Meditari Accountancy Research

Voluntary and timely disclosure and the cost of debt: South African evidence
Achraf Guidara Hichem Khlif Anis Jarboui
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Achraf Guidara Hichem Khlif Anis Jarboui , (2014),"Voluntary and timely disclosure and the cost of debt:
South African evidence", Meditari Accountancy Research, Vol. 22 Iss 2 pp. 149 - 164
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Voluntary and timely disclosure Voluntary and

timely disclosure
and the cost of debt:
South African evidence
Achraf Guidara 149
Faculty of Economic Sciences and Management of Sfax,
University of Sfax, Sfax, Tunisia
Hichem Khlif
Faculty of Economics and Management of Mahdia,
University of Monastir, Monastir, Tunisia, and
Anis Jarboui
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Higher Institute of Business Administration (ISAAS),

University of Sfax, Sfax, Tunisia

Abstract
Purpose – The aim of this study is to investigate the effect of voluntary and timely disclosure on the
cost of debt for the South African setting.
Design/methodology/approach – The sample of this paper consists of 20 South African listed
non-financial companies for the period 2008-2011. A content analysis is used to measure the extent of
voluntary disclosure. Timely disclosure is proxied by earnings reporting lag.
Findings – Results show that the extent of voluntary disclosure is negatively and significantly
associated with the cost of debt. In contrast, timely disclosure exerts a trivial effect on the cost of debt.
When testing for the moderating effect of timely disclosure on the association between the extent of
voluntary disclosure and the cost of debt, this paper documents that this association is only negative
and significant for the shorter earnings announcement lag group.
Originality/value – The findings of this paper have policy implications for managers in the South
African setting and other developing economies similar to South Africa, given the crucial role played by
debt as an important source of external financing for publicly traded companies.
Keywords South Africa, Cost of debt, Timely disclosure, Voluntary disclosure
Paper type Research paper

1. Introduction
The question of whether companies benefit from increased voluntary and timely
disclosure through a lower cost of debt is an important issue for managers, creditors and
researchers (Sengupta, 1998). Disclosure policy represents an important tool used by
managers to reduce the information asymmetry between firm and creditors and signal
to them that company is able to meet its short- and long-term commitments (Healy and
Meditari Accountancy Research
Vol. 22 No. 2, 2014
The authors gratefully acknowledge the helpful comments and suggestions from the pp. 149-164
© Emerald Group Publishing Limited
Editor-in-Chief Charl de Villiers, the Editor Elmar Venter and the two anonymous reviewers of 2049-372X
Meditari Accountancy Research. DOI 10.1108/MEDAR-09-2013-0042
 MEDAR Palepu, 2001). In a recent survey conducted by Armitage and Marston (2007, p. 14)[1],
several managers interviewed in the UK suggest that “providing more information
22,2 would probably increase the availability of debt, or reduce the cost of debt”. Others state
that they are not sure about the effect of an increased disclosure quality on the cost of
debt. Accordingly, this question remains unresolved among managers.
Empirical research dealing with this topic has generally focused on developed
150 countries. For instance, Sengupta (1998) has examined the effect of disclosure quality on
the cost of debt for a sample of US listed companies. Similarly, Nikolaev and Van lent
(2005) have investigated the same topic in US setting. More recently, Orens et al. (2010)
have also examined the effect of voluntary disclosure on the cost of debt in a
cross-country study including settings from the Continental Europe (Belgium, France,
Germany and The Netherlands) and North America (Canada and USA). However, this
topic remains under-researched in emerging and developing countries where financial
institutions play a critical role in financing firm’s activities (Barako et al., 2006). This is
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particularly true in African settings where banks represent the primary source of
finance for publicly traded firms (Barako et al., 2006).
In an attempt to fill the gap, we try, in this study, to examine this question in the South
African setting. The choice of South Africa is justified by two reasons. The first is that South
Africa represents a leading country in terms of the economic growth and the development of
its financial market. For instance, the South African economy is the largest in Africa, and it
is ranked the third for its financial market development[2] by the World Economic Forum in
its 2012-2013 Global Competitiveness report. The second reason is linked to the importance
of the banking system in this setting. For instance, according to the latest World Economic
Forum Competitive Survey 2012-2013, the South African financial sector is rated the second
out of 144 countries for soundness, while the country is rated the third for its financial sector
development[3].
Given these unique characteristics and the crucial role played by banks in this
setting, it becomes important to understand how creditors (banks) react to any
additional information disclosed in excess to mandatory requirements and timely
disclosure. Therefore, the aim of our study is to examine the relationship between the
extent of voluntary and timely disclosure on the cost of debt in South Africa. Timeliness
and the extent of voluntary disclosure are, respectively, estimated using the earnings
reporting lag and the classic content analysis approach based on the disclosure checklist
developed by Chau and Gray (2002).
We find that the extent of voluntary disclosure is negatively associated with the cost
of debt. In contrast, the association between timely disclosure and the cost of debt is
insignificant. Accordingly, creditors, in South Africa, attribute more importance to the
extent of voluntary disclosure in annual reports and tend to disregard the time taken by
companies to announce their earnings. When testing for the moderating effect of timely
disclosure on the association between the extent of voluntary disclosure and the cost of
debt, we document that this association is only significant for the shorter earnings
announcement lag group.
Our paper contributes to the extant accounting literature dealing with the economic
consequences of disclosure policy on cost of finance by focusing on a leading African
country. Our paper highlights the importance of an increased level of voluntary
disclosure in reducing the information asymmetry and the agency costs between
 companies and creditors. Therefore, managers, will have more incentives to increase Voluntary and
corporate transparency to get loans at lower cost.
The rest of the paper is structured as follows. Section 2 reviews the prior literature
timely disclosure
and develops the hypotheses. Section 3 discusses the research design. Section 4 reports
the empirical findings. The final section concludes and offers ideas for future research.

