Board Efficiency and Internet Reporting

Quality: An Empirical Study of Indian

Public Sector Giants
Harmandeep Singh* and Arwinder Singh**

The purpose of this paper is to examine the potential board efficiency factors that may
affect the quality of internet reporting of the Indian public sector companies. The paper
applies content analysis on 81 listed public sector Indian companies to examine the
information disclosed on their websites. To test the efficiency of the board, board size,
independence of the board, board meetings, and CEO-duality are included while
controlling some firm-specific factors like size of the company, profitability, liquidity and
industry sector. The regression analysis indicates that the board independence ratio, size,
profitability, and industry sector have a significant influence on the total quality of internet
reporting of Indian public sector companies. Whereas other variables such as board size,
board meetings, CEO-duality and leverage of the companies do not affect the total internet
reporting quality. Another notable finding of this study is that board meetings and
leverage have a significant adverse impact on content disclosure quality of reporting. The
findings indicate that public sector companies with small board size and lower debt are
meant to disclose more information on their web pages. The results of the study are
helpful for the government-owned companies while deciding the board structure, as the
results suggest that board monitoring affects the quality of internet reporting.

Introduction
Over the past decade, research in finance and accounting insisted that internal and external
reporting have been serving various stakeholders of the companies in meeting their decision-
making needs and achieving transparency (Singhvi and Desai, 1971; Firer and Meth, 1986;
and Cooke, 1989). The recent advancement in information technology has fascinated
companies to report their activities in digital format on the internet (Louwers et al., 1996;
Lymer, 1997; Lymer, 1999; Debreceny et al., 2002; Bonson and Escobar, 2006; Garg and
Verma, 2010; and Botti et al., 2014). Botti et al. (2014) report that disclosure quality reduces
information asymmetry between companies and stakeholders. Dyczkowska (2012)
emphasized providing high-quality information by the regulating environment that would

* Research Scholar, University School of Financial Studies, Guru Nanak Dev University, Amritsar, Punjab,
India; and is the corresponding author. E-mail: har90bal@gmail.com
** Assistant Professor, Department of Commerce and Business Management, Guru Nanak Dev University-
Regional Campus, Gurdaspur, Punjab, India. E-mail: arwinder.gndu@gmail.com

© 2018
Board IUP. Alland
Efficiency Rights Reserved.
Internet Reporting Quality: 35
An Empirical Study of Indian Public Sector Giants
build confidence between the stock issuer and the investors. Garay et al. (2013) report
that providing high level of quality corporate information on the internet reduces the
information asymmetries between the corporation and their stakeholders. Overall, internet
reporting provides various benefits to the source company such as low cost, broader reach,
mass communication, easily accessible, integrated reporting and quick reach (Craven and
Marston, 1999; Ettredge et al., 2000; and Xiao et al., 2004).
Currently, there is no mandatory regulation for the corporate information disclosure
through the internet in India, which biases the quality and reliability of information on
the corporate website. To assure the quality of internet disclosure, the ultimate responsibility
of disclosure relies on the decision of the management. The Companies Act, 2013 requires
that the board of directors is the supreme executive authority controlling the management
and the affairs of the company. Also, agency theory imposes the obligation on the director
for full and fair disclosure of all the material events of companies in public. With this
argument, the objective of this study is to examine the association between board efficiency
and internet reporting quality of the listed public sector companies in India. Most of the
previous research focused on developed economies (see Petravick and Gillett, 1996; Gray
and Debreceny, 1997; Lymer, 1997; Lymer and Tallberg, 1997; Hussey et al., 1998; Martson
and Leow, 1998; Ashbaugh et al., 1999; Debreceny and Gray, 1999; Deller et al., 1999;
Trites, 1999; FASB, 2000; Lodhia et al., 2004; and Xiao et al., 2004). The research
concerning India is limited, for example, Singh and Malhotra (2004) and Garg and Verma
(2010). The prior studies in India considered only content attributes of the websites, for
example, financial, governance, social responsibility, human resources, technology and
right to information (Raman et al., 2003; and Garg and Verma, 2010). The research on
design attributes of the web pages is limited in the Indian context. Hence, this study
bridges the gap by surveying the quality of information presented on the web pages of
Indian public sector companies. To analyze the quality of the web pages, the present
paper focuses on the content and design criteria such as financial and non-financial
information, security, navigation and user support dimension. Furthermore, empirical
research in India measured only the effect of firm-specific factors on internet reporting
(Singh and Malhotra, 2004; and Garg and Verma, 2010). The studies on the effect of
corporate governance on the internet disclosure are limited in India. This paper also
tries to investigate the effect of board efficiency on the internet reporting quality.

