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CHAPTER ONE

INTRODUCTION
1.1. Background of the Study

The information technology revolution, in particular the advent of computer technology, has
significantly impacted accounting practice and accounting communication. Many firms are
now utilizing the advantages of the Web for disseminating financial information. Firms’
stakeholders such as shareholders, employees, creditors, customers, suppliers need fast and
reliable financial information for decision making (Sia, Brahmana, & Memarista, 2016). In
the ancient times, firms were communicated their financial information with their
stakeholders through the traditional paper based annual reports. This paper based annual
reports have serious limitations and are becoming increasingly less timely, especially with the
increase in geographic investor dispersion, they have this become less useful for decision
making purpose (Debrenceny, Gray, & Rahman, 2002).

Nowadays firms improve their information technology infrastructures, and communicate their
all financial related materials and other information through the internet. Corporate Internet
Reporting (CIR) enables firms new opportunities to replace and enhance traditional ways of
investor and stakeholder communication enabling disclosure of financial and investor related
information to wider audience where the specific needs of the information users would be
met and ensuring equitable access to information through the use of descriptive content and
attractive presentation formats available in company websites (Kelton & Yang, 2008; Silva & Comment [a1]: firm

Ajward, 2019). CIR refers to the financial disclosure through the internet of historical and
financial data and the exposition of the current situation and future plans. It provides the
financial information to the principals and stakeholders in regards to the investment decision-
making and market efficiency (Chek, Mohamad, Yanus, & Norwani, 2013).

More than that, users can benefit in a variety of ways depending on the extent to which the
capabilities of the medium are exploited. Possibilities include enhanced timeliness, ease of
access and search, and improved facilities for data extraction, automatic comparisons, and
analysis. The ability of the medium to handle the reporting of greatly expanded information
fits well with recent calls in accounting for increased disclosure of a broad range of
information (Almilia & Budisusetyo, 2008). Firm will reduce information asymmetry when
there is more disclosure information through the internet (Diamond & Verrecchia, 1991; Sia,

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Brahmana, & Memarista, 2016). High disclosure of information can lead to better
performance because it improves the firm’s image, reputation, and trustworthiness (Sia et al.,
2016).

There are many studies which investigate impact of the CIR on firm performance. The most
commonly CIR is defined as the use of Internet as a form of media by the firms for voluntary
dissemination of financial and investor related information through websites (Marston &
Polei, Corporate reporting on the Internet by German companies, 2004; Oyelere, Fisher, &
Lasward, 2003; Debrenceny, Gray, & Rahman, 2002; Pinto & Picto, 2016). The demands of
voluntary disclosure via internet reporting increase the curiosity among investors at the
present time (Aly, Hussainey, & Simon, 2010). As shown by one of the study, more available
information would help investors’ decision making reach the optimum level (Shehata, 2014).
Furthermore, the ability of firms to provide more timely information has been enhanced, as
distribution of information via internet can take place as soon as it is produced, further
enhancing pricing efficiency (Giner & Jorge, 2002). Comment [a2]: Please try to make this
paragraph more informative

As a result, this study investigates the impact of corporate internet reporting on firm
performance in Sri Lankan financials sector as per GICS. This study might assist to investors, Comment [a3]: Global Industry
Classification Standard (GICS)
future investors, policy makers, government, corporate managers and economists on range of
venues to sustain their corporate objectives.

1.2. Problem of the Study

Firms’ stakeholders need fast and reliable financial information to satisfy their requirements
for timely decision making. Internet reporting can be used as a new information
communication tool to provide information quicker and timelier in better and more effective
ways (Jones & Xiao, 2003). Listed firms which have and in need of the potential to attract
future investors to ensure more capital flow for the firm to secure a sustainable growth tends
to adopt modern trend of practicing web presence for voluntary information dissemination.
The existence of information asymmetry is an important driver of investor uncertainty
(Debrenceny et el., 2002). When the firm disclose more and more information it will reduce Comment [a4]: et al.,

information asymmetry and then help to attract more investors (Alebrahem, 2018). If they
invest more money, production and sales will be increased. It will lead to increase the firm
performance.