2. Literature review 151

2.1 Voluntary timely disclosure and the cost of debt
Agency theory suggests that the issuance of debt creates agency problems and
information asymmetry between managers and creditors (Jensen and Meckling, 1976).
Creditors represent an outside party of the company and they don’t have free access to
private information to evaluate firm’s actual risk. Accordingly, they will introduce debt
covenants and restrictions into debt contracts to reduce expropriation by managers
(Armstrong et al., 2010). These restrictions result in higher agency costs and thus higher
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cost of debt.
By improving corporate reporting policy, managers will try to reduce agency costs
and lower the cost of debt. In this regard, Sengupta (1998, p. 459) suggests that a “policy
of timely and detailed disclosure reduced lenders’ and underwriters’ perception of
default risk for the disclosing firm, reducing its cost of debt”. Similarly, timely disclosure
represents an important tool used by managers to reduce the cost of debt. For instance,
communicating information in a timely manner will assist debt-holders to take a more
rational decision about the interest rate.
Signaling theory may also justify the negative association between the extent of
voluntary disclosure, timely disclosure and the cost of debt. By providing more
voluntary disclosure in a timely manner, managers signal to bank and debt-holders the
firm’s financial reporting quality and its capabilities to meet short and long term
commitments which imply a lower premium risk and thus a lower cost of debt.
By preferring debts to the issuance of new shares, managers will signal to
debt-holders that they do not want to dilute their voting rights since they anticipate
future financial performance (Ross, 1977). Debt-holders will react accordingly by
reducing the expected default risk which leads to a lower cost of debt. Spence (1973)
suggests that voluntary disclosure represents an important tool to alleviate the
information asymmetry problems, including the moral hazard and the adverse selection
in the manager-debt-holder relationship. The moral hazard and the adverse selection
risk imply that managers use loans to serve their own interests (e.g. distribute dividends
and increase their own compensations) instead of undertaking projects generating high
levels of cash-flows as initially expected by debt-holders (Myers, 1977). Given this,
debt-holders will adopt a self-protecting strategy against any opportunistic
management behavior by increasing the default risk premium which translates into a
higher cost of debt. Therefore, any additional information provided by company will
ensure debt-holders about the firm’s future perspectives implying a lower cost of debt.
Several studies have examined the association between voluntary disclosure and the
cost of debt in developed countries. However, the effect of timely disclosure, as proxied
by earnings announcement lag, remains under-researched. With respect to the first
association, the paper of Sengupta (1998) represents the pioneering work in this area.
Based on a sample of US firms, she documents a significant negative association
between both variables.
 MEDAR Nikolaev and Van lent (2005) examine the same association for a sample of 358
firm-year observations during 1986-1996 in the USA. They document a significant
22,2 negative association between disclosure and the cost of debt. Recently, Orens et al. (2010)
examine the effect of Internet-based disclosure on the cost of debt within an
international context (North America and Continental Europe). They document that the
association is negative and significant for continental European firms, while it is not
152 significant for North American firms (the USA, Canada).
In an emerging economy, namely, China, Wang et al. (2008) examine the effect of
voluntary disclosure on the cost of debt for a sample of 110 listed Chinese companies.
They document that there is a significant negative association between voluntary
disclosure and the cost of debt. More recently, Dadashi et al. (2013) examine the same
association in another emerging economy, namely Iran, for a sample of 52 listed
companies from 2001 to 2010. They document that there is an insignificant association
between both variables.
As stated above, the effect of timely disclosure on the cost of debt is under-researched
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worldwide, while the empirical investigation of the association between voluntary

