Khaled Hussainey

Determinants of corporate internet reporting: evidence from Egypt

Purpose - The purpose of this paper is to examine the potential factors that may affect the level of corporate internet reporting by Egyptian listed companies. Design/methodology/approach - The content analysis approach to examine the information cited by the largest Egyptian companies is used in their web sites. The paper modifies and uses the disclosure index of Xiao Findings - It is found that 56 per cent of Egyptian companies report a significant portion of information on their web sites. In addition, the paper finds that some financial characteristics explain the variation in the degree of internet reporting between Egyptian listed companies. In particular, profitability, foreign listing and industrial type (communications and financial services) are the determinants of the amount and presentation formatting of information disclosed on Egyptian companies web sites. However, other firm characterises, such as firm size, leverage, liquidity and auditor size, do not explain corporate internet reporting. Practical implications - The research finding is essential as it assists in informing regulators about the characteristics of Egyptian companies that are, and are not, satisfying national and international investors demand of updated/online information. It also assists current and potential stakeholders to know the drives of corporate internet reporting in Egypt. Consequently, they may further investigate and verify such reporting practices. In practice, online reporting can be used as an effective tool for improving stakeholders decision-making process. Therefore, further research can be undertaken to examine the degree to which online reporting provides value-relevant information for stakeholders. Originality/value - To the best of the knowledge, there is no study examining the potential drivers of internet corporate reporting practice in Egypt. This paper is the first to examine the potential factors affecting corporate internet reporting in Egypt. The disclosure index used is designed to be suitable for companies working in the Egyptian environment.

Undertaking large-scale disclosure studies when AIMR-FAF ratings are not available: the case of prices leading earnings

Abstract The paper presents a new methodology for evaluating corporate voluntary disclosures in the annual report discussion section. Based on a new dataset of electronic annual reports and a standard text analysis software package, we text-search a large number of annual reports at minimal (marginal) cost. The resulting sample sizes are comparable to those employed in studies based on the AIMR-FAF database. A major advantage of our new scoring system is that it is adaptable to the particular requirements of the research project. We demonstrate the importance of this feature when applying our new disclosure scores to the case of ‘prices leading earnings’. While we are unable to find the predicted association with a broadly defined measure of disclosure quality, our results reverse once we focus on a more narrowly defined metric based on forward-looking profit statements.

Determinants of narrative risk disclosures in UK interim reports

Purpose - The purpose of this paper is to contribute to the existing disclosure literature by examining the determinants of narrative risk information in the interim reports for a sample of UK non-financial companies. Design/methodology/approach - This study uses the manual content analysis to measure the level of risk information in interim report narrative sections prepared by 72 UK companies. It also uses the ordinary least squares regression analysis to examine the impact of firm-specific characteristics and corporate governance mechanisms on narrative risk disclosures. Findings - The empirical analysis shows that large firms are more likely to disclose more risk information in the narrative sections of interim reports. In addition, the analysis shows that industry activity type is positively associated with levels of narrative risk disclosure in interim reports. Finally, the analysis shows statistically insignificant impact of other firm-specific characteristics (liquidity, gearing, profitability, and cross-listing) and corporate governance mechanisms on narrative risk disclosure. Practical implications - The studys findings have practical implications. It informs investors about the characteristics of UK companies that disclose risk information in their interim reports. For example, the findings show that narrative risk disclosures are affected by firm size and industry type rather than firms risk levels (e.g. financing risk measured by the gearing ratio or liquidity risk measured by lower liquidity ratios). Practical implications for managers from these findings are that, in order to keep investors satisfied, companies with high levels of financing and liquidity risks should look at investors demands for risk disclosure. This will help investors when making their investment decisions. Originality/value - The determinants of narrative risk disclosure in interim reports have not been explored so clearly in prior research and, therefore, this paper is the first of its kind to examine this research issue for a sample of UK companies.

Dividend policy and share price volatility: UK evidence

Purpose - The purpose of this paper is to examine the relation between dividend policy and share price changes in the UK stock market. Design/methodology/approach - Multiple regression analyses are used to explore the association between share price changes and both dividend yield and dividend payout ratio. Findings - A positive relation is found between dividend yield and stock price changes, and a negative relation between dividend payout ratio and stock price changes. In addition, it is shown that a firms growth rate, debt level, size and earnings explain stock price changes. Practical implications - The paper supports the fact that dividend policy is relevant in determining share price changes for a sample of firms listed in the London Stock Exchange. Originality/value - To the best of the authors knowledge, this paper is the first to show that corporate dividend policy is a key driver of stock price changes in the UK.

The determinants of forward‐looking information in annual reports of UAE companies

Purpose – This paper aims to empirically explore the underlying factors that may affect the extent to which forward‐looking information is disclosed.Design/methodology/approach – This study uses a list of forward‐looking keywords to demonstrate the differences, if any, in the level of disclosure among firms and between sectors. The sample includes 46 companies listed in either the Dubai financial market or the Abu Dubai securities market. Statistical analysis is performed using a backward regression.Findings – Debt ratio and profitability are found to be significant; however, sector type, firm size, and auditor size are found to have insignificant association with the level of forward‐looking information disclosed in UAE annual reports.Practical implications – A number of users, such as investors, lenders, and auditors, may find these results beneficial. These users may consider the results of this study when they are dealing with firms that have low profitability and high financial risk. Accordingly, the...