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In the developed countries, it is very common phenomenon that firms use internet to disclose all information to
shareholder time to time. But in the developing countries, this is not much developed and it is still in beginning
stage (Alebrahem, 2018). Sri Lanka is a developing country so this study is needed and it will help to improve
the internet reporting as fruitfully. Although numerous studies done in different countries, some of researchers
found mixed outcomes where some concluded that there is a positive impact over the firm performance (Hunter
& Smith, 2009; Sia et el., 2016), and some conclude that there is no impact over the firm performance
(Alebrahem, 2018). As well as there is a dearth of the studies in the Sri Lankan context. Therefore, this study is
aimed to test this issue furthermore in the Sri Lankan context specifically in the case of financials firms which
are listed in CSE, Sri Lanka by selecting two (02) year period from 2017 to 2018. Comment [a5]: please check the font size
please make this paragraph more factfull

1.3. Research Questions

The following research questions are developed by the researcher on the basis of research
problem:

RQ 01: Does corporate internet reporting influence on firm performance?

RQ 02: Is there any relationship between corporate internet reporting and firm performance?

1.4. Research Objectives

Research objectives can be outlined as follows:

⁃ To examine the impact of corporate internet reporting on firm performance.


⁃ To investigate the relationship between corporate internet reporting and firm
performance.

1.5. Significance and Contribution of the Study

This study will add value to various parties specifically and mutually as discussed below:

 The first beneficiaries of this study will be the corporate managers. Because they are
accountable to the owners of the firm. They show their accountable through the
internet reporting. This study also helps them to disseminate additional information in
a timely manner, add more flexibility, and reduce disclosure cost.
 CIR plays major role in attracting potential investors to the firms, thus this study will
enable them to understand the importance of their role in ensuring the transparency
among the owners and minimizing the information gap that will be improving their
quality of service. The financial information disclosed via the internet is mostly up to

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date and is presented in various multimedia formats, making the information easier to
use in decision-making.
 The expansion of the internet encourages firms to adopt it as an effective means of
disclosing information for the benefit of stakeholders. This study aims to examine
CIR practice adoptions in Sri Lanka and how CIR impact on firm performance.
 The increasing use of the internet has created a new opportunity for firms to
disseminate different types of information to their current and potential investors via
the internet. This type of voluntary disclosure, CIR can improve the disclosure quality
and the transparency to satisfy all users’ needs.
 Given the firms’ willingness to fulfil the needs of stakeholders for accurate
information in a timely basis, CIR demands a continuous updating of information
disclosed online.
 The findings of the research will be practically useful for not only managers, it help to Comment [a6]: study

all stakeholders in the firms to make their decisions in a proper manner regarding
investment.
 There is a death of studies in emerging nation. This study provides quite knowledge
on the firm performance and internet reporting of these firms. Comment [a7]: please remove this point.

1.6. Research Methods and Approach

The study adopts quantitative approach to collect the related data for analysing and finding
the result of the research problem. This study will be derived a secondary data. Comment [a8]: Don’t use future tense. Use
th
simple present or simple past.
The Colombo stock exchange (CSE) has 290 firms representing 20 sectors as at 20 January
Comment [a9]: Do you think that is this
2020 as per the scope of the study, only the listed financials firms will be selected for the correct as per GICS?
Comment [a10]: Don’t use future tense. Use
study purposes. simple present or simple past.

1.7. Limitations of the Study

During the research period the researcher has to overcome the challenges to complete this
research such as:

 This study uses a sample of 68 bank, finance and insurance firms out of the 290 listed Comment [a11]: ?????//

firms in CSE, Sri Lanka.


 Despite the fact that reliable conclusions can be made from this study, data collected
for this study is specific to the selected listed firms, so may not necessarily apply to

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some of the firms listed but not covered in this study and firms not listed in the CSE.
The result and the interpretation are completely rigid and from the viewpoint of the
researcher. And statically errors may arise.
 CIR practices are highly associated with the technological improvements such that
CIR practices observed are subjected to changes in technology. Sri Lanka being a
developing country the level of technological applications less in comparison to
developed countries. This study do not meet the requirements of a reader in view
point of a developed country

1.8. Structure of the Dissertation

This study is related to corporate internet reporting and its impact on firm performance of
listed financials firms in CSE, Sri Lanka. The study is organized into five chapters.

The chapters are structured as follows:

The first chapter introduces about the corporate internet reporting and its importance. It
provides brief insight in to the research study. This chapter provides background of the study,
research problem, research questions and objectives of the study, significance and
contribution of the study, research methods & approaches, and limitations of the study.