disclosure and the cost of debt is limited in emerging economies where financial
institutions play a critical role as a primary source of external finance (Barako et al.,
2006). Thus, we test the following two hypotheses:
H1. There is a negative and significant association between the extent of voluntary
disclosure and the cost of debt in South Africa.
H2. There is a positive and significant association between earnings announcement
lag and the cost of debt in South Africa.

2.2 The effect of timely disclosure on the association between voluntary disclosure and
the cost of debt
Timely disclosure represents an important component of corporate transparency since
it gives rise to the value relevance of information disclosed (Bushman et al., 2004). Evans
(2011); Khlif et al. (2015) suggest that longer earnings announcement lag may increase
the information asymmetry between management and financial statements’ users
including banks implying a high level of uncertainty among them. They add that
voluntary disclosure of information is more value relevant for stakeholders for firms
with shorter earnings reporting lag. This is particularly true in emerging economies
characterized by long delays in communicating financial statements (Afify, 2009).
Accordingly, timely disclosure in the South African setting may increase the value
relevance of information disclosed among debt-holders implying a lower cost of debt.
To the best of our knowledge, the interaction between voluntary disclosure, timely
disclosure and the cost of debt has not been examined in accounting literature. However,
this interaction has been tested with respect to the cost of equity capital (Evans, 2011 in
USA; Khlif et al., 2015 in Egypt). These two empirical papers suggest that the negative
association between voluntary disclosure and the cost of equity capital is more
significant for companies characterized by shorter earnings announcement lag. In order
to fill the gap in accounting literature, we test the following refined sub-hypotheses
derived from H1:
H1a. The association between voluntary disclosure and the cost of debt is negative
and significant for firms with shorter earnings announcement lag.
 H1b. The association between voluntary disclosure and the cost of debt is not Voluntary and
significant for firms with longer earnings announcement lag.
timely disclosure
3. Research method
3.1 Sample and data collection
The data collected for the purpose of the study involve the examination of annual
reports for 2008-2011 of listed companies on the Johannesburg Stock Exchange. The 153
starting point of our analysis is 2008, as 2007 has witnessed the subprime meltdown
crisis that affected the financial sector stability worldwide (Kumbirai and Webb, 2010).
Therefore, our empirical investigation specifically focuses on the post-subprime crisis
period.
We choose the Johannesburg Stock Exchange because it represents a leading market
in terms of stability and transparency[4]. The companies included in our study are
selected as follows. First, all financial firms are excluded since they are considered as a
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highly regulated sector. Second, the selection of the sample[5] (20 companies from South
Africa) is based on the random sampling of the publicly listed companies on the
Johannesburg Stock Exchange. Therefore, our sample includes 80 firm-year
observations. Sectors represented in our sample include mining, retail, industrial,
chemicals and services industries. Table I provides further information about the
sample of companies included in our study.
Table II lists the variables included in our model. Data is collected from the official
Web site of the Johannesburg Stock Exchange (www.jse.co.za). Table II provides more
detail about the data sources used to measure each variable in our model.

3.2 Dependent variable

Cost of debt is measured using the rate of interest paid defined as the interest expense for
firm i and year t divided by the short- and long-term liabilities at the beginning of year
t for firm i (Sengupta, 1998; Orens et al., 2010).

