Abdelsalam Bryant& Smith (2007)an Examination of the Comprehensiveness of Corporate Internet Reporting Provided by London-Listed Companies

JOURNAL OF INTERNATIONAL ACCOUNTING RESEARCH Vol. 6, No. 2 2007 pp. 1–33 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
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  1  JOURNAL OF INTERNATIONAL ACCOUNTING RESEARCH  Vol. 6, No. 22007pp. 1–33 An Examination of theComprehensiveness of CorporateInternet Reporting Provided byLondon-Listed Companies Omneya H. Abdelsalam, Stephanie M. Bryant, andDonna L. Street  ABSTRACT: Recent changes in the regulatory environment of the London StockExchange are aimed at prohibiting selective disclosure and enhancing the credibility ofreporting. Using an innovative 143-item disclosure checklist, we examine corporateInternet reporting (CIR) comprehensiveness and its determinants within this new reg-ulatory environment. We also extend the literature linking corporate governance mea-sures to CIR. Our findings indicate that despite this new regulatory environment, thereis considerable room for improvement in CIR by London-listed companies. For ex-ample, our sample companies provide only 58 percent and 70 percent, respectively, ofthe credibility and usability items assessed by our comprehensiveness index. Aftercontrolling for size, profitability, industry, and high growth/intangibles, we find the CIRcomprehensiveness of London-listed companies is associated with analyst following,director holding, director independence, and CEO duality. Because prior research in-dicates the U.K. leads Europe in Internet reporting, our results may shed light on howCIR will evolve throughout Europe. Keywords: corporate Internet reporting; selective disclosure; voluntary disclosure;timeliness of reporting; credibility of reporting; usability of Internetdisclosures. Data Availability: Contact Professor Bryant at: I. INTRODUCTION AND MOTIVATION T he Internet provides a unique form of corporate voluntary disclosure that enablescompanies to provide information instantaneously to a global audience. However,despite its growing importance as a source of corporate information to investors, thecontent, usability, and perceived credibility of the information provided on corporate web-sites varies greatly. Research reveals that even companies headquartered in countries tra-ditionally 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 providedon 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.  2 Abdelsalam, Bryant, and Street  Journal of International Accounting Research, Volume 6, No. 2, 2007  In this paper, we examine the association between the comprehensiveness, usability,and credibility of corporate Internet reporting (CIR) disclosures and corporate governancemeasures for a sample of 110 London-listed companies. Our analysis is motivated primarilyby 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 prohibitingselective disclosure and the regulators’ desire to enhance the credibility of reporting. TheFinancial Services and Market Act of 2000 highlights the U.K. government’s desire tooverhaul 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, whichbecame effective December 1, 2001, listed companies should review the scope, nature, andmethod used to disseminate information to the market. The general requirement of theFinancial Services Authority is that listed companies disclose all material developments without delay (emphasis added). The Internet provides a unique means to achieve thisdisclosure objective. Furthermore, European Commission Directive/6/2003 recommendsspeedy dissemination of information to the market and prohibits private briefings. Accord-ingly, private briefings and other forms of selective disclosure are frowned upon, as theintent is for information to be made available to all investors at the same time. London-listed companies should thus be expected to increasingly turn to the Internet to achieve thewidespread disclosure of financial and other information to stakeholders in a timely andsimultaneous 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 corporatewebsites and site usability. Specifically, the sample companies provide only 58 percent and70 percent, respectively, of the credibility and usability items assessed by our index. Further,after controlling for size, profitability, industry, and high growth/intangibles, our findingsindicate that the CIR comprehensiveness of London-listed companies is associated withanalyst 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 CIRdisclosure practices in the U.K. in this new regulatory environment of increased transpar-ency. Prior research indicates that while the U.K. lags the United States (U.S.) in Internetreporting, it leads Europe (Lymer 1999). Thus, our results may preview how CIR reportingthroughout Europe will evolve to address the concerns of EU regulators.Second, we extend the emerging body of literature linking corporate governance mea-sures to CIR disclosure. While several prior studies examine corporate governance andvoluntary disclosure in general, ours is among the first to link Internet disclosures withcorporate