The second chapter reviews the theoretical framework of the CIR and firm performance. This
part also includes the empirical evidence from previous studied related to this topic.

Chapter three discuss the methodology of the study. The chapter describes the research
design, the research sample and method of data collection, conceptualization,
operationalization and mode of analysis used in the study.

Chapter four includes the presentation of the data gathered by the researcher and analysis of
such data using various techniques described under methodology & testing of hypotheses.

Chapter five is the conclusion and recommendation for future study related to the corporate
internet reporting and firm performance.

1.9. Chapter Summary

This chapter described background of the study as the entrance for the research title.
Basically it reveals the theoretical background of the study and how the relevant topic is

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influencing the selected industry. And it explains the importance of understanding the
research topic in Sri Lankan context. Further the research objectives, significance of the study
and limitation are also presented. The next chapter discusses on literature review.

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CHAPTER TWO
LITERATURE REVIEW
2.1. Introduction

This chapter reviews how CIR affect the firm performance and emphasis to both theoretical Comment [a12]: affects

aspects and empirical issues. Furthermore, the section analyses the theoretical background
and previous studies conducted on the adoption of CIR practices and relationship between
CIR and firm performance which are supportive and helpful to success of this study. This
literature review includes a variety of definitions, statements, explanations and concepts too.
It also considers the main theories and empirical evidence of CIR and firm performance.

The rapid development of information, communication and technology (ICT) through the
Internet has changed the method in which a firm delivers information to their shareholders,
clients, suppliers and other customers (Bonson & Escober, 2006). Previous studies have
shown that many firms world-wide have published their financial information via the Internet
(Oyelere et el., 2003; Ali Khan, Mhammed, & Ismali, 2007). Relatively, Internet-based
reporting has also been dubbed as more influential than paper-based reporting (Debrenceny et
el., 2002) and has turned out to be more important and interesting, thus, providing a wider
opportunity for deeper exploration (Jones, Xiao, & Lymer, 2002).

Thus, an increasing number of firms’ tend to use the internet to disseminate information
voluntarily to their stakeholders to benefit from the opportunities offered by the internet
(Kamel & Hussein, 2002). Many firms rely entirely on the internet to publish their reports,
while others are combining online reporting with hard copy (Line, Krut, & Hawley, 2002).
Moreover, the advanced markets have experienced many collapses, which has explicated the
importance of CIR that can control performance and balance different users’ interests
(Alebrahem, 2018).

The impact of CIR on firm performance has been researched by some researchers, but their
studies have been mostly restricted to developed economies. In general terms, much of this
early work pointed to a growing adoption of the internet as a reporting medium especially in
countries with developed capital markets, on the whole practices were less advanced in
developing countries (Ahmed, Tahat, Burton, & Dunne, 2015). A number of studies
examined the practices of CIR in developed countries such as Malaysia (Sia et el., 2016),
Egypt (Ahmed, Tahat, Burton, & Dunne, 2015; Aly, Hussainey, & Simon, 2010; Kamel &

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Hussein, 2002), London (Pinto & Picto, 2016), New Zealand (Oyelere, Fisher, & Lasward,
2003). But in the context of Sri Lanka very limited empirical evidence exists related to CIR.
The two empirical studies (Kuruppu, Oyelere, & Jabri, 2015; Sheham, 2016) have evaluated
the use of internet as medium of voluntary communication of information by listed
companies in Sri Lanka. The findings reveal that Sri Lanka is still at a nascent stage that
provides high opportunities and challenges for stakeholder parties.

Although numerous researchers found mixed outcomes regarding the impact of CIR on firm
performance, where some concluded that there is a significant impact over the firm
performance (Sia et el., 2016), CIR has no effect on firm financial performance of French
companies (Nekhili, Hussainey, Cheffi, Chtioui, & Tchakoute-tchuigoua, 2016) , some
conclude that there is no impact over the firm performance (Alebrahem, 2018), however, it
improves firm financial performance in Taiwan (Lai, Lin, Li, & Frederick, 2010). As far as
researchers’ observation, there is a dearth of literature on this aspect in Sri Lanka, and the
level of reporting in developing countries is found to below. Therefore, it is timely and
necessary to study this phenomenon in the Sri Lankan context (Silva & Ajward, 2019).