Interest Expensesit
CODit ⫽
Short and Long Term Liabilitiesit

3.3 Voluntary disclosure score

A coding instrument method is used to measure the extent of voluntary disclosure score
in companies’ annual reports. We use the disclosure index developed by Chau and Gray
(2002) which incorporates 12 categories as follows:

No. of firms by sector

Mining Retail Industrial Chemicals Services Total

9 2 4 2 3 20
9 2 4 2 3 20
9 2 4 2 3 20
9 2 4 2 3 20 Table I.
36 8 16 8 12 80 Sample description
 MEDAR Variables Required data Sources of information
22,2
Dependent variable
Cost of debt www.jse.co.za (South Africa)
Company websites
Finance costs Annual reports (financial statements)
Short and long term Annual reports (financial statements)
154 financial liabilities
Independent variables
Test variables
Disclosure score Annual reports Annual reports
Timely disclosure Annual reports Annual reports (Independent Auditor’s Report)
Control variables
Ln (asset) Annual reports Annual reports (financial statements)
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EVAR Annual reports [Ln EPS (N) ⫺ Annual reports (financial statements)
Table II. Ln EPS (N-1)]
Data sources LOSS Dummy variable Annual reports (financial statements)

(1) general corporate information;

(2) corporate strategy;
(3) acquisitions and disposals;
(4) research and development;
(5) future prospects;
(6) information about directors;
(7) employee information;
(8) social policy and value-added information;
(9) segmental information;
(10) financial review;
(11) foreign currency information; and
(12) stock price information (Appendix 1).

Each item scores “one”, if the information required is presented in the annual reports,
and “zero”, otherwise. The overall voluntary disclosure score represents a simple
summation of its components suggesting that all items considered in this study are
equally important, where the total number of items expected to be disclosed by firms is
equal to 113 (Appendix 1).
Chau and Gray’s (2002) disclosure index takes into account two dimensions: the
quantity (number of items) and richness of disclosure (disclosure topics). For instance,
this disclosure index integrates financial, strategic, intellectual, social and risk
information topics that are relevant to all stakeholders including creditors. Chau and
Gray (2002) have used this disclosure index for two leading developing markets in Asia.
Thus, we choose this score to assess the firms’ disclosure policy in a leading African
market, namely, the Johannesburg Stock Exchange.
 3.4 Timely disclosure Voluntary and
Our proxy for timely disclosure is the earnings announcement lag which represents the
number of days between the fiscal year-end and the publication date of financial
timely disclosure
statements. The latter is measured by the date of signature of the independent auditor’s
report because companies are allowed to publish their annual reports and earnings
following the certification of financial statements by an independent auditor
(Owusu-Ansah and Leventis, 2006). 155
3.5 Control variables
In our analysis, we include three control variables that have been hypothesized to be
correlated with the cost of debt. Large firms generally provide more voluntary
disclosure than small firms (Ahmed and Courtis, 1999). More voluntary disclosure
implies less creditors’ perceived estimation risk and risk of default (Sengupta, 1998).
Accordingly, corporate size is expected to be negatively associated with the cost of debt.
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In addition, high earnings variability implies more difficulty in assessing firms’ future
earnings (Orens et al., 2010). Accordingly, it is expected that the cost of debt is an
increasing function of earnings variability. Finally, firms with negative earnings are
characterized by a greater uncertainty regarding future profitability (Orens et al., 2010)
and managements in these companies tend to manipulate accounting figures (Brown,
2001). Therefore, it is expected that a loss financial condition is associated with a higher
cost of debt.

3.6 The model

To examine the relationship between cost of debt and voluntary and timely disclosures,
the following three models are used. The first model tests the association only for the
extent of voluntary disclosure. The second model considers only timely disclosure as
proxied by earnings reporting lag. Finally, the third model considers the two test
variables simultaneously.