Literature Review
The voluntary disclosure through the internet is the new mechanism for communicating
company’s material as well as non-material things to the internal and external stakeholders.
Previously, annual reports were the only form of reporting and were restricted to financial,
governance and social information. On the other hand, reporting through web included
various new dimensions to corporate reporting; for instance, company’s background,
strategies, projects and developments, innovations, human resource information and much
more (FASB, 2000; Debreceny et al., 2002; Ettredge et al., 2002; and Marston, 2003).

36 The IUP Journal of Accounting Research & Audit Practices, Vol. XVII, No. 4, 2018
Further, information on the websites is not confined to text-only format, it also allows
companies to present information in various innovative ways such as audio, visual, Java and
XBRL. Earlier research mainly focused on whether companies had websites, if so what kind
of information was disclosed on these web pages; for example, Booker et al. (1997), Lymer
(1997), Ashbaugh et al. (1999), Craven and Marston (1999), FASB (2000), Larrán and Giner
(2002), Marston (2003), Raman et al. (2003), Lodhia et al. (2004), Khan et al. (2006),
Despina and Demetrios (2009), Garg and Verma (2010), Alali and Romero (2012), and
Hossain et al. (2012). Further, some studies focused on the relationship between corporate
online disclosure and the factors affecting online disclosure; see Marston and Leow (1998),
Ashbaugh et al. (1999), Craven and Marston (1999), Bonson and Escobar (2002), Debreceny
et al. (2002), Ettredge et al. (2002), Larrán and Giner (2002), Allam and Lymer (2003),
Gandia (2003), Marston (2003), Gul and Leung (2004), Marston and Polei (2004), Singh and
Malhotra (2004), Xiao et al. (2004), Hanniffa and Cooke (2005), Laswad et al. (2005),
Bonson and Escobar (2006), Gandia (2008), Uyar (2011), Alali and Romero (2012), Hossain et al.
(2012), Hasan et al. (2013), Botti et al. (2014), Dharmadasa et al. (2014), Hassan (2015), and
Sanad and Al-Sartawi (2016). However, a majority of the above-mentioned studies focused on
the developed countries. With regard to India, Singh and Malhotra (2004) and Garg and
Verma (2010) conducted empirical research on the effect of firm-specific factors such as size,
leverage, profitability, auditor type, and more on the web-based corporate disclosure. In this
paper, an attempt is made to extract the relationship between corporate governance factors,
i.e., board efficiency and internet reporting quality, thus extending the literature.
Hypotheses Development
The present study mainly focuses on understanding the role of management in ensuring the
quality of reporting on the internet. The paper primarily focuses on the theoretical framework
defined by the agency theory. Agency theory defines the relationship between the management
and shareholders (owners) as an agency relationship (Jensen and Meckling, 1976; and Fama
and Jensen, 1983). The role of the management as per agency theory is to monitor the work
assigned by the owners. It also implies that managers need to understand the concerns of all
the stakeholders of the company and also emphasizes that the management should appoint
some shareholders’ representative on the board structure of the company (Debreceny et al.,
2002; and Freeman et al., 2004). Further, director of the company acts as a steward of the
company resources and is the accountable to the stakeholders of the company (Davis et al.,
1997; and Muth and Donaldson, 1998). The theory further ensures that management does not
possess more information than other stakeholders of the company do (Morris, 1987; Marston
and Polei, 2004; and Sánchez et al., 2011). Based on the discussed theory, the following
variables are included in the present study.
Board Size
Jensen and Ruback (1983) proposed that a small number of directors might bring more
coordination and communication between them and the subordinates. Botti et al. (2014) and
Sanad and Al-Sartawi (2016) indicate that a competent board has better and accessible

Board Efficiency and Internet Reporting Quality: 37

An Empirical Study of Indian Public Sector Giants
reporting on the internet. The empirical results of this variable are indeterminate, and the
proposed hypothesis for the variable is as follows:
H01: There is no association between the board size and internet reporting quality.
Board Independence
In India, Clause 49 of SEBI’s listing agreement mandates that companies should include
independent director on the board structure. Literature suggests that independence of
board is an essential variable for monitoring corporate financial reporting (Xiao et al.,
2004; Hanniffa and Cooke, 2005; Botti et al., 2014; Dharmadasa et al., 2014; and Hassan,
2015). On the contrary, Gul and Leung (2004), Hasan et al. (2013), and Sanad and Al-
Sartawi (2016), reported no association between these two. With these results the proposed
hypothesis is as follows:
H02: There is no association between board independence and internet reporting
quality.

