An Examination of the Comprehensiveness of Corporate Internet Reporting Provided by London-Listed Companies
Omneya H. Abdelsalam, Stephanie M. Bryant, and Donna L. Street
ABSTRACT: Recent changes in the regulatory environment of the London Stock Exchange are aimed at prohibiting selective disclosure and enhancing the credibility of reporting. Using an innovative 143-item disclosure checklist, we examine corporate Internet reporting (CIR) comprehensiveness and its determinants within this new regulatory environment. We also extend the literature linking corporate governance measures to CIR. Our findings indicate that despite this new regulatory environment, there is considerable room for improvement in CIR by London-listed companies. For example, our sample companies provide only 58 percent and 70 percent, respectively, of the credibility and usability items assessed by our comprehensiveness index. After controlling for size, profitability, industry, and high growth / intangibles, we find the CIR comprehensiveness of London-listed companies is associated with analyst following, director holding, director independence, and CEO duality. Because prior research indicates the U.K. leads Europe in Internet reporting, our results may shed light on how CIR will evolve throughout Europe. Keywords: corporate Internet reporting; selective disclosure; voluntary disclosure; timeliness of reporting; credibility of reporting; usability of Internet disclosures. Data Availability: Contact Professor Bryant at:


I. INTRODUCTION AND MOTIVATION he Internet provides a unique form of corporate voluntary disclosure that enables companies to provide information instantaneously to a global audience. However, despite its growing importance as a source of corporate information to investors, the content, usability, and perceived credibility of the information provided on corporate websites varies greatly. Research reveals that even companies headquartered in countries traditionally known for high levels of ‘‘hard copy’’ disclosure, such as the United Kingdom (U.K.), tend to fall short of their potential in regard to the quantity of information provided on the Internet and the level of sophistication of Internet utilization (Lymer 1999).

Omneya H. Abdelsalam is a Lecturer at Aston University and a Visiting Associate Professor at the American University of Sharjah, Stephanie M. Bryant is an Associate Professor at the University of South Florida, and Donna L. Street is a Professor at the University of Dayton. 1


Abdelsalam, Bryant, and Street

In this paper, we examine the association between the comprehensiveness, usability, and credibility of corporate Internet reporting (CIR) disclosures and corporate governance measures for a sample of 110 London-listed companies. Our analysis is motivated primarily by recent changes in the regulatory environment of the London Exchange directed at, inter alia, addressing the concerns of U.K. and European Union (EU) regulators prohibiting selective disclosure and the regulators’ desire to enhance the credibility of reporting. The Financial Services and Market Act of 2000 highlights the U.K. government’s desire to overhaul financial market regulations and uphold the London Exchange’s status as one of the world’s leading exchanges (Al-Hawamdeh and Snaith 2005). Under the Act, which became effective December 1, 2001, listed companies should review the scope, nature, and method used to disseminate information to the market. The general requirement of the Financial Services Authority is that listed companies disclose all material developments without delay (emphasis added). The Internet provides a unique means to achieve this disclosure objective. Furthermore, European Commission Directive/6/2003 recommends speedy dissemination of information to the market and prohibits private briefings. Accordingly, private briefings and other forms of selective disclosure are frowned upon, as the intent is for information to be made available to all investors at the same time. Londonlisted companies should thus be expected to increasingly turn to the Internet to achieve the widespread disclosure of financial and other information to stakeholders in a timely and simultaneous manner. Our findings highlight the need for improvement in CIR by London-listed companies, especially with regard to improving the credibility of information provided on corporate websites and site usability. Specifically, the sample companies provide only 58 percent and 70 percent, respectively, of the credibility and usability items assessed by our index. Further, after controlling for size, profitability, industry, and high growth/intangibles, our findings indicate that the CIR comprehensiveness of London-listed companies is associated with analyst following and several measures of corporation governance (e.g., director holding, director independence, and CEO duality). Our study provides two important contributions. First, we provide insight into CIR disclosure practices in the U.K. in this new regulatory environment of increased transparency. Prior research indicates that while the U.K. lags the United States (U.S.) in Internet reporting, it leads Europe (Lymer 1999). Thus, our results may preview how CIR reporting throughout Europe will evolve to address the concerns of EU regulators. Second, we extend the emerging body of literature linking corporate governance measures to CIR disclosure. While several prior studies examine corporate governance and voluntary disclosure in general, ours is among the first to link Internet disclosures with corporate governance measures. As noted previously, levels of Internet disclosure and sophistication of use have historically lagged their potential even in countries associated with high levels of disclosure. Hence, in the absence of supporting empirical evidence, findings from the voluntary disclosure literature should not be assumed to hold true within the specific context of CIR. Next, we briefly review prior CIR studies. This is followed by sections on hypotheses development, methodology, results, discussion, and conclusion. II. CIR LITERATURE REVIEW The extant studies on CIR can be categorized as either descriptive studies (i.e., providing statistics on how many items of a given disclosure checklist are disclosed/provided) or association studies (i.e., providing evidence of independent variables associated with the level of disclosure) addressing the determinants of CIR.
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An Examination of the Comprehensiveness of Corporate Internet Reporting


Descriptive Studies Lymer (1999) provides a review of the CIR academic1 and professional2 literature published during the 1990s. Concentrating on the former, Lymer concludes that, as of the late 1990s, European companies were considerably behind their U.S. counterparts with respect to providing large amounts of corporate data on the Internet. Further, European companies were behind the U.S. in the sophisticated utilization of Internet technology, and there appeared to be a wide divergence of corporate usage of the Internet within and between countries, with the U.K. being the closest to the U.S. model and Spain being the furthest away.3 A descriptive study by the Interactive Bureau (2003) concluded that, based on an analysis of U.K. FTSE-100 company websites, 72 of the websites needed ‘‘substantial attention’’ in terms of site design, usability, and content, and that the websites failed to meet the needs of key constituents. Debreceny and Gray (1999) survey the corporate websites of 45 large, listed U.K., German, and French companies to examine audit implications of electronic dissemination of financial information. Their findings raise significant issues regarding the format and usability of the information provided. Lymer and Debreceny’s (2003) review of the extent of guidance on CIR provided by securities regulators and audit standard setters reveals that actual pronouncements issued as of the date of the study represent an inadequate response to the challenges arising from current and future CIR. Several standard setters and professional groups have also sponsored CIR studies. These include the International Accounting Standards Committee (Lymer et al. 1999), Canadian Institute of Chartered Accountants (CICA) (Trites 1999), and the U.S. Financial Accounting Standards Board (FASB 2000, 2004). Association Studies In addition to describing CIR, researchers have more recently begun to conduct empirical research focused on identifying company- and/or country-specific characteristics associated with CIR disclosure, focusing primarily on either content or presentation of disclosures. Table 1 summarizes studies from this body of work. Independent variables studied include, among other things, size, industry, free float, high growth/intangibles, and profitability. Allam and Lymer (2003) examined CIR in five developed countries utilizing a 36-item disclosure index addressing general attributes and Financial/Annual Reportrelated attributes of CIR. With regard to U.K. companies, they found no significant differences in the CIR quality of U.S. and U.K. companies or U.K. and Canadian companies; however, they did find differences in CIR quality between U.S. and Canadian companies, with Canadian companies disclosing less. Additionally, the CIR of U.K. companies exceeded that of Australian and Hong Kong companies. In summary, several prior studies describe CIR disclosure and presentation for companies headquartered in specific countries or listed on specific stock exchanges. Additionally, as summarized in Table 1, evidence links several company-specific characteristics with



Works reviewed include Petravick and Gilbert (1996); Gray and Debrecency (1997); and Louwers et al. (1996); and in Europe, Marston and Leow (1998); Lymer (1997); Lymer and Tallberg (1997); Flynn and Gowthorpe (1997); Deller et al. (1998); Molero Lopez et al. (1999); Deller et al. (1999); Gowthorpe and Amat (1999); and Hedlin (1999). Practitioner studies include Jenkins (1993a) and (1993b); AICPA (1996); Chavez (1996); Helms and Mancino (1998); Debreceny and Gray (1999); CICA (1999); Spaul (1997); Green and Spaul (1997); Gowthorpe and Flynn (1997); and Gulliford et al. (1998). Additional descriptive studies published in more recent years include Craven and Marston (1999); Jones (2003); and Davey and Homkajohn (2004).