The effects of voluntary disclosure and dividend propensity on prices leading earnings

Abstract We investigate the joint effects of dividend propensity (i.e. whether a firm pays cash dividends) and voluntary disclosure on the relationship between current stock returns and future earnings. We examine whether dividend propensity and voluntary disclosure act as substitutes or complements in the financial communication process. We also examine whether the effects of dividend propensity and voluntary disclosure vary between high‐ and lowgrowth firms. Consistent with prior studies, we find that share price anticipation of earnings improves with increasing levels of annual report narrative disclosure, and that firms that pay dividends exhibit higher levels of share price anticipation of earnings than non‐dividend‐paying firms. The paper adds to the literature on share price anticipation of earnings in two crucial respects. First we show that the associations of voluntary disclosure and dividend propensity with share price anticipation of earnings are statistically significant for high‐growth firms and insignificant for low‐growth firms. Second we show that the significant effects we find for dividend propensity and voluntary disclosure in high‐growth firms are not perfectly additive.

Corporate environmental disclosure, corporate governance and earnings management

Purpose - The purpose of this paper is to examine the association between corporate environmental disclosure (CED) and earnings management (EM) and the impact of corporate governance (CG) mechanisms on that association. Design/methodology/approach - The paper uses performance-matched discretionary accruals (DA) as a measure of EM. The paper also uses ordinary least square regression with robust standard errors to examine the association between CED and EM for a sample of 245 UK non-financial firms for the financial year ended on March 2007. Three different theoretical frameworks are used to identify the expected association between CER and EM. These include: signalling, agency and stakeholder-legitimacy theories. Findings - The paper finds no significant statistical association between various measures of DA and environmental disclosure. The paper also finds that some CG attributes affect the relationship between CER and EM. Practical implications - The result suggests that UK corporate managers are not using environmental disclosure as a technique to reduce the probability that public policy actions will be taken against their companies. Originality/value - Since most empirical research is limited to the US setting, this paper provides a novel contribution to the existing literature, as one of the first to examine this issue in the UK.

The association between dividend payout and outside directorships

Purpose - The purpose of this paper is to examine whether the number of outside directors on the board of directors and dividend payout are substitutes or complements mechanisms applied by UK firms to control agency conflicts of interest within the firm. Design/methodology/approach - The authors use tobit and logit regression models to examine the extent to which firms with a majority of outside directors on their boards experience significantly lower or higher dividend payout after controlling for insider ownership, profitability, liquidity, asset structure, business risk, firm size, firms growth rate and borrowing ratio. Findings - Based on a sample of 400 non-financial firms listed at London Stock Exchange for the period from 1991 to 2002, it was found that dividend payout is negatively associated with the number of outside directors on the board of directors. Originality/value - The results suggest that firms pay lower dividends when higher number of outside directors is employed on the board. This evidence is consistent with the substitution hypothesis, which indicated that firms with weak corporate governance need to establish a reputation by paying dividends. In other words, dividends substitute for independent directors on the board. This finding offers novel insights to policy makers interested in agency conflicts of interest within the firm. It also provides evidence on the use of different substitute mechanisms for reducing agency costs.

Corporate governance mechanisms and capital structure in UAE

Purpose - The purpose of this study is to examine the impact of corporate governance mechanisms on corporate financial decisions in one of the emerging economies, United Arab Emirates (UAE). In particular, the paper examines the degree to which internal corporate governance mechanisms and an external corporate governance mechanism affect UAE firms’ capital structure. Design/methodology/approach - The paper uses a multiple regression analysis to examine the association between corporate governance and capital structure for a sample of 71 UAE firms listed either in the Dubai financial market or the Abu Dhabi securities market during 2006. Findings - The paper finds that institutional investors have a negative impact on debt-to-equity ratio. This result does not support the “active monitoring hypotheses” where institutional investors are expected to exercise their voting rights effectively in order to prevent managers from reducing their “employment risk” at the expense of the interests of shareholders. It also finds that dividend policy is negatively associated with debt-to-equity ratio, while firms’ size is positively associated with debt-to-equity ratio. Research limitations/implications - Empirical analysis suggests that corporate governance mechanisms have important implications for UAE firms’ financial policies. UAE managers should be aware of the benefits of the implementation of effective internal and external corporate governance mechanisms while embracing international corporate governance standards. An effective implementation of the codes of corporate governance should improve the efficiency and effectiveness of UAE firms and the UAE stock markets. Originality/value - To the best of the authors’ knowledge, there is no study that has yet empirically examined the effect of the corporate governance mechanisms on capital structure in UAE or Middle Eastern countries. This study offers the first evidence of the impact of corporate governance mechanisms on capital structure in UAE.

Revisiting the capital structure puzzle: UK evidence

Purpose - This paper seeks to explore the potential drivers of corporate capital structure. Design/methodology/approach - The paper applies both fixed effects panel models and random effects tobit models to examine this issue. A sample of 379 firms is used across the period from 1991 to 2002. Findings - It is found that corporate characteristics (firm size, firm risk, firm growth rate, firm profitability and asset tangibility) and corporate governance characteristics (board size and outside directorships) are the main drivers of capital structure of UK firms. In addition, the results show that changing the definition of capital structure may result in changing the sign and the significance of these potential drivers. Originality/value - The paper argues that another dimension of the capital structure puzzle can be introduced which is related to the definition of capital structure used in prior studies. It is worth noting that the aim of this paper is not to provide an optimal set of factors that may affect the decision of capital structure, but to highlight the effect of the different definitions of capital structure that can be used by different studies, which makes the comparison between such studies difficult or even erroneous.