governance measures. As noted previously, levels of Internet disclosure and so-phistication of use have historically lagged their potential even in countries associated withhigh levels of disclosure. Hence, in the absence of supporting empirical evidence, findingsfrom the voluntary disclosure literature should not be assumed to hold true within thespecific context of CIR.Next, we briefly review prior CIR studies. This is followed by sections on hypothesesdevelopment, methodology, results, discussion, and conclusion. II. CIR LITERATURE REVIEW The extant studies on CIR can be categorized as either descriptive studies (i.e., provid-ing statistics on how many items of a given disclosure checklist are disclosed/provided) orassociation studies (i.e., providing evidence of independent variables associated with thelevel of disclosure) addressing the determinants of CIR.   An Examination of the Comprehensiveness of Corporate Internet Reporting 3  Journal of International Accounting Research, Volume 6, No. 2, 2007  Descriptive Studies Lymer (1999) provides a review of the CIR academic 1 and professional 2 literaturepublished during the 1990s. Concentrating on the former, Lymer concludes that, as of the late 1990s, European companies were considerably behind their U.S. counterpartswith 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 tech-nology, and there appeared to be a wide divergence of corporate usage of the Internetwithin and between countries, with the U.K. being the closest to the U.S. model and Spainbeing the furthest away. 3 A descriptive study by the Interactive Bureau (2003) concludedthat, 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 websitesfailed 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 disseminationof financial information. Their findings raise significant issues regarding the format andusability of the information provided.Lymer and Debreceny’s (2003) review of the extent of guidance on CIR provided bysecurities regulators and audit standard setters reveals that actual pronouncements issuedas of the date of the study represent an inadequate response to the challenges arising fromcurrent and future CIR. Several standard setters and professional groups have also sponsoredCIR studies. These include the International Accounting Standards Committee (Lymer etal. 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 em-pirical research focused on identifying company- and/or country-specific characteristicsassociated with CIR disclosure, focusing primarily on either content or presentation of disclosures. Table 1 summarizes studies from this body of work. Independent variablesstudied include, among other things, size, industry, free float, high growth/intangibles, andprofitability. Allam and Lymer (2003) examined CIR in five developed countries utilizinga 36-item disclosure index addressing general attributes and Financial/Annual Report-related attributes of CIR. With regard to U.K. companies, they found no significant differ-ences 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 compa-nies, with Canadian companies disclosing less. Additionally, the CIR of U.K. com-panies exceeded that of Australian and Hong Kong companies.In summary, several prior studies describe CIR disclosure and presentation for com-panies headquartered in specific countries or listed on specific stock exchanges. Addition-ally, as summarized in Table 1, evidence links several company-specific characteristics with 1 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); andHedlin (1999). 2 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). 3 Additional descriptive studies published in more recent years include Craven and Marston (1999); Jones (2003);and Davey and Homkajohn (2004).  4   A  b   d   e l    s  a l    a m ,B r   y a n t   , a n d   S  t  r  e e t   J   o ur  n a l    o  f   I   n t   er  n a t   i    o n a l   A  c c o u n t   i    n  gR  e s  e ar  c h   , V  o l    u m e 6   , N o .2   ,2   0   0   7  TABLE 1Overview of Empirical Studies Addressing Determinants of CIR ComprehensivenessAuthor(s)Date of DataCollection SampleNumber of ChecklistItems Dependent Variables Significant Independent Variables Marston andLeow (1998)November 1996 U.K. FTSE-100 2 Presence of websiteDisclosure of any financial informationon website Size (  ) a Ashbaugh et al.(1999)November 1997throughJanuary 1998290 U.S. companies(criticized byAIMR)3 Website provides: ã Comprehensive set of financialstatements (including footnotes andauditor report) ã Link to annual report elsewhere onInternet ã Link to U.S. SEC’s Electronic DataGathering, Analysis and Retrieval(EDGAR) system Size (  )Profitability (  ) AIMR highly ranked firm (  ) Craven andMarston(1999)July 1998 206 largest U.K.companies2 Presence of websiteDisclosure of any financial informationon website Size (  ) Pirchegger andWagenhofer(1999)December 1997andDecember199826/20 Austriancompanies 1998/ 1997German DAX-301998 only38 7-Content5-Timeliness14-Technology12-User support Size (  )Free Float (  ) (both for Austrian companies only)( continued on next page )
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