contributors towards ensuring better
corporate governance at the current moment.

The survey result reveals that there are important corporate governance issues on which
disclosure is not yet a widespread practice. It is particularly a matter of concern that the
biography of the board members, remuneration committee information, code of ethics,
directorship information, organizational hierarchy are not being widely disclosed. Given
the growing complexity of business operations and of issues that boards have to deal
with, the investing public would be interested to know whether members of the board of
the enterprises in which they have invested or plan to invest in have sufficient educational
and professional qualification to carry out the business, how the remuneration of the
employees is being fixed, under which rules and guidelines the board members are
20 Journal of Business Studies, Vol. XXVIII, No.1, June 2007

running the business, to what extent the board members are busy with other companies’
directorship. With respect to certain disclosure items, a number of more detailed findings
are drawn from the survey, as discussed below.

Financial Disclosures:

As has been said earlier, the selected companies are more eager to disclose financial
information rather than non-financial information. All the companies have disclosed
information regarding financial and operating results and accounting policies. Again, 140
(90%) companies have disclosed information regarding dividend. In case of corporate
governance framework, only 28% companies have disclosed their position. Corporate
governance framework includes declaration by the board regarding fair presentation of
financial statements, consistent application of accounting policies and standards, sound
internal control system, ability to continue as a going concern etc.

Non-financial Disclosures:

Out of 95 companies who’s AGMs were held after March, 2006, 52 companies (55%)
have made disclosure of the SEC Compliance Report in the respective annual reports. It
means that about 45% companies didn’t make any disclosure regarding Corporate
Governance Disclosure requirement of the SEC. The reluctance on part of the companies
to comply with the disclosure requirement is an alarming sign, indeed. Again, out of
these 52 companies, 15 companies have disclosed only the SEC required checklist. Other
37 companies have disclosed both the SEC required checklist as well as separate
statement of corporate governance or separate section for corporate governance to make
their position clear regarding various aspects of corporate governance. Out of the 43 non-
complied companies, 13 companies have provided some sort of information in the annual
reports regarding corporate governance in a separate statement or separate section. Out of
60 companies who’s AGMs were held before March, 2006, only 6 companies (10%) have
provided information regarding corporate governance practice in their organizations in
separate corporate governance statement or section. Again, 66 companies (43%) have
been found to disclose information regarding company objectives. All the selected
companies have disclosed information regarding ownership structure and all but one
disclosed information regarding shareholder rights. In the survey, disclosure of voting
right and attachment of proxy form is considered as synonymous to shareholder right.
The results of the survey show a disparity among selected companies between the
disclosure of the existence of governance mechanisms and the disclosure of information
on the transparency and effectiveness of these mechanisms. On average 23% of the
Corporate Governance and Reporting: An Empirical Study 21

selected companies have disclosed the existence of some sort of governance structures
(existence of audit committee, remuneration committee, and other committees), 33% on
composition of the committees and 28% on role and functions of the committees. Again,
all the companies have disclosed the composition of the board (including executives and
non-executives) but only 23% have disclosed the role and functions of the board. Results
also reveal different levels of transparency among selected companies with respect to the
board. Only six percent of selected companies have disclosed the qualifications and
biographical information of each board member, while 23% of selected companies have
disclosed the duties of the directors and 19% disclosed the number of directorships and
other positions held by directors. Companies did better in disclosing the remuneration of
directors. 96% companies have disclosed this information in the notes to the financial
statement. A total of 137 companies (88%) have disclosed information regarding
responsibility of the companies towards employees. The disclosure contents vary
significantly and include relation with employees, industrial relation, provision of
gratuity, provident fund, workers’ profit participation fund etc. Forty one per cent of
selected companies have disclosed the company policy and performance in connection
with environmental and social responsibility, although in most cases relationships
between a company's policy and performance and their impact could not be discerned.
The content of disclosure varies among selected companies. A few companies have
disclosed specific natural environmental targets, while others disclosed more employee
training and health programmes and/or contributions made to the natural environment
and community. Results reveal different levels of transparency among selected
companies with respect to risk assessment and management and confirm a strong
tendency on the part of financial companies to score higher than non-financial
companies. Total 36 companies (23%) have disclosed information regarding this. Out of
the 36 companies, 24 (94%) are financial companies. Sound internal control system is a
pre-requisite for good corporate governance. Out of 155 companies surveyed, only 53
(34%) companies have disclosed information regarding internal control system inside the
organization. Most of the companies provided the information in the SEC Checklist.
Though it is a general practice to disclose the notice of AGM and the agenda of the AGM
in the annual report, 3 companies have been found without such disclosure. As a result,
from the annual report it is not possible to find out the matters to be discussed or
decisions to be taken in the AGM. 63 companies (41%) have disclosed information
regarding number of board meetings held during the last financial year. Out of these
companies, 38 companies have been found to disclose each and every director’s
attendance in the board meetings as well. Though internet is not so widespread in our
country at the current moment, still 68 companies (44%) have disclosed information
22 Journal of Business Studies, Vol. XXVIII, No.1, June 2007