Journal of International Accounting Research, Volume 6, No. 2, 2007

Bryant. SEC’s Electronic Data Gathering. No.S. and Street Size ( ) Free Float ( ) (both for Austrian companies only) December 1997 26 / 20 Austrian and companies 1998 / December 1997 1998 German DAX-30 1998 only (continued on next page) . 2007 4 TABLE 1 Overview of Empirical Studies Addressing Determinants of CIR Comprehensiveness Date of Data Collection Number of Checklist Items 2 3 Author(s) Sample Dependent Variables Presence of website Disclosure of any financial information on website Website provides: • Comprehensive set of financial statements (including footnotes and auditor report) • Link to annual report elsewhere on Internet • Link to U.Journal of International Accounting Research.S. November 1997 290 U. Volume 6. FTSE-100 Leow (1998) Ashbaugh et al. 2. companies 2 38 Size ( ) Abdelsalam.K. Analysis and Retrieval (EDGAR) system Presence of website Disclosure of any financial information on website 7-Content 5-Timeliness 14-Technology 12-User support Significant Independent Variables Size ( )a Size ( ) Profitability ( ) AIMR highly ranked firm ( ) Marston and November 1996 U.K. companies (1999) through (criticized by January 1998 AIMR) Craven and Marston (1999) Pirchegger and Wagenhofer (1999) July 1998 206 largest U.

companies (AIMR rated) 17 6 Accounting information items 11 Other financial information items (Market Value to Book Value) ( ) For Presentation: • Size ( ) • U.S. (2002) (IASC sponsored) Journal of International Accounting Research. (2001) February through May 1998 Late 1997 through early 1998 Ettredge et al. Biotechnology.S. (2002) 402 U. 2. Listing ( ) • Growth prospects / intangibles For Content: Ettredge et al. Listing ( ) • General cross listing ( ) • Level of technology (particularly being in pharmaceutical industry) ( ) • Disclosure Environment Size ( ) Industry (petroleum highest and homebuilding lowest) • Size ( ) • Correlation annual earnings and 17 4 Financial information items required in SEC filings 12 Items of voluntary disclosure For both: returns ( ) For voluntary disclosure only: • Raising equity capital (if stock issued during 1996 or 1997) ( ) • Quality (AIMR measure) ( ) (continued on next page) 5 .An Examination of the Comprehensiveness of Corporate Internet Reporting TABLE 1 (continued) Debreceny et al. and Computer technology) 193 U. No. companies (AIMR rated. 2007 November 1998 through February 1999 660 large companies in 22 countries (30 highest market cap companies listed in each country in Dow Jones Global Index) 2 1-Presentation (type of website) 1-Content (amount of disclosure) • Size ( ) • U.S. Volume 6.S.

U.Journal of International Accounting Research.K. lagged behind (continued on next page) Marston (2003) 1998 plus follow up in May 2001 Allam and Lymer (2003) End of 2001 and early 2002 99 top Japanese companies 13 250 companies (50 largest in advanced capital markets. Volume 6. Australia. Canada. and H. No.. U. and Canadian companies close and leading / Australian companies follow with small gap / H. 2. and Street .K..K.K. U. lower the probability of disclosure) Industry (primary industry group sector: oil and gas and forestry highest) Size ( ) Industry ( ) (both related to existence of website but not extent of disclosure on web) Size ( ) (only for Australia) Country (U. companies (123 with Websites. 2007 6 TABLE 1 (continued) Date of Data Collection Not specified Number of Checklist Items 8 Author(s) Oyelere et al.S. Bryant.. 90 included Internet financial reporting) Dependent Variables Financial and nonfinancial information provided on corporate website Significant Independent Variables Size ( ) Liquidity ( ) Ownership spread (higher the proportion of shareholding by top 40 percent of shareholders. (2003) Sample 229 N.S.Z..) 36 Whether company had website Whether any English website on homepage Whether 11 items of financial information disclosed on website 12-General attributes 24-Financial / Annual report attributes Abdelsalam.

2. 6 navigation. including market capitalization. (2004) August 2002 300 largest Chineselisted companies (203 had a website) 82 Content (16-investor related. (2004) July 2004 30 Indian companies on BSE Sensex 114 64-Content 50-Usability For overall and content disclosure: Big 4 auditor ( ) Free float ( ) Gearing ( ) PE (profitability) ( ) U. number of employees. 7 Structure and 3 contact and information supply services) 58-Content 24-Presentation • • • • • For the 203 with website: IT Industry ( ) Size ( ) Legal person ownership ( ) Leverage ( ) State Share Ownership ( ) a Various measures of size have been used. sales / turnover. 5Contact details.An Examination of the Comprehensiveness of Corporate Internet Reporting TABLE 1 (continued) Abdelsalam et al. 5-Timeliness. and 5-Social Responsibility) Presentation (10 Technology. Results generally support any measure of size as being appropriate. total assets. 2007 Marston and Polei (2004) July 2000 and May / June 2003 50 German companies (top quartile and bottom quartile of DAX 100) 53 (2000) 71 (2003) Xiao et al.S. Volume 6. accounting and financial information. 7 . 14-Corporate governance. listing / filing ( ) Industry (manufacturing) [overall only] ( ) None significant for usability For 2000: • Size ( ) • Free Float ( ) • For 2003 • Size ( ) • ROE ( ) • Foreign Listing ( ) • State Share Ownership ( ) • • • • • • Journal of International Accounting Research. No. but market capitalization is the most commonly used.

(2002). Thus. Ettredge et al. companies will be expected to disclose more information to reduce agency cost and information diffusion (Jensen and Meckling 1976). more comprehensive CIR index for evaluating the comprehensiveness of information London-listed companies provide on their corporate websites.e. Indeed. managers may provide additional information to signal they are acting in the best interests of the principles. clearly indicating that CIR determinants vary by institutional environment. III. Verrecchia (2001). The potential for agency conflicts is greater for a company with diffused ownership because of the divergence of interests between contracting parties. (2002). Rowbottom (2002). (2004). When information is made known to analysts. see Rowbottom et al. New regulatory requirements and pressures.. and CIR in particular.. and Verrecchia (1983). as impacted by recent regulations and guidelines issued by U. we extend the research linking corporate governance factors to the level of disclosure to specifically address CIR (i. Gul and Leung (2004) suggest that the failure to include governance variables in prior studies examining levels of voluntary disclosure may contribute to the mixed findings in regard to the association with control variables including profitability. and Street the level of CIR disclosure. suggest that ownership diffusion and other dimensions of governance may also impact the level of voluntary disclosure in general. Volume 6. but to provide information utilizing a timely vehicle capable of reaching a vast audience (i.4 While governance factors have been assessed as determinants of voluntary disclosure in prior literature. and EC authorities). Xiao et al.K. provide the basis for our hypotheses. Craven and Marston (1999).. A summary of the emerging body of work addressing the association of governance factors and voluntary disclosure is incorporated within the following section on hypotheses development. It also logically follows that those companies with stronger governance structures should be more responsive to adhering to the spirit of these new regulatory requirements and recommendations. Wagenhofer (2003). however. HYPOTHESES The distinct characteristics of the institutional environment within which London-listed companies now operate (i. Ownership Diffusion: Major Shareholding Agency theory suggests that in a more diffused ownership environment. 2007 . Bryant.e. Recent regulatory requirements and pressures within the context of the London Exchange may magnify incentives for managers of widelyheld companies to not only provide additional information. Debreceny et al. Findings for the latter subset of research vary by country or exchange listing. in the current regulatory environment of the London Exchange.e. The current research utilizes a richer. (2005). 4 For reviews of the voluntary disclosure literature. on selective disclosure place tremendous pressure on listed companies to communicate financial and other information to a vast audience at the same time this information is provided to analysts following the company. Richardson (2001). it should also be made simultaneously available to all other interested parties. particularly emerging. recent prohibitions in the U.K. In a widely-held company. Conversely. Journal of International Accounting Research. Specifically. the focus of this work has primarily been within the context of smaller. the Internet). capital markets. analyst following and ownership diffusion both play a key role in defining the breadth of a company’s target audience for the dissemination of instantaneous information. 2. highly concentrated ownership may be linked to lower levels of disclosure. along with agency theory (particularly in regard to ownership diffusion and other dimensions of governance). a subset of voluntary disclosure).8 Abdelsalam. Additionally. No. Healy and Palepu (2001). The Internet provides an obvious way to achieve this requirement.