This chapter is organised as follows: Section 2.1 presents an introduction about the
dissertation and also considered what other scholars did in the past year. Section 2.2 presents
the concept of the corporate internet reporting Section 2.3 presents a definition of firm
performance and how to measure the firm performance with a related factor. Section 2.4
consist theoretical review of the study Section 2.5 presents the empirical studies about the
study and Section 2.6 consist the research gap and 2.7 ends with a chapter summary.

2.2. Corporate Internet Reporting (CIR)

CIR is defined as “Firms use internet technologies such as the World Wide Web to
disseminate financial information” (FASB, 2000). This is a very basic definition but CIR
can be defined as a voluntary disclosure tool that enables companies to disclose all or a
proportion of its financial and non-financial information on the internet, presented in multiple
formats and languages by using the most advanced and interactive electronic features to
facilitate the communication through and usage of the website (Arafa, 2012). Marston and
Polei (2004) state that“the internet offers companies new opportunities to supplement
replace and enhance traditional ways of investor and stakeholder communication”. This
means CIR is an alternative method to paper-based reporting, with a number of advantages

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such as timeliness, accessibility and transparency. Other researchers also indicate that
internet-based reporting is a “powerful tool for reaching customers, suppliers and investors
of the organization” (Ettredge, Scholz, & Richardson, 2002). Later researchers remarked
websites provide information to a wide audience. CIR is thus, on the whole, a contemporary
reporting platform.

In general, the users of CIR could be divided into two groups, such as internal users and
external users. The internal users consist of the managers, employees and shareholders. The
workforces are concerned about the company’s future prospects since it directly affects their
income, whereas shareholders refer to the reporting for their decision making. Meanwhile,
the external users are banks, creditors and government. The CIR is important for them as it is
the fastest source in establishing credit ratings or solvency analysis. On the other hand,
competitors also refer to the reports to better understand the positions of their rivals and learn
how to improve their operational skills and methods (Sia et el., 2016). Comment [a13]: et al.,

There are diverse motives for companies providing information on the internet. The Steering
Committee of the Business Reporting Research Project (FASB, 2000), provides some of Comment [a14]: you already used the
abbreviated term in the previous paragraph
these potential motives for companies to provide information on the internet:

 Elimination of the substantial cost of printing and posting of annual reports.


 Accessibility of information by a much wider audience than more conventional means
of communication permit.
 Up-to-date information through the regular maintenance of web sites.
 Reducing the time to distribute information.
 Communicating with previously unidentified consumers of information.
 Supplementing traditional disclosure practices.
 Increasing the amount and type of data disclosed.
 Improving access to potential investors for small companies.

One of the researcher said that CIR has been through three phases of implementation. First,
the rise of information systems allows firms to use the internet as the platform to disclose
their existing written financial reports. Second one, companies will change their information
dissemination strategy from printed reports to the internet. The last phase is when firms
prepare their financial information and disclose it wide and fast beyond the standard

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information given in a printed report. Having more information disclosed may lead to the
increase of awareness about their companies to the stakeholders (Sia et al., 2016). Comment [a15]: this is ok

2.3. Firm Performance

The business world will always require management to be creative in an effort to improve
their performance, they should have the ability and can take advantage of any opportunities to
improve firm performance. The firm performance as a barometer of the success of the
company will be seen as a benchmark for investors to invest their funds (Sudiyatno,
Puspitasari, & Kartika, 2012). Performance measurement refers to the process of measuring
the action’s efficiency and effectiveness (Neely, Gregory, & Platts, 2005). Performance
measurement is the transference of the complex reality of performance in organised symbols
that can be related and relayed under the same circumstances (Lebas, 1995). In the current
business management, performance measurement is considered to be in a more critical role
compared to quantification and accounting (Koufopoulos, Argyropoulou, Zoumbos, &
Motwani, 2008).

The concept of firm performance is different from the broader construct of organizational
effectiveness. According to Venkatraman & Ramanujam (1986) the broader construct covers
three overlapping concentric circles, with the largest representing organizational
effectiveness. The organizational effectiveness covers all aspects related to the functioning of
the organization. Business performance or firm performance is a subset of organizational
effectiveness that covers both operational and financial outcomes (Selvam, Gayathiri,
Vinayahamoorthy, & Kasilingam, 2016).