regarding financial position and/or annual report in their website. Most of these
companies are banks and financial institutions and foreign companies. Not a single
company has disclosed in a statement that the board of directors had confidence that the
auditors were independent and their integrity had not been compromised in any way. All
selected companies disclosed the complete letter of the "Independent Audit Report" in
their annual. Again, all the companies disclosed information regarding appointment and
rotation of auditors as well as their remuneration.

Concluding Remarks and Scope of Future Research

This study undertakes content analysis studies. It has been found that a good number of
DSE listed companies in Bangladesh have chosen to disclose information regarding
various issues of corporate governance with a view to ensure compliance with regulatory
requirement and to increase the confidence of various constituents of business as well as
society. But only disclosure in the annual reports shall not be enough. Practice of good
corporate governance and its appropriate disclosure can facilitate and stimulate the
performance of companies, limit the insiders’ abuse of power over corporate resources
and provide a means to monitor managers’ opportunistic behaviour.

The survey findings show that corporate governance disclosure in Bangladesh is

significantly influenced by local ownership, the SEC notification, and size of the
company but belonging to financial or non-financial institution company, multinational
company, age and size of the board of directors do not have significant impact on
corporate governance disclosure. So steps should be taken for mandatory compliance of
the SEC notification and for reducing the gap between large and small firms’ disclosure
practices. Within the current type of analysis, scope may be widened by covering the
corporate governance disclosure practice by Bangladeshi public limited companies over a
number of years to find out the extent of importance the organizations are emphasizing
on this issue. Moreover, in this article, all the disclosure items are given same weight.
Although this helps to reduce subjectivity, the market may place higher emphasis on
certain elements of governance. Also, some aspect of governance may be considered to
be a basic component or prerequisite to implementing others and thus should be given
more weight. Further analysis may also include managerial perceptions studies and
stakeholders’ perceptions studies.
Corporate Governance and Reporting: An Empirical Study 23

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26 Journal of Business Studies, Vol. XXVIII, No.1, June 2007

Exhibit - A1
SEC’s regulatory requirements and their interface with the corporate governance:

SEC’s regulatory requirement Relevance Relevance to pillars

to SEC’s of corporate
function governance

Detailed information requirement in the i, ii, iii ii, iii

prospectus for issuing securities for public
subscription under Public Issue Rules 1998

Neither the Company, nor any of its sponsors, iii iv

directors or associates be a bank defaulter
prescribed by 12th May 2002 notification as
amendment to Public Issue Rules 1998

Information requirement (including audited ii, iii iii

financial statements) under Issue of Capital
Rules 2001 for companies seeking consent to
raise capital for whom Public Issue Rules 1998
and Right Issue Rules of 1998 do not apply as
well as their continuing requirement to hold
Annual General Meeting regulatory and submit
annual audited financial statements.

Requirements of Rights Issue Rules 1998 i, ii, iii iii, iv

including no bank default or tax default
certificates for Sponsors/Directors.