Volume 6.. No. Ghazali and Weetman (2006) do not find a significant association between the proportion of shares held by the ten largest shareholders and level of disclosure. High director ownership aligns the interests of the agent and shareholder and reduces the need for shareholder monitoring through disclosure. thereby supporting a complementary association. Both Eng and Mak (2003). Supporting a substitute relationship. In a study of Indian BSE Sensex companies. thereby limiting managerial opportunism and resulting in increased disclosure. The following hypotheses test the relationship between ownership diffusion and comprehensiveness of CIR. (1994) find a negative association between this same measure of ownership structure and the level of disclosure. in a study of New Zealand companies. 2. Other Corporate Governance Variables: Director Independence In addition to ownership diffusion. agency costs may be reduced by director ownership (Jensen and Meckling 1976). Empirical evidence supports this argument. only Abdelsalam et al. In these studies. Fama and Jensen (1983) propose that the existence of independent (nonexecutive) directors should yield more effective monitoring of the board of directors. in a study of Hong Kong companies. however. Director Holding A director who owns a substantial portion of the company’s shares bears the consequences and reaps the benefits of managerial actions that destroy and create value. Three studies of Malaysian companies utilize shares held by the ten largest shareholders as a surrogate for ownership concentration. those holding at least three percent of the outstanding shares). in a study of Malaysian companies. Haniffa and Cooke (2002) identify a positive relationship between the proportion of shares held by the ten largest shareholders and the level of disclosure. in Journal of International Accounting Research.e. Director holding is negatively associated with CIR. Eng and Mak (2003). in a study of Hong Kong and Singapore companies. Furthermore. find a significant positive association between the proportion of independent directors and the level of voluntary disclosure. Adams and Hossain (1998). H1a: H1b: Majority shareholding is negatively associated with CIR. and Ghazali and Weetman (2006). (2004) find a significant positive association between free float and level of CIR. find that director ownership is significantly negatively associated with the level of voluntary disclosure. Hossain et al. Chau and Gray (2002). Major shareholding is measured by the percent of stock held by major shareholders (i. We note that the varying findings for Malaysian companies may be linked to modifications in governance regulations in this jurisdiction. of the above studies. Director holding is measured by the proportion of the company’s shares held by members of the board of directors. (2004) examine the association of ownership dispersion and level of CIR reporting (as opposed to voluntary disclosure in general). Abdelsalam et al. prior research links other dimensions of governance to voluntary disclosure. report a significant positive relationship between the proportion of outside ownership and level of voluntary disclosure. in a study of Hong Kong companies. and Chen and Jaggi (2000). thus.An Examination of the Comprehensiveness of Corporate Internet Reporting 9 Prior research addressing the level of voluntary disclosure supports the agency theory hypothesis that level of disclosure is positively associated with wider ownership dispersion. 2007 .

CEO dual role is coded 1 if the CEO is also the chair of the board. Volume 6. CEO dual role is negatively associated with CIR comprehensiveness.10 Abdelsalam. it follows that Londonlisted companies with a larger analyst following will turn to the Internet as a key means of ensuring that information previously provided first. selecting agenda items. find that duality is negatively associated with voluntary disclosure. Journal of International Accounting Research. but note that their results may be associated with the greater representation of outside directors on the boards of Singapore companies in comparison to other countries. to analysts will now be supplied to all investors in a timely manner. and selecting board members. H2a: H2b: The proportion of independent directors is positively associated with CIR comprehensiveness. CEO Role Duality CEO role duality occurs when the CEO is also chair of the board of directors. H3: Analyst following is positively associated with comprehensiveness of CIR. 2007 . board effectiveness may be compromised because the CEO may be capable of controlling board meetings. In line with this body of research. Based on recent research linking analyst following with disclosure in annual reports and the growing pressure for Londonlisted companies to disclose timely information to a wider audience. Bryant. dual role is coded as 0. Blackburn (1994) and Argenti (1976) support separation of these two roles. However. in a study of Hong Kong companies. The following hypothesis tests the relationship between analyst following and CIR comprehensiveness. and Street a study of Singapore companies. As the Financial Services Authority cautions London-listed companies to avoid selective disclosure and has indicated that all material developments are to be disclosed to a widespread audience in a timely manner. No. we anticipate a positive relationship between analyst following and CIR. Contrary to expectations. Cahan et al. Independence is measured by the proportion of nonexecutive directors to total directors. 2. their study of Malaysian companies does not find a significant relationship between duality and level of disclosure. nonexecutive director as chair of the board and the level of disclosure. Ho and Wong (2001) and Haniffa and Cooke (2002) do not find an association between the proportion of independent directors and level of voluntary disclosure. The following hypotheses test the relationship between key governance factors and comprehensiveness of CIR. 2005) provides evidence that the number of analysts following a company is positively associated with the level of voluntary disclosure in corporate annual reports. When the CEO is also chair. Otherwise. or perhaps exclusively. Ghazali and Weetman (2006) highlight that Haniffa and Cooke’s findings predate new governance rules in Malaysia. Analyst Following Recent research (Hope 2003. find a negative association. the Cadbury Committee Report (1992) recommends that large companies separate the roles of CEO and chair of the board of directors. Gul and Leung (2004). Agency theory supports the separation of these two roles to allow for checks and balances over management’s performance (Haniffa and Cooke 2002). Haniffa and Cooke (2002) report a significant negative relationship between having an independent.

K. and the investor relation literature.metaproducts. 71 items. browsing or updating. Every folder was identified by a folder name typical to the web page URL. 36 items). we compared such web pages with the online web pages to confirm that their entire contents were accurately captured in the download process. METHOD Sample Selection and Data Collection We obtained the names of companies listed in London from the London Exchange website. While downloading files from web pages. 5 6 7 Offline Explorer is a Windows offline browser that allows downloading an unlimited number of websites for later offline viewing.. we checked the downloaded files to determine if the entire contents of the web page were successfully downloaded. Thus. This arrangement makes it easy to explore the files. Indeed.7 percent) are domiciled in the U. 82 items. Volume 6. Each download was examined for completeness. Loranger and Nielson’s (2003) Internet reporting usability guidelines. If this sign was found on any downloaded web page. (http: / / www. any page that is five clicks away from the home page). 2004. Thus. The snapshot can later be browsed offline without Internet access and ensures that changes to the website made during the course of the research do not impact the study. and directed the program to download all files linked to the starting page from the starting server up to level five (e. analyzing the content and usability of all sample websites as of a specific date is important. we examine those companies most likely to be have a larger analyst following. and Allam and Lymer 2003.asp?id 1). the software creates a folder for each web page in which files were downloaded. 2004. Though there are various types of software available to download the contents of web pages. providing a snapshot of the site for a given point in time. and easiest use software (Usama and Matsumoto 2004).622 with analyst following. The software notifies the user of any failed downloads with a red X next to the URL. Of the 110 companies in our sample. 80 (72.5 By focusing on the top quartile of the London Exchange. we randomly selected 120 companies from the top quartile and used Offline Explorer software to download each of the websites in our sample. for our sample companies the correlation matrix reveals that size is positively correlated at . For every folder.7 We discarded ten companies because the download process was unsuccessful. Journal of International Accounting Research. more comprehensive CIR index drawn primarily from our extensive review of the CIR literature. we specified the starting page using the URL address of the company. and associated files within a website. Description of CIR Comprehensiveness Index The dependent variable measures are derived from a new. searching. We assumed that the longer the number of clicks to find the information. we repeated the download until all the contents of all web pages were successfully downloaded. Using Offline Explorer software. The appendix to the paper lists the sample companies and their country of domicile.6 Because website content and design are frequently updated. The program automatically downloads all pages. Marston and Polei 2004. 2. With few exceptions (Abdelsalam et al.An Examination of the Comprehensiveness of Corporate Internet Reporting 11 IV. and accordingly. which were downloaded from each web page separately (Usama and Matsumoto 2004). this company was excluded from the sample (Usama and Matsumoto 2004). After sorting the list by market capitalization. No. most likely to be impacted by the new regulations and recommendations on selective disclosure. images. all downloads took place on a single day in mid-2005. 2007 . previous studies generally reviewed a very limited number of content and/or usability items. our sample consists of 110 London-listed companies with complete website downloads. the less useful it is to the user (Rubin 1994). 114 items. To assure the success of downloading. Offline Explorer was found to be most reliable.g. If the contents were still not successfully downloaded. to avoid temporal differences in website content. Xiao et / mp / mpProducts Detail. thereby. fastest download.