CODit ⫽ ␣0 ⫹ ␣1 DSCit ⫹ ␣2 EVARit ⫹ ␣3 LnAssetit ⫹ ␣4 Lossit⫺1 ⫹ ␧it (1)

CODit ⫽ ␣0 ⫹ ␣1 TDit ⫹ ␣2 EVARit ⫹ ␣3 LnAssetit ⫹ ␣4 Lossit⫺1 ⫹ ␧it (2)

CODit ⫽ ␣0 ⫹ ␣1 DSCit ⫹ ␣2 TDit ⫹ ␣3 EVARit ⫹ ␣4 LnAssetit ⫹ ␣5 Lossit⫺1 ⫹ ␧it

(3)

Where:
CODit ⫽ Cost of debt is measured using the rate of interest paid defined as the
interest expense for year t and firm i scaled by the short- and long-term
financial debt at the beginning of year t for firm i;
DSCit ⫽ Voluntary disclosure score for each company;
TDit ⫽ Earnings reporting lag;
EVARit ⫽ The variability of earnings: [Ln (EPS (N)) – Ln (EPS (N-1))];
LnAssetit ⫽ Corporate size as proxied by the natural logarithm of total assets;
Lossit⫺1 ⫽ A dummy variable, taking the value of 1 if the firm reports a negative
earning in the fiscal year-end and 0 otherwise.
 MEDAR A test of hypotheses H1a (H1b) consists of observing a significant (non-significant)
negative coefficient between the cost of debt and the disclosure score for firms classified
22,2 in shorter (longer) earnings announcement lag group. Accordingly, we compute the
median for our sample[6], and we regress model [equation (1)] for high timely disclosure
group (shorter earnings announcement lag) and low timely disclosure group (longer
earnings announcement lag).
156
4. Results
Results in this study are presented as follows. First, we display the descriptive statistics
and univariate analysis. Second, we conduct a panel data analysis for our sample.

4.1 Descriptive statistics and univariate analysis

Table III presents the descriptive statistics and the ANOVA tests for the voluntary
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disclosure scores and timely disclosure during the period of investigation. The mean of
voluntary disclosure score is about 46.25 with an SD of 10.09. The mean of timely
disclosure, as proxied by earnings announcement lag, accounts for 90 days. Finally, the
average of the cost of debt is about 10.26 per cent. The extent of voluntary disclosure
slightly decreases during the period of investigation moving from 46.25 in 2008 to 45.90
in 2011. In contrast, timely disclosure witnesses a small increase during the same period
moving from 84.95 in 2008 to 88.05 in 2011.
Table IV presents the correlation between the independent variables and the cost of
debt. Cost of debt is negatively and significantly correlated with voluntary disclosure
score (⫺0.27), while timely disclosure is not significantly associated with the cost of debt
with a Pearson coefficient of (⫺0.02). With respect to control variables, the cost of debt
is negatively associated with corporate size as proxied by total assets (⫺0.12), while it is
an increasing function of LOSS variable (0.10).

No. of observations Mean SD

DSC 80 46.250 10.090

TD (days) 80 90.550 60.636
COD (%) 80 10.260 4.346
Anova
Category No. of observations Mean SD F-statistic (p-value)
DSC (South Africa) 2008 20 46.250 11.238 0.420 (0.742)
2009 20 44.650 11.268
2010 20 48.200 8.876
2011 20 45.900 9.180
TD (South Africa) 2008 20 84.950 41.863 0.170 (0.915)
2009 20 90.090 60.021
2010 20 98.300 88.634
2011 20 88.050 44.424

Table III. Notes: COD – cost of debt; DSC – voluntary disclosure score; TD – earnings announcement lag;
Descriptive statistics significant at: *p ⬍ 0.10); **p ⬍ 0.05; ***p ⬍ 0.01
 Dependent and explanatory South Africa (80 observations)
Voluntary and
variables DSC TD EVAR LOSS Ln (asset) timely disclosure
COD ⫺0.277*** ⫺0.023 ⫺0.035 0.107* ⫺0.120*
DSC 1.000 ⫺0.054 0.021 0.003 ⫺0.108*
TD 1.000 ⫺0.145** 0.590*** 0.122*
EVAR 1.000 ⫺0.035 0.025
LOSS 1.000 ⫺0.101*
157
Ln (asset) 1.000

Notes: COD: cost of debt; DSC: voluntary disclosure score; TD: earnings announcement lag; EVAR:
earnings variability; LOSS: dummy variable 1 if the firm reports a negative earning and 0 otherwise; Ln Table IV.
(asset): corporate size as proxied by the natural logarithm of total assets; significant at: * p ⬍ Pearson correlation
0.10); ** p ⬍ 0.05; *** p ⬍ 0.01 coefficients
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4.2 Multivariate analysis