The requirement under October 2000 ii, iii i, iii

notification of issuer companies to hold annual
general meetings regularly in each year of
Gregorian calendar and to hold discussions in
conformity with Company Act which includes
audited annual accounts

The requirement under January 2000 ii, iii ii, iii

notification as amendment to the Securities and
Exchange Rules, 1987 that the financial
statements of an issuer of a listed company be
audited, by a firm of Chartered Accountants
consisting of not less than two partners in
practice for a minimum of seven years, in
accordance with International Standards of
Corporate Governance and Reporting: An Empirical Study 27

Auditing and the provision that, if necessary in

public interest, such financial statements may
also be audited by an auditor appointed by the

Prevention of insider trading defined as trading ii, iii ii, iv

in securities based on access to Undisclosed
price sensitive information under Securities and
Exchange Commission (prevention of insider
trading) Regulations, 1995

Procedures for acquisition or take-over of ii, iii ii, iii

substantial shares under notification no.
published in Bangladesh Gazette on 15 April

Eligibility criteria and codes of conduct of ii, iii ii, iii, iv

merchant bankers under 1996 rules; stock
dealers, brokers and authorized representatives
under 2002 rules; sponsors, trustees, asset
managers and custodians of mutual funds under
2001 rules; and of depository and depository
participants under Depository Act of 1999,
Depository Regulations of 2000 and
Depository (User) regulations of 2000

The requirement for issuer companies to notify ii, iii iii, iv

SEC and the stock exchanges about any
decision about price-sensitive information
within half an hour of such decisions under
SEC’s order of 19 December 2000

SEC’s function Corporate Governance

i = Proper issuance of securities; i = Compliance with regulatory

ii = Protection of investor’s interest;
ii = Equitable treatment of
iii = Capital market regulation and
iii = Disclosure of material
information, including
iv = Business ethics.

Source: Islam, 2006: 5-8

28 Journal of Business Studies, Vol. XXVIII, No.1, June 2007

Disclosure Items and their rankings
Disclosure Item No. of Companies Percentage
I. Financial Disclosures:
1. Financial and Operating Results 155 100
2. Related Party Transaction 93 60
3. Critical Accounting Policies 155 100
4. Corporate reporting framework 44 28.39
5. Statement of Director’s responsibilities 72 46.45
towards preparation and presentation of
financial statements
6. Risk and estimates in preparing and 75 48.39
presenting financial statements
7. Segment reporting 72 46.45
8. Information regarding future plan 58 37.42
9. Dividend 141 90.97
II. Nonfinancial Disclosures:
A. Company Objectives:
10. Information about company objectives 66 42.58
B. Ownership and Shareholders’ Rights:
11. Ownership Structure 155 100
12. Shareholder Rights 154 99.35
C. Governance Structure and Policies:
13. Size of board 155 100
14. Composition of board 155 100
15. Division between chairman and CEO 101 65.16
16. Chairman Statement 55 35.48
17. Information about Independent Director 50 32.26
18. Role and functions of the board 35 22.58
19. Organizational Hierarchy 24 15.48
20. Changes in Board Structure 155 100
21. Compliance with different legal rules 155 100
22. Audit committee 46 29.68
Corporate Governance and Reporting: An Empirical Study 29

23. Remuneration committee 21 13.55

24. Any other committee 38 24.52
25. Composition of the committee 51 32.90
26. Functioning of the committee 43 27.74
27. Organizational code of ethics 25 16.13
D. Members of the Board and key executives:
28. Biography of the board members 10 6.45
29. No. of directorship hold by individual 29 18.71
30. No. of board meeting 63 40.65
31. Attendance in board meeting 38 24.52
32. Director stock ownership 79 50.97
33. Director remuneration 149 96.12
E. Material issues regarding employees,
environmental and social stewardship:
34. Employee relation/Industrial relation 137 88.39
35. Environmental and social responsibility 63 40.65
F. Material foreseeable risk factors:
36. Risk assessment and management 36 23.23
37. Internal control system 52 33.55
G. Independence of Auditors:
38. Auditor appointment and rotation 155 100
39. Auditor fees 155 100
III. Annual General Meeting:
40. Notice of the AGM 152 98.06
41. Agenda of the AGM 152 98.06
IV. Timing and means of disclosure:
42. Separate Corporate Governance statement/ 56 36.13
separate section for corporate governance
43. Annual report through internet 68 43.87
44. Any other event 114 73.55
V. Best practices for compliance with corporate governance:
45. Compliance with SEC notification 52 33.55
Source: Compiled and Computed from the Annual Reports of different companies listed with DSE
30 Journal of Business Studies, Vol. XXVIII, No.1, June 2007

Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

Total Score 155 15 40 25.22 7.74
CGDI 155 33.33 88.89 56.04 17.20
Financial Disclosure Score 155 22.22 100.00 61.93 18.04
Non-financial Disclosure Score 155 30.56 91.67 54.33 18.68
Financial organizations 44 40.00 88.89 62.42 13.45
Non-Financial organizations 111 33.33 88.89 53.51 17.878
Source: Compiled and Computed from the Annual Report of the Concerned Company