Davey and Homkajohn (2004). Loranger and Nielsen 2003. Debreceny and Gray (1999). Deller et al. Colman (2004). Ashbaugh et al. Lymer (1999). Bryant. Gray (2001). Oyelere et al.9 We extend prior research FIGURE 1 Taxonomy of Checklist Items Full Checklist (CIR Comprehensiveness) (n = 143 items) (COMPRE) Content (n = 74 items) Usability (n = 69 items) (USABILITY) Examples: • Navigation buttons • Hyperlinks that change color • FAQs • Built-in search General Content (n = 19 items) (GCONTENT) Examples: • Investor glossary • Interactive stock/share charts • Segment information Credibility (n = 55 items) (CREDIBILITY) Examples: • Timeliness • Code of ethics • Audit opinion • Audit logo on audit report 8 9 These include Deller et al. Hodge (2001). Volume 6. Fisher et al. represents the most comprehensive assessment of CIR utilized to date. Our 74 content checklist items are drawn from previous academic literature8 usability guidelines (e. These include CP (2003). (2001). Marston and Leow (1998).12 Abdelsalam. Our final checklist contains 143 items (74 content and 69 usability) and accordingly. Xiao et al.. Ettredge et al. some items were deleted because we were unable to assess the applicability of the content or usability item. (2003). No. identified by the relevant investor relations literature and prior CIR studies as important components of CIR. To this end. Eliminating these items ensured that companies were not penalized for nondisclosure of nonapplicable items. (2004). Following a pilot test. Ettredge et al. (2003). Nielsen 1999). Abdelsalam et al. (1998). and Mercer (2004). as many items as possible (both financial and nonfinancial). Craven and Marston (1999). (2004). Lymer and Debreceny (2003). and 2004). 2. our initial instrument contained 163 items. in one instrument. Jones (2002. (2002). Geerings et al. Allam and Lymer (2003). and Carey and Parker (2006). Pirchegger and Wagenhofer (1999). (2004). 2007 . Dependent Measures: Content Content refers to what information is disclosed on the website. and the investor relations literature. (1999).g. (2002). IFAC (2003). thereby providing for a richer assessment of content and usability. Debreceny et al. Marston and Polei (2004). 2003. Journal of International Accounting Research. and Street Our goal was to assimilate. (1999). Marston (2003). Figure 1 depicts the checklist taxonomy.

interactive stock/ share charts. Based on these definitions. A measure of the overall level of disclosure comprehensiveness is provided by the variable COMPRE. Disclosures relative to the audit report are also an important indicator of credibility. 2004). 19. segment information. or the audit opinion (see Lymer and Debreceny 2003. ease of use). these items are scored as 0. 13). full. GCONTENT. Ettredge and Gerdes.’’ Mercer (2004. To assess usability. as many individuals do not notice the difference when moving from audited to unaudited information through the use of hyperlinks (Hodge 2001). we categorized content items as either general content items. and fair disclosure. the disclosure of quarterly as opposed to semi-annual reports. including its precision.. Usability items are captured in the variable USABILITY. These authors surveyed individual and professional investors. and CREDIBILITY is 143. respectively. and financial journalists to develop guidelines for improving the usability of information provided on corporate websites. Volume 6. 2002. remuneration of executives and directors. To calculate the dependent variables for the multivariate analyses. CREDIBILITY. hyperlinks that change colors when visited. The Credibility Primer (CP 2003) defines credibility as providing transparent. 187) further identifies several influences on credibility. • The degree of external and internal assurance. 2. and disclosure of time lags in updating various items online. 2007 . timing and amount of supporting information. or items enhancing website credibility. No. The disclosure index calculation is based on an adaptation of Camfferman and Cooke (2002. We completed a checklist for each of the 110 companies in our sample.e. Examples of timeliness checklist items include the use of webcasts to quickly disseminate information. USABILITY. including: • Management’s credibility. Additionally. Our usability checklist items are drawn from prior literature (see Table 1). IFAC 2003. Credibility checklist items associated with corporate governance include disclosure of governance details such as names and contact information for corporate directors. having scanned original signatures displayed on the audit report (as opposed to typed signatures) promotes credibility (Fisher et al. 2005) corporate governance (Jones 2002). as well as the usability guidelines of Loranger and Nielsen (2003). Jr. venue. Examples of usability items include easy to see and use navigation buttons. If an index item is disclosed on the website. financial analysts. general content and credibility items are scored as 1. hyperlinking from audited to unaudited information within an annual report lessens credibility of the information provided on the website. For example. displaying the audit firm logo with a hyperlink to the auditor’s website enhances credibility. and built-in search features. Examples of general content items include investor glossary. 186) defines disclosure credibility as ‘‘investors’ perceptions of the believability of a particular disclosure. • Various characteristics of the disclosure. The number of CIR comprehensiveness index items comprising the dependent measures COMPRE. our Credibility content items include those related to the timely presentation of information (see Mercer 2004. timely. otherwise. FAQs (frequently asked questions). Likewise. and 55.An Examination of the Comprehensiveness of Corporate Internet Reporting 13 by decomposing Content into two categories: General Content (19 items) and Credibility (55 items). GCONTENT. visibility and file format of the corresponding content or credibility is assessed. Ettredge et al. Usability Usability addresses the specifics of website design and refers to how easy is it to navigate the site and locate information (i. Mercer (2004. and display of the company’s code of ethics online. Fisher et al. and press releases. 69. Visibility is judged as good Journal of International Accounting Research. 2004).

Thus.e. being in the manufacturing industry is positively associated with at least two of our dependent measures. However. however. Disclosure Incorporated. 2. are more problematic. Last. director holding (DIRECTORHOLDING). Journal of International Accounting Research. Companies in the 10 PDF file format is coded as 0 on usability because this file format is the least flexible for users. This data can be easily downloaded and further analyzed without having to copy and paste or otherwise transform the data. each website was carefully reviewed a second time to ensure accuracy and consistency of the CIR comprehensiveness index scoring. the results are inconsistent across studies. director independence (INDEPENDENCE). When a content or credibility item is not located on the website. For example. While prior evidence indicates industry is an important explanatory variable. Bloomberg. Each dependent variable was calculated based on the ratio of the actual CIR comprehensiveness index score for the company to the maximum possible index score for that company (based on the number of applicable CIR comprehensiveness index items). Volume 6. including the London Stock Exchange website. which reflects the highest level of usability. Jones (2003) notes that although HTML content takes longer to prepare. files that can be downloaded into a spreadsheet or database) are scored as 0. respectively. otherwise. processable file formats such as Excel are coded as 2. Abdelsalem et al. Examination of the bivariate correlations demonstrates that in our study. Lexis-Nexis (i. The test variables include major shareholding (MAJORHOLDING). HTML files are coded as 1. Worldscope. CEO duality (DUALROLE). For example.14 Abdelsalam. Hoover’s Company In-depth Records. we include manufacturing industry as a control variable in our models. 1. Some variables such as company size are generally significant in prior literature. data contained in a PDF file is often impossible to copy and paste into a spreadsheet program for further analysis. and Street and scored as 1 if the item is either clearly noticeable on the website or easily located using site map or search facilities. No. the type of industry and direction of association is uncertain and appears to be driven by country-specific and/or exchangespecific factors. often depending on country and exchange studied. in their study of the association of corporate governance variables and voluntary disclosure. which is an improvement in usability over PDF files. File format is addressed by certain index usability items. Conversely. For these checklist items. HTML. and International Institutional Database).. it is more flexible for companies and their end users. a company is not penalized on usability when the corresponding content item is coded as NA. Control Variables The extant literature identifies several company-specific characteristics as relevant to the voluntary disclosure of financial information on the Internet. (2004) report a negative association between being in the manufacturing industry and CIR. and processable format files (i. visibility is scored as 0.e. Other variables. Based on this analysis. such as industry. and company annual reports. such as linking board committee charters to sections of the proxy statement that highlight committee activities rather than just policies and procedures. and number of analysts following the company (ANALYSTS).10 After the initial scoring. Manifest. any corresponding visibility item is considered not applicable and scored NA. and should be included in the model. PDF. and 2. Ho and Wong (2001) report a positive association for the control variable manufacturing industry.. Bryant. Companies can take advantage of HTML’s ability to easily link related web pages. Independent Variables Data for test and control variables were obtained from several sources. 2007 .