Firm performance is an important concept that relates to the way and manner in which
financial resources available to an organization are judiciously used to achieve the overall
corporate objective of an organization, it keeps the organization in business and creates a
greater prospect for future opportunities. Firm performance may also refer to the
development of the share price, profitability or the present valuation of a company (Melvin &
Hirt, 2005). Firm performance will measured under two category. One book based Comment [a16]: ple check the grammar

measurements and another one is market based measurement. Generally used financial
measures include return on assets (ROA), return on equity (ROE), profit margin, earnings per
share, value per employee, etc. Even though they used to be very popular, these traditional
financial measures are no longer seen as adequate means of exercising management control

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(Neely, 2007). Marketing-based performance measure through the Tobin’s Q (Wolfe &
Sauaia, 2003)

ROA is one of the most used measures of firms’ operating performance (Klapper & Love ,
2004). The value is obtained calculating the ratio of the income pertaining to a given fiscal
period and the value of the total assets employed by the company is the same period. Since
the company’s assets are under management’s control, the ROA indicates to investors the
return that managers were able to achieve relatively to the assets they had available, and so
how efficient they were in employing the firm’s resources.

ROE represents the net income of a firm as a percentage of shareholders’ equity. It shows
how much profit a company has generated relatively to the capital invested by its owners
(Gompers, Ishii, & Metrick, 2003). It is calculated dividing the net income relative to a fiscal
period by the amount of equity of the firm in the same period. Companies showing a positive
ROE are creating wealth for its shareholders, whereas a negative ROE implies shareholders’
wealth destruction. Hence, ROE is often used a proxy for firm’s performance under a
shareholder’s viewpoint and measures how effectively managers are employing the capital
that shareholders entrust to them.

Tobin’s Q index was introduced at the end of the 1960s by James Tobin and William
Brainard (1968). The index reflects the difference between the market value and the
accounting value of the firm: the discrepancies between the two (that cause the Q to fluctuate
around the value 1) are caused by the market expectations about the company and by the
unmeasured assets that contribute to the firm’s valuation but are not recorded by accountants.

2.4. Theoretical Review

Many researchers and scholars have tried to determine how best to describe what CIR and
firm performance, a firm adopts and various theories and propositions have been adopted.
CIR is attributed to different theories including the agency theory, signalling theory and
stakeholder theory (Silva & Ajward, 2019).

2.4.1. Agency theory


Agency theory is a principle that is used to explain and resolve issues in the relationship
between business principals and their agents. Most commonly, that relationship is the one
between shareholders, as principals, and company executives, as agents (Kopp, 2019).

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According to the agency theory, managers and shareholders are two different parties in a firm
and there is a conflict of interest between them because shareholders demand a higher return
on their investment while managers expect higher incentives or remunerations (Jencen &
Meckling, 1976).

Therefore, there is a high agency cost between agent and principal of a firm. Shareholders
(Principle) needs to monitor the management’s performance in a close and timely manner, so
mangers being provided sufficient amount of information about the business, and provide
timely information about the corporate performance in both short and long term. Most of
these tools can be effectively used by establishing informative corporate websites (Arafa,
2012). Widely spread internet reporting successfully reduces the agency cost as a new means
of communication between managers and stakeholders of the firm (Boubaker, Nekhili, &
Lakhal, 2011). Therefore reduce the agency cost by improving the quality of financial
reporting and reducing the information asymmetry between inside managers and outside
shareholders.

2.4.2. Signalling Theory


Signalling theory describes the behaviour of two parties, one of whom (insiders) have access
to superior information compared to the other parties (outsiders), leading to an information
asymmetry problem, which is a basic condition of signalling theory (Omran & El-Galfy,
2014). Like to agency theory, the signalling theory also recognises the separation of
ownership and management and recognises that the market pressures motivate managers to
disclose information. Managers may wish to send signals to interested parties; owners,
investors, and governmental agencies in order to distinguish themselves from other
companies. In this regard disclosure is considered to be one of the means that can be used
(Das, 2015).

Signalling theory also suggests industry differences in disclosure. Companies within the same
industry tend to adopt the same level of disclosure. If a company within an industry fails to
follow the same disclosure practices, including internet disclosures, as others in the same
industry, then it may be interpreted as a signal that the company is hiding bad news (Craven
& Marston, 1999).

