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Financial Reporting, Private Disclosure and the Corporate Governance Role of Financial Institutions

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  • John Holland

Abstract

This paper explores how large UK financial institutions (FIs) pursued a private corporate governance agenda with their portfolio companies. It also investigates the role of financial reporting in private and public corporate governance. The case financial institutions argued that the limited quality of public information, especially in financial reports, was a major constraint on their ability to act in fund management and corporate governance roles. However, the financial reporting cycle determined a private institutional and company meeting cycle and this created opportunities for private information collection and for governance influence by FIs. In addition, the perceived limitations of public governance mechanisms such as voting encouraged private governance approaches. As a result, the case financial institutions had the incentive and the means to improve the quality of their sources of corporate information and to obtain a competitive edge over other financial institutions and the market through their direct contact with companies. Despite the limitations of public information, the paper reveals how public disclosure in financial statements and the financial reporting cycle played a central role in corporate governance. Public sources of information were combined with private sources to create a financial institutional knowledge advantage. The institutions used this knowledge to diagnose problem areas in strategy, management quality, and the effectiveness of the board, and their impact on financial performance. The financial reporting cycle meant that the quasi insider financial institution had the access opportunity and the joint public/private insight to influence companies across a wide corporate governance agenda and in a range of corporate circumstances. The case institutions exploited these private access and knowledge advantages for investment purposes and for Cadbury style corporate governance purposes. Thus, the private governance process was critically dependent on the FI knowledge advantage, which in turn relied on both financial reports and private disclosure. This wide ranging governance behaviour by institutions corresponds to recommendations subsequently made by the Hampel report in 1998 concerning UK corporate governance. The paper ends by exploring how the private institutional and company meeting agenda can suggest new directions for financial reporting and public disclosure and how this can further improve public and private corporate governance. Copyright Kluwer Academic Publishers 1999

Suggested Citation

  • John Holland, 1999. "Financial Reporting, Private Disclosure and the Corporate Governance Role of Financial Institutions," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 3(2), pages 161-187, June.
    • Handle: RePEc:kap:jmgtgv:v:3:y:1999:i:2:p:161-187
    DOI: 10.1023/A:1009991609633
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    References listed on IDEAS

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    1. John Holland, 1996. "Corporate and institutional control over the dissemination of price sensitive information," The European Journal of Finance, Taylor & Francis Journals, vol. 2(1), pages 77-102.
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    Citations

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    Cited by:

    1. Regina Michalski-Karl & Silvia Pernsteiner & Michaela Schaffhauser-Linzatti, 2009. "Signaling Public Private Partnership Activities: Reporting Behavior Within Annual Reports," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 15(2), pages 178-185, May.
    2. Noel O'Sullivan, 2000. "The Determinants of Non-Executive Representation on the Boards of Large UK Companies," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 4(4), pages 283-297, December.
    3. repec:kap:iaecre:v:15:y:2009:i:2:p:178-185 is not listed on IDEAS
    4. Zhang, Linhan & Tang, Qingliang & Huang, Robin Hui, 2021. "Mind the Gap: Is Water Disclosure a Missing Component of Corporate Social Responsibility?," The British Accounting Review, Elsevier, vol. 53(1).
    5. Claudia GRIGORAS-ICHIM, 2016. "Considerations Regarding History Of Interim Financial Reporting," EcoForum, "Stefan cel Mare" University of Suceava, Romania, Faculty of Economics and Public Administration - Economy, Business Administration and Tourism Department., vol. 5(Special I), pages 1-23, august.
    6. Ahmed Abdel-Meguid & Anwer Ahmed & Scott Duellman, 2013. "Auditor independence, corporate governance and aggressive financial reporting: an empirical analysis," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 17(2), pages 283-307, May.
    7. Gunawan, Hendra & Haming, Murdifin & Zakaria, Junaiddin & Djamareng, Asdar & Jamali, Hisnol, 2017. "Effect of Organizational Commitment, Competence and Good Governance on Employees Performance and Quality Asset Management," INA-Rxiv 5jmgu, Center for Open Science.
    8. Jiangyuan Wang & Guangqiang Liu & Qisong Xiong, 2020. "Institutional investors’ information seeking and stock price crash risk: nonlinear relationship based on management’s opportunistic behaviour," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(5), pages 4621-4649, December.

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