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Board ownership, audit committees' effectiveness and corporate voluntary disclosures

Author

Listed:
  • M. Akhtaruddin
  • Hasnah Haron

Abstract

Purpose - The aim of this paper is to examine the linkages between board ownership, audit committees' effectiveness in terms of the proportion of independent non-executive directors (INED) and expert members on the audit committee and corporate voluntary disclosures. Design/methodology/approach - The paper is based on a sample of 124 public listed companies in Malaysia for studying differences in corporate governance characteristics which affect the financial disclosure. Findings - The empirical results indicate that that board ownership is associated with lower levels of voluntary disclosures. The result is consistent with the notion that board ownership increases agency costs resulting from information asymmetry between firm management and outsider investors. The negative relationship between board ownership and corporate voluntary disclosure is, however, weaker for firms with higher proportion of INED on the audit committee indicating that INED moderate board ownership/corporate voluntary disclosure relationship. Overall, the findings lend support for firms with a higher level of board ownership to include more independent directors on the audit committee to increase disclosure levels and reduce information asymmetry between firm management and investors. Originality/value - This paper demonstrates the usefulness of corporate governance factors mainly board ownership and effective audit committee on financial reporting practices. It is expected that this research will have important policy implication to reduce information asymmetry and improves corporate governance.

Suggested Citation

  • M. Akhtaruddin & Hasnah Haron, 2010. "Board ownership, audit committees' effectiveness and corporate voluntary disclosures," Asian Review of Accounting, Emerald Group Publishing, vol. 18(1), pages 68-82, May.
  • Handle: RePEc:eme:arapps:v:18:y:2010:i:1:p:68-82
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    References listed on IDEAS

    as
    1. Eng, L. L. & Mak, Y. T., 2003. "Corporate governance and voluntary disclosure," Journal of Accounting and Public Policy, Elsevier, vol. 22(4), pages 325-345.
    2. repec:hrv:faseco:30728046 is not listed on IDEAS
    3. Collier, Paul & Gregory, Alan, 1999. "Audit committee activity and agency costs," Journal of Accounting and Public Policy, Elsevier, vol. 18(4-5), pages 311-332.
    4. Nagar, Venky & Nanda, Dhananjay & Wysocki, Peter, 2003. "Discretionary disclosure and stock-based incentives," Journal of Accounting and Economics, Elsevier, vol. 34(1-3), pages 283-309, January.
    5. Chen, Charles J. P. & Jaggi, Bikki, 2000. "Association between independent non-executive directors, family control and financial disclosures in Hong Kong," Journal of Accounting and Public Policy, Elsevier, vol. 19(4-5), pages 285-310.
    6. Fan, Joseph P. H. & Wong, T. J., 2002. "Corporate ownership structure and the informativeness of accounting earnings in East Asia," Journal of Accounting and Economics, Elsevier, vol. 33(3), pages 401-425, August.
    7. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    8. Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, April.
    9. Klein, April, 1998. "Firm Performance and Board Committee Structure," Journal of Law and Economics, University of Chicago Press, vol. 41(1), pages 275-303, April.
    10. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
    11. repec:hrv:faseco:30747162 is not listed on IDEAS
    12. Chau, Gerald K. & Gray, Sidney J., 2002. "Ownership structure and corporate voluntary disclosure in Hong Kong and Singapore," The International Journal of Accounting, Elsevier, vol. 37(2), pages 247-265.
    13. repec:bla:joares:v:31:y:1993:i:2:p:246-271 is not listed on IDEAS
    14. Mak, Y. T. & Li, Yuan, 2001. "Determinants of corporate ownership and board structure: evidence from Singapore," Journal of Corporate Finance, Elsevier, vol. 7(3), pages 235-256, September.
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    Citations

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    Cited by:

    1. STEFANESCU Cristina Alexandrina, 2014. "Corporate Governance „Actors”’ Capability And Risk Information Transparency – Empirical Study On European Banking System," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 9(2), pages 98-107, August.
    2. Cristina Alexandrina Stefanescu, 2013. "How Do Ownership Features Affect Corporate Governance Disclosure ? - The Case of Banking System," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 9(2), pages 37-51, April.
    3. Abdullah, Azrul & Ku Ismail, Ku Nor Izah, 2015. "Hedging Activities Information and Risk Management Committee Effectiveness: Malaysian evidence," MPRA Paper 85026, University Library of Munich, Germany.
    4. repec:ris:isecst:0161 is not listed on IDEAS
    5. Ala’ Hussein Albawwat & Mohamad Yazis Ali Basah, 2015. "The Impact of Shariah Approved Companies on the Relationship between Corporate Governance Structure and Voluntary Disclosure of Interim Financial Reporting in Jordan," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 5(2), pages 66-85, April.
    6. repec:rej:journl:v:16:y:2013:i:47:p:127-146 is not listed on IDEAS
    7. repec:eco:journ2:2017-06-3 is not listed on IDEAS

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