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2.4.3. Stakeholder Theory
Stakeholder theory considers the relationship between managers and all other parties who
have a stake in the firm, such as shareholders, employees, creditors, customers, suppliers, and
government (Alebrahem, 2018). Stakeholder theory implies that the firm should protect the
interests of different stakeholders who have different needs. This forces the firm to balance
between these conflicted interests by disclosing more information voluntarily (Collier, 2008).
In order to satisfy the different needs of stakeholders, companies can communicate with their
stakeholders and gain competitive advantage by using the internet as an easy and widespread
channel of information dissemination (Bolivar & Senes-Garcia, 2004).

2.5. Empirical Review

The review of literature in the concerned research area is of great importance in carrying out
further research work. The research works reviewed here have been sourced from various
journals, websites, etc. In this section a critical analysis of the most relevant research studies
regarding the CIR and firm performance. There is a considerable literature devoted to
investigate CIR in many aspects and in different countries. Many studies have discussed
theoretically and empirically the nature and extent of corporate reporting and its role,
determinants, consequences and relationship to performance of the firms.

The great increase in online reporting through web sites has not escaped the attention of
researchers and many have carried out empirical studies of corporate reporting on the
internet. Even though previously published studies have considered companies operating in
both developed and developing countries, there is still a need for empirical studies on internet
reporting practices due to the dynamic nature of internet reporting (Das, 2015). Related
research falls into three categories, one of which includes studies that document the use of the
Internet in a certain country. This type of research mainly gives the reader an impression of
the number of companies which provide information, how much information they give, how
effectively they use the Internet, and how companies differ from each other concerning
Internet reporting. A second category of papers study possible differences in the design and
contents of websites of firms located in different countries. They test hypotheses based on
perceived differences in capital market structures and different cultural backgrounds, among
others. In contrast to the studies in the first category, they typically select only a few criteria
of Internet usage, or aggregate them into one or a few criteria. A third category of papers

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identifies differences between companies’ websites and tries to test empirically for factors
which might drive these differences (Pirchegger & Wagenhofer, 1999).

In reviewing the descriptive studies performed related to the concept of CIR in terms of the
extent of CIR practices adopted by companies, studies performed in different countries
depicts the variations in the level of countries adopting the improvements in the technology
for the voluntary dissemination of financial information. A study conducted by Burrus (1997)
he find the rapidly changing business environment is forcing companies worldwide to
develop reporting strategies that can aid to them creating competitive advantages. Compared
to the traditional printed reports, the internet offers many more opportunities to communicate
financial information and its importance is this regard is rapidly increasing (Pirchegger &
Wagenhofer, 1999). The dissemination of financial information via the World Wide Web is
already common practice for a growing number of listed companies around the world (Lymer
& Debreceny, 2003). The Internet offers firm new opportunities to supplement, replace and Comment [a17]: in some places you used
capital letter ‘I’, some other places you used ‘i’
enhance traditional ways of investor and stakeholder communication.

In reviewing a decade of academic and professional research, Lymer (1999) concluded that,
as of the late 1990s, Europe lags the U.S in both the amount of data reported on the internet
and the sophisticated utilization of internet technology. Further, he concluded that there was a
considerable divergence of corporate usage of the internet within and between European
countries, with the U.K being the first in the list and Spain being the last and the online filing
facility of corporate information offered by the Securities Exchange Commission (SEC) in
the mid-1990s motivated these companies to provide the information themselves on their own
web sites. Debrenceny et el., (2002) specifically focused on the importance of the disclosure Comment [a18]: ??????

environment as a driver for CIR presentation and content. Fisher, Laswad, & Oyelere (2004)
examined the key audit implications of CIR, while Gowthorpe (2004) examined the
communication issues relating to IFR practices of smaller listed companies. Marston & Polei
(2004) surveyed the CIR practices of german companies between 2000 and 2003 and found
significant improvements in the quantity and presentation of fianncial information at
corporate websites.

Previous researches have shown that many firms world-wide have published their financial
information via the Internet (Oyelere, Fisher, & Lasward, 2003; Ali Khan, Mhammed, &
Ismali, 2007). The pronounced increase in the number of companies reporting their financial
report through the Internet had a big impact on legislation, financial framework and

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information systems (Khan 2006). The Internet is a convenient and efficient medium of
communication for organizations. One of the main benefits of CIR is the potential large
savings in the cost of production and distribution of financial information. The Internet
allows companies to reach a much wider category and variety of stakeholders at relatively
lower costs, with reduction in incidental requests from non-shareholder financial statement
users (Khadaroo, 2005; Boesso & Kumar, 2007).