Multiple regression results are reported in Table V. Findings show that the extent of
voluntary disclosure is negatively and significantly related to the cost of debt (⫺0.01;
t-statistic ⫽ ⫺2.65) in South Africa. The association remains significant also when we
regress both timely disclosure and the extent of voluntary disclosure on the cost of debt
(⫺0.15; t-statistic ⫽ ⫺2.59). Accordingly, H1 is supported and voluntary disclosure is
significantly associated with the cost of debt in the South African setting. Our results are
in line with the previous empirical studies either in developed markets (Sengupta, 1998;
Orens et al., 2010) or in emerging markets (Wang et al., 2008). In contrast, earnings

Model 3
Model 1 Model 2 (Disclosure score and
Explanatory variables (Disclosure score) (Timely disclosure) timely disclosure)

Intercept 1.453*** (3.17) 0.690* (1.92) 1.290*** (3.09)

DSC ⫺0.150** (⫺2.59) ⫺0.015*** (⫺2.65)
EVAR 0.029 (0.34) 0.012 (0.14) 0.014 (0.17)
LOSS 0.149 (0.80) 0.282 (1.15) 0.326 (1.38)
Ln (asset) ⫺0.063 (⫺1.64) ⫺0.047 (⫺1.16) ⫺0.029 (⫺0.98)
TD ⫺0.001 (⫺0.86) ⫺0.001 (⫺1.00)
2009 0.166 (1.01) 0.208 (1.22) 0.124 (0.74)
2010 ⫺0.051 (⫺0.30) ⫺0.031 (⫺0.18) ⫺0.087 (⫺0.51)
2011 ⫺0.165 (⫺0.98) ⫺0.141 (⫺0.80) ⫺0.189 (⫺1.10)
No. of observations 80 80 80
Adjusted R-square (%) 8.22 9.50 6.77
F (p-value) 2.010* (0.0654) 1.080 (0.3854) 1.720 (0.1094)
Max Vif 1.67 1.67 1.70

Notes: Dependent variable: cost of debt; DSC: voluntary disclosure score; TD: earnings announcement
lag; EVAR: earnings variability; LOSS: dummy variable 1 if the firm reports a negative earning and 0
otherwise; Ln (asset): corporate size as proxied by the natural logarithm of total assets; Max Vif: Table V.
refers to maximum variance inflation factor; t-statistics are reported between parentheses; Multiple regression
Significant at: * p ⬍ 0.10); ** p ⬍ 0.05); *** p ⬍ 0.01 analyses
 MEDAR announcement lag variable is not positively and significantly associated with the cost of
debt (⫺0.00; t-statistic ⫽ ⫺0.86) and (⫺0.00; t-statistic ⫽ ⫺1.00), respectively, in models
22,2 [equation (2) and (3)]. Therefore, H2 is not supported.
Concerning the control variables, the associations reported are in line with our
expectations. For instance, corporate size is negatively associated with the cost of debt,
while LOSS variable and earnings variability are positively associated with the cost of
158 debt. However, these relationships are not significant.
Overall, our results provide evidence that the increased level of voluntary disclosure
in annual reports is associated with lower levels of cost of debt. In contrast, timely
disclosure is not associated with cost of debt. Our findings provide support for agency
and signaling theories in South Africa with respect to the manager– debt-holder
relationship.
When testing for the moderating effect of timely disclosure on the association
between the extent of voluntary disclosure and the cost of debt, we document that this
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association is only negative and significant for firms characterized by shorter earnings
announcement lag (⫺0.02; t-statistic ⫽ ⫺2.97). In contrast, the association between the
extent of voluntary disclosure and the cost of debt becomes positive and non-significant
for the sub-sample characterized by longer earnings announcement lag (0.00;
t-statistic ⫽ 0.45). This means that timely disclosure increases the impact of the extent
of voluntary disclosure on creditors’ decisions implying a lower cost of debt. Therefore,
H1a and H1b are supported. Overall, these results are important because they highlight
the interaction between disclosure dimensions (extent and timeliness), and they suggest
that corporate reporting policy has a predictable relation with the cost of debt.
With regard to control variables, LOSS has a significant positive effect on the cost of
debt for the low timely disclosure group (0.27; t-statistic ⫽ 2.40). This means that loss
situation, under a tardy communication of voluntary information, increases uncertainty
and firm’s default risk among creditors, leading to a higher cost of debt. In addition, the
association between corporate size and the cost of debt is negative and significant for
low timely disclosure group (⫺0.05; t-statistic ⫽ ⫺1.97), while it is non-significant for
high timely disclosure group (⫺0.58; t-statistic ⫽ ⫺0.03). A plausible explanation of the
result is that total assets represent the only assurance for creditors when there is a lack
of transparency due to the late communication of voluntary information. Finally,
earnings variability is not significantly associated with the cost of debt for the two
groups considered (Table VI).