14 The model estimated for all four of our ordinary least squares regressions is (Equation (1)): DVi ´ 3 7 11 1 MAJORHOLDING 4 2 DIRECTORHOLDING 5 INDEPENDENCE ROA 8 DUALROLE 9 ANALYSTS ε ´ 6 MFG IND TOT ASSETS MKTCAP BV 12 13 14 The major findings in CIR related to industry reveal associations with manufacturing.An Examination of the Comprehensiveness of Corporate Internet Reporting 15 manufacturing industry (i. We attempted to develop additional measures of intangible asset holdings such as investment in advertising and research and development. and additionally via high-tech / new economy versus other. the relatively small number of sample observations in the two latter categories precludes valid statistical inference regarding these two industries. although the direction of the association is unclear as the findings are mixed. In our study. the dependent variable is a metric ratio and therefore can be legitimately transformed. Because our sample is not large enough to analyze along high. we were unable to obtain this information (as at the time of our study. we include size (natural logarithm of total assets). level of technology is captured by the control variable high growth/intangibles. However.. Other companies are coded as 0.11 Prior research also suggests an association between being in a technology-based industry (Xiao et al. disclosure of these items of information was not required within this institutional environment) for a significant number of our sample companies. they report a negative association between growth prospects and intangibles and CIR. 2004. This variable was introduced into the CIR literature by Debreceny et al. Total assets and ROA yielded the best-fitting models. Cooke (1998.13 We use a onetailed test for size and two-tailed tests for the other control variables. corporate strategy. and used in regression analysis. (2002). No. thus precluding analysis on these proxies. Their study did not find an association between level of CIR disclosure and high growth/intangibles for a sub-sample of low-growth/intangible companies. however. this control variable is measured utilizing a two-tailed test. Based on this analysis and prior literature. GCONTENT. for a sub-sample of high-growth/intangible companies. and two measures of industry (manufacturing industry versus other. These authors suggest that companies with high-growth prospects and high intangibles arising from factors such as technology. we perform ordinary least squares regression using rank transformation. high-growth prospects/intangibles is measured by the natural logarithm of the ratio of market-to-bookvalue. where necessary. and human resources will likely exhibit a high market-tobook-value ratio.e. Prior studies in CIR. In the current study. 211–212) notes that.and low-growth lines. 2007 . ‘‘In the case of disclosure studies. which are not consistently significant in prior literature. service. our study assesses industry via manufacturing versus nonmanufacturing. However. and technology industries. Examination of the bivariate correlations in our study between ROA and the dependent measures reveals a correlation between ROA and at least one dependent measure. profitability (Return of Assets [ROA]). Volume 6. and high growth/intangibles) as control variables. first-digit-SIC code 2 or 3) are coded as 1. Incorporating this variable in the current study captures the technology / service dimension incorporated in prior studies. use MKTCAP BV (market capitalization to book value) to assess high growth and intangibles. Thus.’’ Journal of International Accounting Research. 2. 2002) and level of CIR. Debreceny et al. Regression Models To test our hypotheses. In the current study.12 Profitability has also been found to be a significant predictor of Internet disclosure (see Table 1). We performed sensitivity analysis to determine which measures of size and profitability to include in our reported models. We omit other variables such as leverage.

On average. However. focusing specifically on USABILITY and each of the two content categories. thereby highlighting the opportunity for further improvement in CIR practices. RESULTS CIR Comprehensiveness Index—Descriptive Results Descriptive statistics for the test and control variables are provided in Table 2. 0 otherwise. percent of stock held by directors.-domiciled companies.83. nonexecutive).S. On average. about one-third of the companies’ stock is held by major shareholders. Panel A of Table 2 represents a scorecard of CIR comprehensiveness. Overall CIR comprehensiveness in each of the three areas assessed by the dependent variables is summarized in Table 2. Companies fare somewhat worse on USABILITY where. Volume 6. No. percent of stock held by major shareholders (those owning more than five percent of the company stock). COMPRE has a minimum of 44 percent and a maximum of 86 percent.S. are presented in Table 3 (Panel A). proportion of independent. nonexecutive to total directors. This finding represents notable improvement in comparison to Craven and Marston’s (1999) analysis of CIR by U. The CEO also serves as Chairman of Board of Directors for approximately onequarter of the companies. including the control variables. measured by total assets. companies score only 58 percent on CREDIBILITY. On average.e. On average. none of the sample companies provided/satisfied 100 percent of the 143 index items applicable to that company. return on assets. natural logarithm of total assets in U. one for each of the four main dependent variables (COMPRE. 1 if Chairman of Board is also CEO. where they provide 79 percent of the items. number of analysts following a company. Bivariate correlations between all variables. Our final regression model includes nine independent variables (five test and four control variables). A review of the tolerance and variance inflation factor statistics Journal of International Accounting Research. and natural logarithm of the ratio of market to book value. GCONTENT. the companies perform best on GCONTENT. Accordingly. USABILITY. with a mean of 66 percent and a standard deviation of .. Average (mean) company size. ROA is on average 3. dollars. V. 2. and an average of 13 analysts follow each company. Furthermore. they satisfy 70 percent of the items. 1 if company in manufacturing industry. on average. and CREDIBILITY). otherwise 0. there is considerable variation for GCONTENT. OLS Regression Robustness Tests For the multivariate analyses. Some additional insight is achieved by examining scores for the dependent variables. four regressions were estimated.K.16 where: DVi MAJORHOLDING DIRECTORHOLDING INDEPENDENCE DUALROLE ANALYSTS MFG IND ROA TOT ASSETS MKTCAP BV Abdelsalam. Bryant. dollars.1 billion U. is 26. while directors own about six percent of the stock. and Street percent of applicable comprehensiveness index items supplied/ satisfied for each of four dependent measures. about 40 percent of the members of the board of directors are independent (i. Approximately one quarter of companies are in the manufacturing industry.088. 2007 .

and are thus acceptable. (1992). 0 0 0 0 32. Journal of International Accounting Research.149 0. 2007 .04 11.79 0.44 60 92.67 (19. No.28 (9. 409). following Cheng et al.38) 26.72) MKTCAP BV is negative for companies with negative book value.69 (11.86 1. variance inflation factors (VIF) above 10 indicate serious multicollinearity and ‘‘result. Diagnostics included Q-Q normality plots.074) 3. we performed regression diagnostics to determine if the assumptions of normality and equal variances were met for all dependent variables.15 Prior to estimating the OLS regression models.61 (12.76 1. Dev. n (Untransformed) Panel A: Dependent Variables Dependent Variables COMPRE (143 items) Percent of relevant content and usability items provided or satisfied GCONTENT (19 items) Percent of relevant general content items provided CREDIBILITY (55 items) Percent of relevant content items relating to credibility provided USABILITY (69 items) Percent of relevant usability items satisfied Panel B: Independent Variables Categorical Variables DUALROLE MFG IND (control) Continuous Variables MAJORHOLDING DIRECTORHOLDING INDEPENDENCE ANALYSTS ROA (control) TOT ASSETS (in millions) (control) MKTCAP BV (control) a 110 Min.19) 42.094 Frequency 29 25 Min.66 0.53 Max. and the Kolmogorov-Smirnov Z-test with Lilliefors correction for each independent and dependent variable. examination of histograms of all dependent variables. 0.31 0.An Examination of the Comprehensiveness of Corporate Internet Reporting 17 TABLE 2 CIR Comprehensiveness Index Descriptive Statistics. The Kolmogorov-Smirnov Z-test with Lilliefors correction for each independent and dependent variable indicated that some of the corporate governance independent variables are not normally distributed. in larger differences between the estimated and true standardized regression coefficients. scatter plots of residuals against the predicted values.25 Percent 26. Dev. thus. on the average.030.80 0.79) 5.58 0.’’ Such multicollinearity is problematic because it leads to unstable coefficients.44 0. we examine the tolerance levels to determine whether they are acceptable.70 Std.14a Max.00 0.724 12. (1989.097 0.) 30. Lang and Lundholm 15 According to Neter et al. Additionally.04) 13. Panel B). 92. Tolerance levels are all above .4 22.088 0.25 0. provides no evidence of pro significant multicollinearity in the regression model (Table 3.66) 3. 0.77 (19.000 130. The highest VIF in our models is 2.89 Mean 0.30 49 32.152 (108.7 Mean (Std.83 (7.20.524. 2. 0. Volume 6.