A prominent study conducted by Kelton & Yang (2008) in terms of 284 firms listed in New
York Stock exchange indicates that all the firms had websites and among that only 7 websites
did not possess specifically a dedicated information for investor relations, Yet it represents a
majority level complies with investor relations information. As a common practice this study
also have adopted content and presentation dimensions in building up the CIR index which
accounts to 36 items in the Index among which 24 are content attributes and rest belongs to
presentations. The findings of the study indicates that on average 16 items of the content list
14 are being by most of the companies and out of the presentation attributes majority are
compiled by the companies on an average of more than 75%.

Additional issues and challenges for CIR include possible errors in the extraction or re-
keying process, which may affect the reliability and integrity of the financial information; the
use of corporate websites for many diverse purposes, which may make the location of
financial information difficult; the acceptability of Internet financial reports as an alternative
to hard copy annual reports among users of corporate financial information; and the fact that
Generally Accepted Accounting Practice (GAAP) does not consider some of the implications
of CIR, such as the possibility that published financial disclosures can be changed with
relative ease post publishing (Lasward, Fisher, & Oyelere, 2000; Mohamed, Oyelere, & Al-
Busaidi, 2009).

One of the studies that examine the association between engagement in CIR practices and
stock prices was also investigated in a study by Lai et el., (2010). The study used data from Comment [a19]: et al.,

522 companies listed on the Taiwan Stock Exchange (as of March 29, 2002). The results
showed that 490 (85.66%) of the sampled companies had websites and 206 (39.5%) of them
engaged in online reporting practices. The results revealed that share prices of companies
with online reporting responded more quickly compared with companies without online
reporting. In addition, the results suggested that companies that disclosed more information
online could expect their stock prices to respond faster than those with lower levels of online

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reporting. Furthermore, the findings indicated that companies engaging in online reporting
have the potential to yield higher cumulative abnormal returns. The findings also showed that
the degree and scope of online reporting had a significant impact on the stock's abnormal
return.

In a similar study, Rahman (2010) examined the impact of online reporting practices on stock
prices of the Kompas 100 companies listed on the Indonesia Stock Exchange (IDX). The
study formulated three research hypotheses to test that impact; the results showed that 75% of
the sampled companies had a web presence and 25% of them engaged in online reporting
practices. Further analysis was based on the 25 companies with accessible websites and
provided corporate information online. The results supported the first hypothesis that there
was a positive association between the extent of CIR practices of the sampled companies and
the abnormal returns. In addition, the findings showed that there was no significant difference
between the abnormal return of companies with online reporting and those without.

CIR provides an opportunity for going beyond what is available in hard copy corporate
financial statements to communicate additional financial information to users, possibly on
real-time and interactive bases (FASB, 2000; Oyelere & Kuruppu, 2012). Perhaps by far the
greatest challenge faced in the CIR environment is that of ensuring the security and integrity
of the financial information published on corporate websites. Apart from possible errors in
the publishing process, materials published on the web are susceptible to all manners of
security risks (Bawanesh, 2014). There is a real risk that critical decisions could be made by
users of financial information based on inaccurate financial information gleaned from
corporate websites. The extent to which these issues are dealt with is likely to determine the
long-term usefulness of the Internet as a medium of corporate financial information
dissemination (Kuruppu et el., 2015). Comment [a20]: ?????

Yassin (2017) studies the Jordanian public shareholding companies listed on the ASE at the Comment [a21]: Please check after putting
the year of study comma is needed or not?
end of 2011 to evaluate the CIR practices in practice and reveals that out of the sample of 228 Yassin (2017),
Yassin (2017)
listed companies only 144 companies’claims to possess websites where website is the main
utility for financial disclosure through Internet and among that only 65% of the companies
disclose financial other and other related information on the Internet. Further this study has
measured CIR in terms of Content and Presentation dimensions that indicate overall
compliance with content is 69% and 97% for presentation attributes which depicts that in
terms of the quality of information provided an enhancement is required.