5. Concluding remarks
A basic and fundamental question is whether voluntary and timely disclosures
influence the cost of debt, especially in developing economies where managers and
investors are less concerned by additional information. Given this importance, this
study was devoted to examine the empirical relationship between voluntary and timely
disclosure and the cost of debt in South Africa. Results show that voluntary disclosure
information is negatively associated with cost of debt. Nevertheless, timely disclosure
exerts a trivial effect on the cost of debt in South Africa. Finally, making voluntary
disclosure in a timely manner increases the importance of information communicated by
firm and contributes accordingly to the reduction of the cost of debt. Our findings show
that the timeliness and the extent of voluntary disclosure represent two key components
 EAL ⬍ median (TD) EAL ⱖ median (TD)
Voluntary and
Explanatory variables Model (1) Model (1) timely disclosure
Intercept 1.849** (2.330) 0.540 (1.400)
DSC ⫺0.027*** (⫺2.970) 0.002 (0.450)
EVAR ⫺0.034 (⫺0.240) 0.100 (1.190)
LOSS 0.867 (1.480) 0.275** (2.400)
Ln (asset) ⫺0.043 (⫺0.580) ⫺0.055* (⫺1.970)
159
2009 ⫺0.032 (⫺0.120) ⫺0.003 (⫺0.020)
2010 0.493 (1.770) ⫺0.117 (⫺0.820)
2011 0.077 (0.280) ⫺0.233 (⫺1.550)
No. of observations 40 40
Adjusted-R-square (%) 21.560 21.640
F (p-value) 2.790** (0.026) 2.420** (0.044)
Max Vif 1.560 1.990
Table VI.
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Notes: Dependent variable: cost of debt; DSC: voluntary disclosure score; TD: earnings announcement The effect of timely
lag; EVAR: earnings variability; LOSS: dummy variable 1 if the firm reports a negative earning and 0 disclosure on the
otherwise; Ln (asset): corporate size as proxied by the natural logarithm of total assets; Max Vif: association between
refers to maximum variance inflation factor; t-statistics are reported between parentheses; voluntary disclosure and
significant at: * p ⬍ 0.10; ** p ⬍ 0.05; *** p ⬍ 0.01 cost of debt

of corporate transparency that may influence creditors’ behavior through their effect of
cost of debt.
Overall, our study contributes to the existing accounting literature dealing with the
effect of voluntary disclosure on the cost of debt by providing evidence in an emerging
economy. Our findings have policy implications for managers in South Africa and other
developing economies similar to South Africa, given the important role of debt as a
source of external financing for publicly traded companies. For instance, increasing the
extent of voluntary disclosure may influence creditors’ behavior.
As with any empirical work, this study has some limitations. The limited number of
companies included in the analysis could reduce the validity of the findings and
inferences. Self-constructed voluntary disclosure checklist has the disadvantages to be
difficult to replicate because the researcher may generally use his judgment during the
coding process which can also bias the results. Besides, earnings announcement lag, as
proxied by the signature date of auditor, may also represent a biased proxy because
earnings announcements by managers do not generally coincide with this date.
Therefore, our results should be interpreted with caution.
Future research may address the same issue in other African markets. Another
research question that can also be examined in emerging economies is the empirical link
between other aspects of voluntary disclosure (e.g. intellectual capital information) and
the cost of debt capital.

Notes
1. www.icaew.com/⬃/media/Files/Technical/Research-and-academics/publications-and-projects/
financial-reporting-publications/briefing-corporate-disclosure-and-the-cost-of-capital.pdf
2. www.southafrica.info/business/economy/econoverview.htm#.UjXPqNLwlc0
3. www.banking.org.za/index.php/our-industry/2012-south-african-banking-sector-overview/
 MEDAR 4. For common law African countries, the South African Stock Exchange represents the most
active market in terms of the volume of transactions that accounts for 189.110 per cent of
22,2 gross domestic product (GDP) (Senbet and Otchere, 2008, Table I, p. 2).
5. After excluding all financial companies, we undertake a random selection of 20 listed
companies that meet the following criterion: financial statements; and data are available for
the entire period of investigation.
160 6. The median of our sample is 76 days.