413 .079 1 Panel B: Collinearity Diagnostics Variable MAJORHOLDING DIRECTORHOLDING INDEPENDENCE DUAL ROLE ANALYSTS MFG IND ROA TOT ASSETS MKTCAP BV a b Tolerance .037 1 .124 Abdelsalam.099 .428 .396 .575 .043 1 .342 . Volume 6.075 1 .750 .Journal of International Accounting Research.069 .181 1 .762 1. No.823 .096 . two-tailed.099 1 .020 . Bryant.345 1.026 .05.130 .246 .276 .943 .230 .399 .058 .225 .003 .449 .359 1.267 .201 .323 .225 .133 .609 .059 1 .150 .514 .351 .389 . 2007 18 TABLE 3 Pearson Correlations and Collinearity Diagnostics for Dependent and Independent Variablesa Panel A: Correlations 1 1 2 3 4 5 6 7 8 9 10 11 12 13 COMPRE GCONTENT USABILITY CREDIBILITY DUALROLE MFG IND INDEPENDENCE DIRECTORHOLDING MAJORHOLDING ANALYSTS ROA TOT ASSETS MKTCAP BV 1 .438 .424 .429 . and Street Correlation matrix and collinearity diagnostics are performed on transformed variables (e.231 1 .109 .391 .083 .785b .533 .505 .524 1.469 .144 .874 . 2..223 .012 .372 .796 .093 .10 1 .g.333 .075 . Bold indicates coefficient is significant at .257 2.137 1.270 .359 .726 .446 .132 .071 .078 .349 .384 .417 .135 .906 .890 VIF 1.204 1.123 .266 .902 .216 .136 . ranks).738 .887 1.414 .174 .090 1 .622 .059 2 3 4 5 6 7 8 9 10 11 12 13 1 .023 1 .193 .273 . .

e. nonexecutive directors on the board and the level of voluntary disclosure. Specifically. Volume 6. 1996). utilizing both normal scores regression and rank regression. the continuous independent and dependent variables were transformed into ranks before running the regression analysis. The coefficient on the residual was not statistically significant from zero. Full OLS Regression Model The OLS regression results for all models are shown in Table 4. and is useful when the relationship between the dependent and independent variables is not strictly linear and there is no theoretical basis for suggesting a relationship between the dependent and independent variables (Cooke 1998).000 using both normal scores regression and rank regression. 1992).025).039). No. to an important subset of voluntary disclosure—CIR. we find a significant negative association between director .An Examination of the Comprehensiveness of Corporate Internet Reporting 19 (1993. outliers and residual heteroscedasticity on regression results.079). provides results similar to those derived from ordinal transformation. We. the following discussion refers to the rank-regression results. specifically. within the context of smaller. correlated with the error term ) in Equation (1). A common approach to test for endogeneity is to perform the Hausman (1978) test. Hypothesis 2 predicts that CIR is significantly associated with the governance features of director independence and CEO duality. director ownership is significantly negatively associated with the level of voluntary disclosure. Hypothesis 1 predicts that ownership structure is significantly associated with CIR comprehensiveness. 2. we cannot reject the null. ordinary least squares (OLS) will not provide consistent parameter estimates.069) and significant positive association is supported for CIR comprehensiveness (p . along with the exogenous variables. thus failing to reject the null hypothesis of exogeneity. 1992. Both of these studies indicate that. If ANALYSTS is endogenous (i.. general content (p . Both normal scores and rank transformation are acceptable approaches to dealing with nonnormal or heteroscedastic data. as well as the general content. Our findings extend this association to a larger. Cheng et al. a . highly developed market and. however. as both studies support a complementary relationship between the proportion of independent. Wallace and Naser (1995).17 We also investigated whether analyst following should be modelled as an endogenous variable. credibility. therefore. We do not find a significant association between director holding and credibility. For hypothesis 1. however. With respect to major shareholding (H1a) for all four dependent variables. we find no evidence that level of CIR disclosure is associated with major shareholding for London-listed companies. 2007 . is insensitive to outliers (Gray et al. and Cooke (1998). Thus. and holding (H1b) and CIR comprehensiveness (p usability (p . mitigates the impact of measurement errors. and usability of information reported on corporate websites. With regard to director independence (H2a). All four regression models are significant at p . we conclude that analyst following is not endogenous to any of our measures of CIR. Our findings are thus consistent with those of Eng and Mak (2003) and Ghazali and Weetman (2006). Unless otherwise noted.16 We also computed normal score transformations as a supplemental analysis. Journal of International Accounting Research. ‘‘In effect. This finding is consistent with Adams and Hossain (1998) general content (p and Chen and Jaggi (2000).’’ The two analyses typically yield similar results. 214) notes that. we regress each of our dependent measures on the residuals of a first-stage regression. emerging markets. 1998. Wallace et al 1994).083). find no evidence of a significant difference between director 16 17 Rank transformation is useful in some cases because it yields distribution-free data (Cheng et al. the ranks are being substituted by scores on the normal distribution and so the normal scores approach may be considered to represent an extension of the rank method. Cooke (1998.

064 .188 .131 — — — .025 .001 .255 — — — .134 . 2007 20 TABLE 4 Determinants of CIR Comprehensiveness Results of OLS Regression.025 . Full and Reduced Models.478 .172 .347 10.169 4.332 9.223 .032 .326 11.380 .064 .337 10.439 .130 — — — .570 (.004 .000 .136 5.000) 34.030 .344 .078 .675 .025 . Volume 6.0005 .146 .069 .367 .185 .069 .032 .000) 110 Predicted Sign* Panel A: Dependent Variable—COMPRE Intercept MAJORHOLDING (H1a) DIRECTORHOLDING (H1b) INDEPENDENCE (H2a) DUALROLE (H2b) ANALYSTS (H3) MFG IND (Control) ROA (Control) TOT ASSETS (Control) MKTCAP BV (Control) Adjusted R2 F-Ratio Reduced Model Normal Scores Ranks Coefficient Coefficient p-value p-value Estimate Estimate .015 .345 (.199 . n Full Model Normal Scores Ranks Coefficient Coefficient p-value p-value Estimate Estimate .350 7.002 .16 — — — .159 . No.317 . and Street (continued on next page) .212 .344 .150 .028 .000) / / / Abdelsalam.003 .463 .008 .162 (.358 7.240 .750 .104 .940 .802 .083 .068 .129 .331 . 2.698 .430 .296 .179 .186 .008 .318 .007 .298 .Journal of International Accounting Research.143 .000) 41.561 (.028 .000 . Bryant.

An Examination of the Comprehensiveness of Corporate Internet Reporting TABLE 4 (continued) Panel B: Dependent Variable—GCONTENT Intercept MAJORHOLDING (H1a) DIRECTORHOLDING (H1b) INDEPENDENCE (H2a) DUALROLE (H2b) ANALYSTS (H3) MFG IND (Control) ROA (Control) TOT ASSETS (Control) MKTCAP BV (Control) Adjusted R2 F-Ratio .091 .244 .581 .188 .153 .05 — — — .048 .186 .057 .171 .105 .147 .168 .320 .355 — — — .090 .223 .075 .198 .070 .025 .484 .293 . Volume 6.934 (.018 .157 12.051 (.000) Journal of International Accounting Research.304 (.000 .741 .819 (.085 .494 — — — .353 .108 .014 .099 .311 .011 .000) .000) 51.179 .911 .039 .290 5.225 .000 .551 .049 .132 .214 .017 .147 16. No.020 .000) 57.071 .069 — — — . 2007 / / / (continued on next page) 21 .101 .191 6.025 .005 .090 .032 .189 .202 6.199 .144 .228 6.256 5.151 .123 .05 .322 .278 7.006 .242 .152 . 2.139 .192 .

056 .151 .227 .168 .166 — — — .741 .054 .012 .288 — — — .000 .008 .0005 .295 . No.004 .044 .896 (.402 — — — .160 . 2007 22 TABLE 4 (continued) Full Model Normal Scores Ranks Coefficient Coefficient p-value p-value Estimate Estimate .226 4.332 .008 .021 .202 .170 .022 .395 .225 .099 .471 .177 .938 .459 .006 .996 .409 .095 2.000) Reduced Model Normal Scores Ranks Coefficient Coefficient p-value p-value Estimate Estimate .413 .001 . 2.026 .000) Predicted Sign* Panel C: Dependent Variable—USABILITY Intercept MAJORHOLDING (H1a) DIRECTORHOLDING (H1b) INDEPENDENCE (H2a) DUALROLE (H2b) ANALYSTS (H3) MFG IND (Control) ROA (Control) TOT ASSETS (Control) MKTCAP BV (Control) Adjusted R2 F-Ratio / / / Abdelsalam.441 .430 (.000) 41.447 .0005 .813 .084 1.029 .001 .079 .466 .226 4.001 .283 .429 .072 .784 .014 .157 .Journal of International Accounting Research.375 8.001 .375 .044 . Bryant.080 .202 .195 .214 5. and Street (continued on next page) .797 (.020 — — — .488 .269 . Volume 6.000) 49.443 (.017 .030 .210 5.328 7.420 .361 .