Board Meeting
Corporate governance literature explains that internal functioning of boards such as board
meeting might influence the quality of reporting (Botti et al., 2014). Studies such as Vafeas
(1999), Brick and Chidambaran (2010), and Botti et al. (2014) found a positive association
between the number of board meetings and reporting quality. While Hassan (2015) reported
no association between both the variables. Therefore, this study hypothesizes as follows:
H03: There is no association between frequency of board meeting and internet
reporting quality.

CEO-Duality
CEO-duality is a situation in the board structure when one of the directors holds two positions
in the organization. Prior studies reported no association between duality and reporting quality.
Thus, the hypothesis for this variable is as follows:
H04: There is no association between CEO-duality and quality of internet reporting.

Control Variables
Prior studies indicate the impact of firm-specific factors on the internet reporting quality.
Therefor, company size, profitability, leverage, and industry sector are added as control
variables in the regression model.

Company Size
A positive association has reported between the company size and online disclosure (Singhvi
and Desai, 1971; Cooke, 1989; Ashbaugh et al., 1999; Debreceny et al., 2002; Ettredge
et al., 2002; and Al-Htaybat, 2011). The literature suggests that disclosure increases with the
level of company size. Therefore, we expect a positive association between the company size
and the internet reporting quality measures.

38 The IUP Journal of Accounting Research & Audit Practices, Vol. XVII, No. 4, 2018
Profitability
Ashbaugh et al. (1999) argue that more the company is profitable more will be the disclosure
as they found a significant association between profitability and online disclosure. Marston
(2003) also suggests that profitable firms may likely to disclose voluntary information.
Al-Htaybat (2011) states that profitability is an essential factor in digital reporting. On the
other hand, studies like Larrán and Giner (2002), Marston and Polei (2004), Uyar (2011),
Alali and Romero (2012), and Hossain et al. (2012) reported no association between these
two variables.

Leverage
The previous research reported mixed association between leverage and internet reporting;
for example, Larrán and Giner (2002), Al-Htaybat (2011), Alali and Romero (2012) and
Hasan et al. (2013) reported no association between leverage and internet reporting. On the
other hand, Hossain et al. (1995), Mitchell et al. (1995), Xiao et al. (2004), and Laswad et al.
(2005) showed an association between leverage and internet reporting.

Industry Sector
The internet disclosure literature argues that companies from different industries have a
different pattern of disclosure on the web pages. Oyelere et al. (2003) found an influence
of industry type on the voluntary disclosure. Whereas, studies such as Larrán and Giner
(2002), Marston (2003), and Alali and Romero (2012) reported no association between
industry type and disclosure. We included dummy of banking and finance industry in the
study. A score of one is awarded if the company belongs to banking and finance industry
otherwise zero is awarded.

Data and Methodology

Sample
The sample consists of top 81 BSE listed public sector companies during 2016. The previous
studies focused on listed and non-listed companies (Aly et al., 2010; Uyar, 2011; and Briano-
Turrent and Rodríguez-Ariza, 2012), banking sector (Cormier et al., 2009) and non-financial
companies (Mendes-Da-Silva and Onusic, 2014). Hence, the present study emphasizes on
81 public sector companies. Of the 81 companies chosen, only one company does not have
the web page. Hence, 80 companies are considered for the study.

Dependent Variable/Internet Reporting Index Score

The internet reporting index has been prepared to measure the quality of reporting on the
internet. Khan and Ismail (2012) suggest that content and presentation are two important
quality attributes of the website. The internet reporting index includes 118 attributes which
are broadly categorized as content and design features of web pages. 70 attributes highlight
the content quality of website including financial, governance, social obligation, human
resources, and marketing information and 48 attributes categorized as multimedia, navigation,

Board Efficiency and Internet Reporting Quality: 39

An Empirical Study of Indian Public Sector Giants
user support and security analysis represent the design quality of the website. The formula
for calculating total score is as follows:

IRIS = ri

where IRIS is Internet Reporting Index Score; ri is one if attribute is found, otherwise zero for
i = 1, 2, 3, 4, ..., 118.