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 MEDAR Appendix 1
22,2
Category of information
1. General corporate
162 information
2. Corporate strategy
3. Acquisitions and disposals
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4. Research and development
5. Future prospects
6. Information about directors
7. Employee information
Table A1.
Voluntary disclosure
checklist
Items of disclosure
Brief history of company
Organizational structure
Statement of strategy and objectives-general
Statement of strategy and objectives-financial
Statement of strategy and objectives-marketing
Statement of strategy and objectives-social
Impact of strategy on current results
Impact of strategy on future results
Reasons for the acquisitions
Amount of goodwill on acquisition
Reasons for the disposals
Amount of consideration realized from the disposal
Description of R&D projects
Corporate policy on R&D
Location of R&D activities
Number employed in R&D
Statement of future prospects–qualitative
Qualitative forecast of sales
Quantitative forecast of sales
Qualitative forecast of profits
Quantitative forecast of profits
Description of capital project committed
Committed expenditure for capital projects
Qualitative forecast of cash flows
Quantitative forecast of cash flows
Assumptions underlying the forecasts
Order book or backlog information
Age of the directors
Commercial experience of the nonexecutive directors
Educational qualifications
Commercial experience of the executive directors
Other directorships held by nonexecutive directors
Other directorships held by executive directors
Position or office held by executive directors
Geographical distribution of employees
Line-of-business distribution of employees
Categories of employees by sex
Identification of senior management and their functions
Categories of employees by function
Number of employees for two or more years
Reasons for changes in employee numbers or categories
over time
Share option schemes-policy
Profit sharing schemes-policy
Amount spent in training
(continued)
 Category of information
8. Social policy and value-added
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information
9. Segmental information
10. Financial review
Items of disclosure
Voluntary and
timely disclosure
Nature of training
Policy on training
Categories of employees trained
Number of employees trained
Welfare information
Safety information
163
Data on accidents
Cost of safety measures
Policy on communication
Redundancy information
Equal opportunity policy statement
Recruitment problems and related policy
Safety of products
Environmental protection programs - qualitative
Environmental protection programs - quantitative
Charitable donations
Community programs
Value-added statement
Value-added data
Value added ratios
Qualitative value-added information
Geographical capital expenditure-quantitative
Geographical net assets-quantitative
Geographical production-quantitative
Line -of- business capital expenditure-quantitative
Line-of-business net assets-quantitative
Line-of-business production-quantitative
Competitor analysis-qualitative
Competitor analysis-quantitative
Market share analysis-qualitative
Market share analysis-quantitative
Profitability ratios
Qualitative comments on profitability
Cash flow statement- direct
Cash flow ratios
Liquidity ratios
Gearing ratios
Fixed asset revaluation within the last five years
Disclosure of brand valuation
Disclosure of other intangible valuations (expect goodwill)
Dividend payout policy
Transfer pricing policy
Impact of any accounting policy changes on results
Financial history or summary-three or more years
Financial history or summary-six or more years
Restatement of financial information to IASC
(continued) Table A1.
 MEDAR Category of information Items of disclosure
22,2
Off balance sheet financing information
Advertising information-qualitative
Effects of inflation on future operations-qualitative
Advertising expenditure-quantitative
Effects of inflation on results-qualitative
164 Effects of inflations on results-quantitative
Effects of inflations on results-qualitative
Effects of inflation on assets-quantitative
Effects of interest rates on results
Effects of interest rates on future operations
11. Foreign currency Effects of foreign currency fluctuations on future
information operations-qualitative
Effects of foreign currency fluctuations on current
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results-qualitative
Major exchange rates used in the accounts
Long-term debt by currency
Short-term debt by currency
Foreign currency exposure management description
12. Stock price information Share price at year end
Share price trend
Market capitalization at year end
Market capitalization trend
Size of shareholder
Type of shareholder
Table A1. Foreign stock market listing information

Corresponding author
Hichem Khlif can be contacted at: hichemkhlif@gmail.com

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