Statistics of Test of Randomness (Run Test) of CGDI
Test Value Cases < Test Cases >= Test Total Number
Z P-Value
of CGDI Value Value Cases of Runs
55.86 95 60 155 64 -1.792 .073
Source: Test result of data collected from the Annual Report of the Concerned Company

Test for equality of variances and equality of means

Levene's Test t-test for Equality of Means

Avg. Financial Disclosure for
Score (µ1) and Non-financial Equality of
Sig. t df Sig.
Disclosure Score (µ2) Variances
Equal variances assumed 1.741 0.188 3.643 308.00 0.00
Equal variances not assumed 3.643 307.624 0.00
Financial Sector avg. score (µ1) and Non-financial Sector avg. Score (µ2)
Equal variances assumed 4.486 0.036 3.073 153.00 0.00
Equal variances not assumed 3.468 104.305 0.00
Source: SPSS output using data from Annual Reports.
Corporate Governance and Reporting: An Empirical Study 31

Descriptive Statistics of CGDI relating to Financial and
Non-financial Disclosure Items

CGDI Kolmogorov-Smirnov z P value

Financial Disclosure Items 1.891 0.002
Non-Financial Disclosure Items 2.289 0.000
Financial sector 0.917 0.370
Non-Financial sector 2.012 0.001

Source: Compiled and Computed from Exhibit- A2 in the Annexure.

Wilkoxon Rank Sum W test of equality of means

Components of Hypothesis W Z P value

Avg. Financial disclosure Index (µ1) and Avg. 26948.50 3.622 0.000
Non-financial disclosure Index (µ2)
Financial Sector avg. score (µ1) and 4330.5 3.58 0.000
Non-financial Sector avg. Score (µ2)

Source: SPSS result using data of Exhibit-A2 in the Annexure.

Source of Variation SS df MS F P-value F crit
Between Groups 9751.961 10 975.196 3.918 0.000243 1.897007
Within Groups 35840.051 144 248.889
Total 45592.012 154

Source: SPSS result using data of Table 7 and Exhibit-A2 in the Annexure.
32 Journal of Business Studies, Vol. XXVIII, No.1, June 2007

Exhibit- A9: Descriptive Statistics of dependent and independent variables

Minimum Maximum Mean Std. Deviation Skewness Kurtosis
CG 33.33 88.89 56.04 17.20 .48 -1.10
LNSA 4.84 17.46 12.22 2.12 -.49 -.03
LOCAL .04 1.00 .5420 .19 .09 .61
MNC .00 1.00 .0581 .23 3.82 12.73
FIN .00 1.00 .17 .38 1.8 1.24
AGE 1.00 45.00 17.30 8.83 .61 .141
NOTI .00 1.00 .61 .49 -.47 -1.80
BOD 3.00 37.00 9.28 6.4 2.17 5.34

Exhibit-A10: Correlation Matrix

CG 1
LNASST .528** 1
LNSA .413** .704** 1
LOCAL -.220** -.065 -.054 1
MNC .198* .095 .267** -.318** 1
FIN .349** .675** .276** -.070 -.105 1
AGE -.003 -.060 .151 -.037 .277** -.255** 1
NOTI .500** .333** .128 -.014 .127 .360** -.032 1
BOD .094 .270** -.092 -.117 -.033 .250** -.135 .137 1
** p < 0.01; * p < 0.05

Exhibit-A11: Coefficients
Unstandardized Standardized Collinearity
t Sig.
Coefficients Coefficients Statistics
B Std. Error Beta Tolerance VIF
(Constant) 23.164 8.035 2.883 .005
LNSA 2.648 .574 .328 4.616 .000 .785 1.274
LOCAL -16.498 6.041 -.185 -2.731 .007 .868 1.152
MNC 1.142 5.635 .015 .203 .840 .738 1.356
FIN 3.834 3.514 .084 1.091 .277 .666 1.502
AGE -.050 .134 -.026 -.373 .709 .843 1.186
NOTI 14.669 2.412 .420 6.082 .000 .834 1.199
BOD .056 .176 .021 .316 .753 .893 1.120
R = 0.649; R2 = 0.421; Adjusted R2 = 0.393