Research Design and Variables

The study uses two-stage linear regression models to test the effect of board efficiency
(board size, independence of the board, board meetings, and CEO-duality) on the internet
reporting quality, while controlling some company-related characteristics (size, profitability,
liquidity and industry sector). The variables are explained in Table 1. Based on the literature
review section, we specify the following Ordinary Least Square (OLS) regression model:
IR-TS, IR-CS, IR-PS=0 +1BDS+2BDI+3BDM+4DUAL+5SIZE+6ROA+7LEV+
+8BANK+e

Table 1: Variables and Their Measurement

Variables Definition and Measurement
IR-TS Total internet quality score
IR-CS Total internet content quality score
IR-PS Total internet presentation quality score (1 is awarded if information
is presented on web pages, 0 otherwise)
BDS Board Size; total number of members on the board
BDI Board independence; ratio of independent members to total
members of the board
BDM Board meetings; number of meetings held in the year 2016
DUAL CEO-duality; 1 if any of the board member performing the role
of CEO, 0 otherwise
SIZE Company size; log of total assets
ROA Profitability; Return on Assets
LEV Leverage; Debt to Equity ratio
BANK Dummy variable 1 if the companies belong to banking and finance,
0 otherwise

The websites of the sampled companies are visited and analyzed to study the effect of
board efficiency on internet reporting quality of public sector companies. The information
on the website was collected between September and October 2016. To find the internet
address of companies, Google search engine was used and in case companies were not
located, the data was collected from Bombay Stock Exchange (BSE) site. The data on
independent variables was collected from ProwessIQ database.

40 The IUP Journal of Accounting Research & Audit Practices, Vol. XVII, No. 4, 2018
Results and Discussion
Descriptive Analysis
The descriptive statistics of the internet reporting score, independent variables and control
variables are presented in Table 2. As shown in the table, the mean disclosure for websites’
content, design and total attributes is approximately estimated at 38, 21 and 58, respectively.
The table reveals that the mean score of content disclosures of public sector companies is
more than the mean score of design disclosures, and it indicates that companies should
improve the information presented on the web pages. The standard deviation of 8.54 shows
that overall disclosure score varies widely. Moreover, information disclosed (content, 6.21)
on the website varies widely as compared to how it is presented (design, 3.45). The average
size of the board in the sample is 10, and it ranges from 2 to 23. On an average, only 19%
of board directors are independent board members. Further, 80% of the board directors are
also performing the role of the chairperson of the company. Also, the frequency of the board
meeting during the year 2016 ranged between 0 and 7. Lastly, the majority of public
sector companies are enormous regarding total assets.

Table 2: Descriptive Statistics

Variables Mean SD Min. Max.
Dependent Variables
Content 37.68 6.219 19 50
Design 20.64 3.450 11 28
Total 58.26 8.549 30 73
Independent Variables
BDS 10.08 3.382 2 23
BDI 0.190 0.180 0.00 0.80
BDM 4.58 1.028 0 7
DUAL 0.80 0.403 0 1
Control Variables
Size 5.432 0.927 3 7.30
Profitability 3.09 9.01 –23.97 55.24
Leverage 1.165 1.465 0 8.03

Multivariate Analysis
To assess the prediction set out in the previous section, three separate models of linear
regression for each dimension of internet quality reporting (content, design and total
score) are estimated and the results are presented in Table 3. A review of tolerance and
VIF scores provides no evidence of multicollinearity in the regression model. The results
of Durbin-Watson for the three models also confirm that there is no autocorrelation in the
regression models.

Board Efficiency and Internet Reporting Quality: 41

An Empirical Study of Indian Public Sector Giants
 Table 3: Two-Stage Linear Regression Results
Dependent Variables
Variables
Total Score Content Design Tolerance VIF

(Constant) 2.223 1.836 1.879

(0.02)** (0.070)* (0.064)*
Board Size –1.168 –2.523 1.186 0.481 2.079
(0.247) (0.014)** (0.239)
Independence of Board 2.945 2.900 1.836 0.656 1.525
(0.004)** (0.005)** (0.070)*
Board Meeting –0.522 –0.546 –0.281 0.759 1.318
(0.603) (0.587) (0.780)
CEO-Duality 0.441 –0.908 2.147 0.660 1.484
(0.660) (0.367) (0.035)
Company Size 7.025 8.410 2.296 0.338 2.960
(0.00)*** (0.00)*** (0.024)**
Profitability 1.923 2.521 –324 0.870 1.149
(0.058)** (0.014)** (0.747)
Leverage –1.536 –2.549 0.488 0.559 1.787
(0.129) (0.013)** (0.627)
Dummy (B&F) –3.809 –2.307 –1.155 0.541 1.484
(0.00)*** (0.024)** (0.252)
Adj. R² 0.532 0.577 0.224
F 12.657 14.993 3.965
Sig.(f) (0.00)*** (0.00)*** (0.01)**
Durbin-Watson 1.619 1.764 2.068
Note: ***, ** and * indicate significance at 10%, 5% and 1% levels, respectively.

