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01-12-2015 | Original Paper

The impact of ownership structure and family board domination on voluntary disclosure for Jordanian listed companies

Authors: Ayman E. Haddad, Wasim K. AlShattarat, Naser M. AbuGhazaleh, Haitham Nobanee

Published in: Eurasian Business Review | Issue 2/2015

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Abstract

This study investigates the impact of ownership structure and family board domination on voluntary disclosure for Jordanian listed companies. Ownership structure is characterised by government ownership, outside ownership, managerial ownership and number of shareholders. This study is based on a cross-sectional examination of the effect of corporate ownership structure and family domination on voluntary disclosure after controlling other variables for 57 non-financial Jordanian companies listed on the Amman Stock Exchange. The multiple regression results show that the extent of voluntary disclosure is positively associated with government ownership and negatively associated with the proportion of shares held by management. Furthermore, we show that family domination is a significant factor in explaining variations in voluntary disclosure. We conclude that government ownership can help to promote transparency, but it has not yet eliminated the influence of management and the family control of boards on disclosure. However, outside ownership and number of shareholders are not associated with voluntary disclosure.

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Appendix
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Footnotes
1
Studies examining the relationship between religions and accounting (e.g. Gambling and Karim 1991; Hamid et al. 1993) suggest that the relationship between Islam and accounting could or should be a significant one.
 
2
According to Gray (1988, p. 8), secrecy refers to “the preference for confidentiality and the restriction of disclosure of information about the business only to those who are closely involved with its management and financing as opposed to a more transparent, open and publicly accountable approach”.
 
3
The main purpose of new financial reporting and market reformation in Jordan is to ensure that the financial statements are transparent for users (ASE Website) through mandatory and voluntary disclosure. Furthermore, prior studies show that new financial reporting regulations and market reformation have a significant positive impact on the corporate voluntary disclosure (e.g. Johnson et al. 2001; Gigler and Hemmer 1998). It was also found that there is a significant positive association between mandatory disclosure and voluntary disclosure in the context of Arab countries (e.g. Naser and Nuseibeh 2003; Al-Razeen and Karbhari 2004).
 
4
Theory suggests that one of the primary motivations for managers to increase their level of voluntary disclosure is to raise capital at the lowest cost (e.g. Choi 1973; Spero 1979). Scholars show that greater disclosure can reduce non-diversifiable estimation risk (or information risk) which in turn reduces the cost of equity capital (e.g. Klein and Bawa 1976; Brown 1979; Welker 1995; Healy et al. 1999). These studies recognized that investors estimate the parameters of a securities’ future return or payoff distribution based on available information about the firm.
 
5
Naser and Nuseibeh (2003) assess the quality of information disclosed by a sample of non-financial Saudi companies listed on the Saudi Stock Exchange for 1992 and 1999. However, they justify the low level of disclosure achieved by government-controlled companies by the fact that the Saudi government guarantees a fixed rate of return to investors in those companies, so companies are left with little incentive to disclose more information.
 
6
The outside ownership is measured in this study by deducting the percentage of shares held by insider shareholders and government from 100 %. We examine hypothesis H2 between disclosure and outside ownership. We find no relationship (Table 4). However, examining the nature of outside ownership (institutional, individuals, other investors) may have yielded different conclusions as institutional owners, for example, may demand more disclosure, assuming zero cost of disclosure. On the other hand, individual investors may be too diffused to provide any effective monitoring mechanisms. Consequently, the firm may not disclose much.
 
7
The legal system of a country was found to be an important factor influencing accounting reporting systems. La Porta et al. (1998) showed that civil law countries offer lower legal protection for external investors than common law countries. Jordan, as with any other Arab country, is classified as having a civil law code.
 
8
It is worth noted that empirical evidence in corporate disclosure suggests that voluntary disclosure practices are adopted if the benefits from disclosure exceeds the costs on non-disclosures (Depoers 2000). For example, if strategic information of the firm entails heavy costs of disclosure relating of property information, the family members in the board (or management) are willing not to disclose this information because leakage of such information to competitors may lower the firm’s future profitability. On the other hand, if disclosure is costless and it may reduce the information asymmetries between inside and outside shareholders, the firm may disclose such information. Thus, the hypotheses of this study may have alternative explanation when considering the disclosure costs.
 
9
MIN, IND and SER represent 19.3, 42.1 and 38.6 % of the sample, respectively.
 
10
This study selects 2004 because it is recent enough to ensure that data for the variables included in this study, especially companies’ annual reports, are still available from the sources of information. Lang and Lundholm (1993) observed firms’ disclosure policies and practices and pointed out that these practices tend to remain relatively constant from year to year. They added that this might be because reporting firms seek to enhance the year-to-year comparability of the financial statements in their corporate annual reports.
 
11
The Arab Potash Company disclosed 42 out of 62 applicable items in the disclosure index. The company disclosed 67.74 % of applicable items in its annual report for 2004.
 
12
The Cronbach’s Coefficient Alpha scores 0.64 in Botosan (1997), 0.69 in Gisbert and Navallas (2013) and 0.72 in Haddad et al. (2009).
 
13
Using number of employees (EMP) as a proxy of firm size (e.g. Ghazali and Weetman 2006) did not show any significant differences against the results reported in Table 4.
 
14
We also replace ROA with return on firm’s shareholders’ equity (ROE) as another measure of the firm’s profitability. These results (not reported) did not materially violate the results reported in Table 4.
 
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Metadata
Title
The impact of ownership structure and family board domination on voluntary disclosure for Jordanian listed companies
Authors
Ayman E. Haddad
Wasim K. AlShattarat
Naser M. AbuGhazaleh
Haitham Nobanee
Publication date
01-12-2015
Publisher
Springer International Publishing
Published in
Eurasian Business Review / Issue 2/2015
Print ISSN: 1309-4297
Electronic ISSN: 2147-4281
DOI
https://doi.org/10.1007/s40821-015-0021-5

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