251 7.141 13.372 .026 . DUALROLE 1 if Chairman of the Board is also the CEO.234 . else 0.229 6.023 .S.749 .018 .094 .004 .000) . 2.058 .152 .005 .368 — — — .184 .091 .075 .656 (. DIRECTORHOLDING percent of stock held by directors.069 .187 . TOT ASSETS natural logarithm of total assets in U.739 .271 . No.084 .208 .038 (.573 .443 .757 (.000) Journal of International Accounting Research.0015 . MAJORHOLDING percent of stock held by major shareholders.024 .405 — — — .000) 42.172 .029 . Model: DVi ´ 1MAJORHOLDING 2DIRECTORHOLDING 3INDEPENDENCE 4DUALROLE 5 ANALYSTS 6MFG IND ε. INDEPENDENCE percent of stock held by outsiders.999 (.099 17.479 . ´ 8TOT ASSETS 9 MKTCAP BV Variable Definitions: DVi percent of applicable comprehensiveness index items supplied / satisfied for each of four dependent measures.015 .822 .189 .064 .092 . 2007 / / / * The p-values are one-tailed when a sign expectation is provided.283 5.390 .000 .963 .242 6.277 . ROA net income / total assets. 7 ROA 23 . Volume 6.859 .051 .153 .008 .072 .033 .189 .280 — — — .229 .253 4.293 .030 .An Examination of the Comprehensiveness of Corporate Internet Reporting TABLE 4 (continued) Panel D: Dependent Variable—CREDIBILITY Intercept MAJORHOLDING (H1a) DIRECTORHOLDING (H1b) INDEPENDENCE (H2a) DUALROLE (H2b) ANALYSTS (H3) MFG IND (Control) ROA (Control) TOT ASSETS (Control) MKTCAP BV (Control) Adjusted R2 F-Ratio .084 .335 .351 .124 .169 . MFG IND 1 if company in manufacturing industry.297 5.191 .000) 19.761 .023 .209 — — — . and MKTCAP BV natural logarithm of the ratio of market to book value.024 . dollars.237 .017 . ANALYSTS number of analysts following a company.015 .534 .022 .

099. Bryant. Both the normal scores regression and rank scores regression provide evidence of a positive association between size (total assets) and CIR credibility (p .K.K.-domiciled firms.K. the small sample size for the non-U.10. general content (p . This is evidenced by the fact that the adjusted R2s drop sharply in this sub-sample in all regressions. Given the prohibition on selective disclosure.K. Using normal scores.091 and . and non-U. developed market and specifically to CIR. A significant negative association with dual role (H2b) is supported only for the cred.014. we find evidence of a positive association between CIR and being in the manufacturing industry. and furthermore provide support for the argument that research should disaggregate the dimensions of CIR.-domiciled.080 and .24 Abdelsalam. We also find a negative significant relationship between high growth/intangibles and CIR.K. No. for general content (p respectively).30) firms and re-ran all regressions. For our control variables.078 and . results utilizing normal scores regression are also reported in Table 4.001). while the dual role variable is insignificant in the ibility model (p other three models.004). the association between director holding and CIR comprehensiveness and CIR usability is significant at p . the findings are highly similar. Again. Interestingly. (2002).069.020 CIR comprehensiveness (p and . This finding confirms that prior research should disaggregate the dimensions of CIR. respectively) and usability (p .032 and . Similar results are obtained for all other variations in our models. Thus. we added an indicator variable (1 U.K. while low-growth/intangibles companies perform better. and Street independence and usability or credibility. respectively) and manufacturing industry.002).K. Volume 6.K. Additionally. we extend prior findings regarding director independence and dual role to hold for a large. the association is significant . we split the sample between U.-domiciled) to further test whether country of domicile Journal of International Accounting Research. Specifically. 2. our findings are consistent with prior research providing evidence that the number of analysts following a company is positively associated with the level of disclosure (Hope 2003. respectively). 2005). While the U. As a form of sensitivity analysis. consistent with Debreceny et al. This finding is consistent with Gul and Leung’s (2004) results indicating that duality is associated with lower voluntary disclosure. we find a significant positive association between the number of analysts following the company and CIR comprehensiveness (p . it is highly significant in the credibility model. we investigate whether the results hold for both U. utilizing normal scores regression. Our findings provide evidence supporting hypothesis 3 for all four models.-domiciled firms leads to an over-fitted model without statistical integrity. Using both normal scores regression and rank regression. we provide additional evidence that the volatile environment of high growth/intangibles companies contributes to lower performance in CIR. usability (p . (2004). Hence. contrary to Abdelsalam et al. and we extend this finding to hold in particular for CIR.-domiciled sample domiciled (n retains statistical power and integrity. 0 non-U. Cahan et al. 2007 . First. we additionally provide marginal evidence of a positive association between CIR credibility and director independence (p . This indicates that high-growth/intangibles companies perform lower on these dimensions.099).094). As noted above. and credibility (p . (n 80) and non-U. As a final sensitivity test. this finding is of particular relevance within the institutional setting of the London Exchange. Profitability (ROA) is not significant in any model. Second.023).05 as opposed to p .085. with one exception. respectively) and general content (p .017. Both normal regression scores and rank regression scores yield a positive and significant association for .

570 and . Journal of International Accounting Research. This enhances both investor protection and market efficiency.K. and is described in more detail in Pindyck and Rubinfeld (1981. we devoted substantial effort to collect the variable ‘‘number of shareholders. VI. As expected. which was significant in two of the four regression models. Volume 6. Therefore. although the variance inflation factors do not approach the problematic range. analyst following becomes even more significant. Thus. results across independent variables are similar for the normal scores regression and the rank scores.075). Cognizant of the limitations of today’s financial reporting. however. (European Union 2004. the size variable does have the highest variance inflation factor (2. major holding is again insignificant using normal scores regression. the timeliness of information dissemination. The results are similar to the full model. we conclude there is very little evidence to support an association between ownership diffusion and CIR (H1a) within the context of the London Exchange. as it was not significant in any of the full models. as well as additional variables we selected based on evidence from the correlation matrix. this information was only available for 61 sample companies. we find no evidence of a domicile effect. major holding is marginally significant .An Examination of the Comprehensiveness of Corporate Internet Reporting 25 appeared to be a significant variable. in Directive 2004/109/EC.622 with analyst following. comprehensive and timely information about security issuers builds sustained investor confidence and allows an informed assessment of their business performance and assets. The reduced model regressions are all significant (p . We reran our full model for these 61 companies and added the variable number of shareholders.18 Supplemental Analysis—Reduced OLS Regression Model We also report a reduced model based on the variables found to be significant in the full regression model. In line with the full model. 2. to enhance. We do not include the size variable in the reduced regression. DISCUSSION The findings reveal that despite recent regulatory pressure in the U. Profitability was also dropped from the reduced model. For example.283 for USABILITY. 38) (emphasis added) 18 As a form of sensitivity analysis. noting: The disclosure of accurate. the European Parliament addresses the transparency of information disclosed to investors. The correlation matrix reveals that size is correlated at . we estimate the reduced models without the size variable. however. Additionally. in our reduced model. We highlight one exception—our reduced model provides some evidence supporting H1a. we did not find evidence of an association between major holding and CIR for any of the four models. London-listed companies still have significant deficiencies in CIR and are not heeding Jones’ (2002) advice for enhancing the quality of their investor communication and the completeness of their CIR. 117–120).347 for COMPRE to 5. This variable was insignificant in all variations of our models. without the size variable. inter alia.524) and lowest tolerance (.10 for any of the four dependent variables. No. Using our full model. This method is utilized by Haniffa and Cooke (2002) in their study of corporate governance and voluntary disclosure. major international organizations including the EC and IFAC have expressed concerns and issued recommendations in regard to both hard copy and CIR reporting.000). with F-ratios and adjusted R2s ranging from 10.656 and . as it is only significant in one of the four full-model regressions (CREDIBILITY). we find some for the general content model in the rank regression (p evidence that ownership dispersion is positively associated with CIR general content. 2007 . therefore.’’ However. Number of shareholders was not significant at p . and as in the full model. The reduced regression model contains all of the five test variables in the full model and the manufacturing industry control variable. Thus.396).