From Table 3, we found no association between the board size and the IR-TS and
IR-PS. The results are in line with Barako (2007), Gandia (2008), Alanezi (2009), Briano-
Turrent and Rodríguez-Ariza (2012), and Hasan et al. (2013). On the other hand, a significant
negative association is observed between board size and IR-CS. It is clear that companies with
smaller board have more financial and non-financial information on their web pages. The
results confirm with Jensen and Ruback (1983). Further, a positive and significant association
exists between board independence and IR-TS, IR-CS, and IR-PS.
The results are consistent with most of the studies on board independence (Chen and Jaggi,
2001; Abdelsalam and Street, 2007; Al-Janadi et al., 2013; Uyar et al., 2013; and Alnabsha

42 The IUP Journal of Accounting Research & Audit Practices, Vol. XVII, No. 4, 2018
et al., 2018). The significant positive result of board independence clarifies that the presence
of independent director in the board could help in monitoring the affairs of the companies. It
is also consistent with the agency theory argument that the presence of independent members
on the board could improve the voluntary disclosure and firm performance (Jensen and Ruback,
1983). Furthermore, no association exists between the board meetings, CEO-duality and the
IR-TS, IR-CS, and IR-PS, which are consistent with the various corporate governance studies, for
example, (Abdelsalam and Street 2007; Kelton and Yang, 2008; and Bowrin, 2015). Among the
control variables, company size has a significant positive impact on the IR-TS, IR-CS and
IR-PS measure of internet reporting quality. Profitability is also significant for IR-TS and IR-CS
measure of internet reporting quality. Thus, companies which are larger in size and higher in
profit are disclosing more information on their web pages. The results also support the results of
various previous studies (see Ashbaugh et al., 1999; Craven and Marston, 1999; Ismail, 2002;
Ettredge et al., 2002; Oyelere et al., 2003; Gandia, 2008; Aly et al., 2010; and Bowrin, 2015).
Further, leverage is significant for IR-CS which is in line with the findings of Laswad et al.
(2005). For the industry sector, bank and financial sector have a significant negative association
with IR-TS and IR-CS measure of internet reporting quality. The pattern of findings is consistent
with Lymer (1997) that company in the banking and financial industries disclosed limited
information on the web pages.

Conclusion
The results of the 80 listed public sector companies indicate that board independence,
company size, profitability and industry sector are significantly associated with the measures
of total internet quality. Whereas the other variables, i.e., board size, board meeting, CEO-
duality and leverage are found to be insignificant with total internet quality. Interestingly,
board meetings and leverage are found to be significant for the content disclosure. The
results of the previous studies are indeterminate with regard to the association between
board structure and internet disclosure (for example, Chen and Jaggi, 2001; Abdelsalam and
Street, 2007; Gandia, 2008; Kelton and Yang, 2008; Al-Janadi et al., 2013; Uyar et al.,
2013; Bowrin, 2015; and Alnabsha et al., 2018). Substantially, the positive impact of board
independence on the internet reporting quality contributes to the literature arguments that
the presence of independent member in the board structure improves the voluntary disclosure
and enhances the board effectiveness and firm performance (Jensen and Ruback, 1983;
Forker, 1992; and Haniffa and Cooke, 2002). The presence of a significant positive association
between the size and profitability and the quality of internet disclosure indicates that
companies which are large in size and higher in profit are more likely to disclose quality
information on their web pages.
The results of the study are noteworthy for Indian economy specifically in the digital
India reform. It is evident that the average disclosure of public sector companies is
approximately 60%. The result complies with the corporations’ management that the investor
relation is crucial for the potential investors. Therefore management has to utilize the websites
for investor relation purpose in a more efficient manner. Further, it provides insights to the
management while deciding the board composition, particularly the ratio of independent

Board Efficiency and Internet Reporting Quality: 43

An Empirical Study of Indian Public Sector Giants
director to the total size of the board structure as it affects the corporate information disclosure.
The study has some implications for the regulating authorities such as SEBI, RBI, MCA, and
other authorities. They should consider web pages as a necessary source of information for
investment decisions and should develop some regulation with regard to internet reporting
quality on the websites. Further, they may introduce some motivating rewards for those
companies who have better and quality disclosure on the websites.
Limitations: The results of this study may be helpful, but they should be interpreted in the
light of some limitations. Firstly, the results only help the public sector and may be different
for the private sector. Hence, further research may be possible by taking the same internet
reporting quality index on private sector entities. Secondly, only board efficiency has been
considered in this study, other corporate governance factors such as audit and compensation
may change the results. Lastly, the attributes used in this study for measuring the quality may
not represent in other parts of the world due to regulating environment. Hence, the problem of
generalization in other parts of the world may occur with these results.

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