16
Many empirical studies on disclosure have attempted to identify the association between
disclosed information and firm performance. However, these studies vary in terms of
disclosure types and firm performance proxies. Several studies have examined the
relationship between paper-based disclosure, either mandatory or voluntary, and firm
performance (Nekhili, Hussainey, Cheffi, Chtioui, & Tchakoute-tchuigoua, 2016), while a
number of recent studies have investigated the relationship between internet reporting
disclosure and firm performance. However, only a few studies have examined the impact of
internet disclosure on firm performance (Elsayed, 2010). With respect to firm performance,
many proxies have been used in the prior studies. Although some studies use one measure for
firm performance, such as market-to-book ratio, return on assets (ROA) or Tobin's Q (Sia et
el., 2016).

Aly et el., (2010), found that profitability, foreign listing and industrial type have significant Comment [a22]: ????

positive association with the amount and presentation formatting of information disclosed on
Egyptian companies’ web sites. But firm size, leverage, liquidity and auditor size, have non-
significant association with corporate internet reporting.

Kuruppu et el., (2015), examin the use of the internet as a medium for the voluntary Comment [a23]: ???

communication of financial information by publicly traded companies on the Colombo Stock


Exchange (CSE) in Sri Lanka. The 244 companies listed on the CSE were analysed by its 20 Comment [a24]: Why you abbreviate
again..?
industry sectors. The results indicate that CIR is still at a nascent stage in Sri Lanka and there In chapter 1 you already abbreviated

are considerable opportunities and challenges for all stakeholder parties. While 59 percent of
companies maintain websites, only 63 of these (about 43%) use their websites to
communicate financial information. This indicates that companies in Sri Lanka do not fully
garner the benefits of engaging in IFR. However, the online annual reports of the latter IFR
companies were found to be highly accessible, with 87 percent of the websites enabling users
to locate information in three mouse clicks or less.

Sia at el., (2016), examine the impact of CIR on firm performance for a sample of 583 non- Comment [a25]: ????/

financial listed companies in Malaysia over the year of 2013. His finding showed that CIR
has a significant effect on firm performance. This means that more related information that is
regularly disclosed on the company’s websites can contribute more value to the firms. In
addition, in this study, the results support the resource-based view theory and the signalling
theory between corporate internet reporting and firm value. The findings of the research
suggest that companies should disclose more information through the internet in order to

17
ensure the accessibility of financial information for stakeholders, and this will present a better
image and reputation of the company’s best practices in financial performance. CIR will help
them to have meaningful investment decisions and persuade them to invest in the firm.

Alebrahem, (2018) examine CIR relationship with some corporate governance and firm Comment [a26]: ?????

characteristics variables, and to determine the impact of CIR on firm financial performance.
The study uses a self-constructed disclosure index, which includes 196 items, to measure the
CIR of 170 Saudi listed companies. The findings indicate that the level of CIR is, on average,
moderate compared to their counterparts in developed countries. Finally, it is statistically
evident that CIR has no significant impact on firm financial performance in Saudi listed
companies. These findings suggest that further effort is required to enhance the awareness of
good corporate governance and that other variables may be more relevant to CIR in the Saudi
context.

2.6. Research Gap

More number of studies are already done in developed and developing countries in the area Comment [a27]: ????

of CIR. Although few of them are specifically examined the impact of CIR on firm
performance in both developed (Lai et el., 2010; Lazarides, Drimpetas, Argyropoulou, &
Motwani, 2009) and developing nations (Hunter & Smith, 2009).

At the same time, in the developed countries, it is very common phenomenon that companies Comment [a28]: firms

use internet to disclose all information to shareholder time to time. But in the developing
countries, this is not much developed and it is still in beginning stage.

Past literatures show significant (Sia et el.,2016); positive (Sriram & Krishnan, 2001) and no Comment [a29]: ??/

relationship (Hansen, 2001) between corporate internet reporting and firm performance.

From the above contradicting arguments about the previous findings, clearly shows that there
is a huge space to do the study again in Sri Lanka to make new contribution to the extant
literature in the area of CIR disclosure and firm performance.

2.7. Chapter Summary

The above literature review gives explanation about definitions of CIR and firm performance
and also what are the posts researches have been done in this section. This literature identifies

18
the theoretical concept related to explain about the all variables and relationships between
variables. Next chapter discuss on methodology.

19

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