We find that in this new regulatory environment.26 Abdelsalam. For example. Our study provides several examples of poor CIR performance for London-listed companies in these key areas highlighted by IFAC. if they are to achieve a level of online disclosure comparable to that required of U. government is proposing that Company Law be modified to further promote timely reporting by requiring companies to make their financial results available online within four months of the reporting date (DTI 2002). companies listed on the New York Stock Exchange (NYSE) or National Association of Securities Dealers Automated Quotations (NASDAQ). how to differentiate audited and nonaudited financial information and the frequency of updating financial information. more regulation may be forthcoming.e. One of the most critical issues raised in IFAC’s strategic plan is the need to enhance the credibility of financial reporting worldwide (Colman 2004). our findings may prompt U.S. usability. among other things. Regulation may be necessary to achieve this goal.-listed companies must more seriously consider widespread impressions regarding the low credibility of financial reporting and take voluntary action to enhance the credibility of hard copy financial information and the information reported on their corporate websites. including its timeliness dimension. No.g. comprehensiveness. Our research.K. the Securities and Exchange Commission (SEC) requires significant corporate governance disclosures for U. Furthermore.. and verifiability/credibility) are incorporated in their CIR reporting. companies listed on the NYSE or NASDAQ are required to post corporate governance guidelines and charters for the most important board of director committees (e. For example.S. both analyst following and corporate governance disclosures are associated with CIR. therefore. Focusing specifically on CIR. Thus. Volume 6. IFAC (2003) recommends that companies develop a policy to address. and U. companies listed on the NYSE or NASDAQ. Specifically. profitability. Bryant.K. audit committee. Financial Services authorities and have a long way to go with respect to enhancing both their online usability and credibility disclosures. IFAC (2003) notes that globalization of markets continues to be a major factor both for goods and services and for the provision of capital needs. Additionally. such as timeliness and corporate governance requirements. compensation committee.S. Thus. and industry assessed via both manufacturing versus other industries and high growth/intangibles. there are no apparent requirements for the disclosure of corporate governance information. While Directive 2004/109/EC spells out requirements for improving the quality of online disclosures.S. credible information. and nominating/corporate governance committees) online (Matheson and Reynolds 2004). reveals that London-listed companies have room for improvement with regard to improving their online credibility disclosures. Securities offerings are no longer limited to an entity’s home country. the U. company listed on one of these exchanges must disclose whether it has adopted a code of ethics for its principle officers. After controlling for size.K. 2007 . but are frequently offered in multiple jurisdictions. In contrast. 2. many London-listed companies clearly have not implemented policies to ensure that the drivers of quality investor communication (i.K. U. we find the CIR comprehensiveness of London-listed companies is associated with Journal of International Accounting Research. Our research reveals that many London-listed companies are ignoring the views of IFAC. and Street Our study reveals that many companies listed on the EU’s largest exchange are falling short of Parliament’s expectations in regard to comprehensiveness. any such code must be made publicly available on the company’s website.. our findings indicate that U. a U. regulators to specify the means by which London-listed companies are to disclose transparent. the EC. Alternatively.

K. primarily developing. Financial Services Authority should consider additional action to enhance not only the timeliness but other components of the credibility of financial and other information disclosed to investors. and CEO duality. the current study provides a contribution to understanding disclosures of companies traded on the London Stock Exchange. No. the relatively small number of observations from certain industries precludes testing for a finer industry effect.K. such as number of shareholders and research and development expenditures. the results may not generalize to smaller companies listed on the exchange. Accordingly. as opposed to simply recommending. while our study captures both manufacturing versus other. VII. the U. By disaggregating total CIR disclosure into three components. CIR is an important area of study. director holding. Our study provides a springboard for future research in the area of CIR. and EU sources and to therefore be among the top CIR performers within this institutional environment. 2007 . Journal of International Accounting Research. timely information via the Internet and other outlets.An Examination of the Comprehensiveness of Corporate Internet Reporting 27 analyst following. highly developed market—the London Exchange. Prior work in this area has focused on voluntary disclosure in general. one would expect companies from the top quartile of the London Exchange to be the most receptive to regulatory pressure from U. As the information age is evolving daily. 2. we are able to also specify the components of CIR impacted by various determinants. and is especially relevant given recent changes in the institutional environment in which London-listed companies operate. director independence. We additionally extend the emerging literature linking governance factors and voluntary disclosure to specifically address CIR disclosure within the institutional environment of a large. the disclosure of credible. The more we know about why and how companies disclose information on their websites. The sample of 110 companies was selected randomly from the top quartile of companies listed on the London Stock Exchange website because the time required to hand-collect data for the dependent variable made study of a larger. including credibility and usability. Furthermore. the less agency and information transfer costs investors and other users will bear. Our findings suggest that the EU should consider requiring. For many of the sample companies. markets. CONCLUSION This study provides practical insight into the comprehensiveness of disclosures by London-listed companies and highlights the need for improvement in CIR comprehensiveness in many areas. Volume 6. Additionally. however. data were not available for certain variables that might have proven interesting. Despite these limitations. as well as high-technology influences. Our research suffers from some limitations. and the samples have been pulled from smaller. more diverse sample impracticable.

K. Netherlands U. Sweden Republic of Ireland U.& J) Group Bloomsbury Publishing Autonomy Corp ITE Group Ted Baker SSI Countryside Properties HSBC Hldgs NTT Docomo Inc Schlumberger BHP Billiton Limited Electrolux AB British Sky Broadcasting Group Cadbury Schweppes 110 Country of Domicile U.K. U. U. U. 2007 28 APPENDIX Sample Companies. U. Japan Netherland Antilles Australia Sweden U.A.K. Company Name TBI Shaftesbury Candover Investments Regal Petroleum Northgate Information Whatman Securities Trust of Scotland Kier Group Enterprise Unite Group SOCO International Cox Insurance Hldgs Mucklow (A.A Lilly(Eli) & Co Lukoil OAO BASF AG Caterpillar Inc Centrica Koninklijke KPN NV Morrison (Wm.K. 2. Bermuda U. Greece Greece U. U. Japan U.K.K.S. South Africa U.K. n Panel A: Sample Companies and Country of Domicile Company Name Total S. Company Name TPG NV Wolseley Xstrata PLC Daiwa Securities Group Torchmark Corp Esprit Hldgs AMVESCAP Royal Sun & Alliance Tomkins Tate & Lyle Kesa Electricals SKF Independent News & Media Pennon Group HMV Group Matalan RIT Capital Partners Konami Corp Northumbrian Water Group PLC Benfield Group Espirito Santo Financial Group Hiscox Great Portland Estates Westbury Jurys Doyle Hotel Group Abdelsalam. U. U. and Street (continued on next page) . U. U.K.K.K.K. U. U.K. Bermuda Luxembourg U. U.K. U. U.K.K.K.K. Netherlands U. U.S. Russia Germany U.K.K.Journal of International Accounting Research.K.K. U. U. U. U.K.K. U. U. U.A.K.K. U.K.K. India U. Volume 6. U.K. U. U.K. U. U.K.K.A. U. Japan U.K. U.K.K.K.K.S.K. U.K.K. U. Country of Domicile U.K.K.K.K.K. U. U. U.K.K. U. U. U. U. No. Netherlands Canada U.K.K.K.) Supermarkets AEGON NV INCO Alliance Unichem Hammerson EMAP Burberry Group Rank Group Persimmon Cobham BBA Group Liberty Group Meggitt MFI Furniture Group Premier Farnell Atkins (WS) OTE Cosmote Mobile VT Group Crest Nicholson Country of Domicile France U.K. U. Bryant.K.K.K.

Israel U.K. U.K. India. Dairy Farm Bradford & Bingley United Business Media Invensys Somerfield Wood Group Avis-Europe Stanley Leisure Acambis House of Frasers Melrose U. U.K. Egypt. Germany. Netherlands Antilles. 2007 Panel B: Frequency Counts of Country of Domicile Country U.K.K.K.K.K. U. U.K.S. Israel Number of Companies Domiciled 80 3 3 each 2 each 1 each 29 .K. U.K. Journal of International Accounting Research. U. Amstrad Aviva Sabmiller ITV Old Mutual Cable & Wireless Friends Provident Kelda BPB Bank Hapolalim Signet U. Bermuda South Africa.K. U.K. Russia. U.K.K. U. U.K. Netherlands. U. Bermuda U. South Africa U.K. Luxemburg. Sweden. Volume 6.K. U.K. Greece.K. Australia. U. Japan. U. Canada. 2.K.K.K. No. U. U. U. U.K.K. U. Republic of Ireland France. U. U. U.K.K.K.An Examination of the Comprehensiveness of Corporate Internet Reporting APPENDIX (continued) Orascom Constructions Industry Second Alliance Trust Yule Catto & Co Merrill Lynch European Invest Scottish Radio Hldgs African Rainbow Minerals Pipex Communications Speedy Hire Robert Wiseman Dairies London Scottish Bank Republic of Ireland Egypt U.A.

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