Impact of incentives to voluntarily disclose corporate governance information in annual reports: an empirical study of Malaysian publicly listed companies

Abstract

This study investigates the extent to which a company‟s corporate governance quality is related to (a) its voluntary disclosure of corporate governance information, (b) the incentives factors that affect the relationship and (c) whether this relationship is stronger in the presence of an in-house qualified company secretary. The hypotheses development of this research study is based on Dye‟s voluntary disclosure theory and agency theory. A broad corporate governance quality index that captures the four main factors of effective corporate governance is adopted from the Minority Shareholder Watchdog Group (MSWG) in Malaysia. It consists of two main components: basic compliance score (BCS) and international best practices score (IBP). In this research, the BCS component is used to measure the level of a company corporate governance quality and the IBP component is a proxy for voluntary disclosure of corporate governance information. Using a sample of 275 publicly listed companies in Malaysia, the empirical results indicate that companies with high corporate governance quality are more likely to voluntarily disclose corporate governance information in annual reports. This result suggests that Dye‟s voluntary disclosure theory holds in Malaysia, a country that is characterised by weak legal protection, highly concentrated ownership and strong cultural factors. Capital market transactions (issuance of new share and debt capital) and stock-based incentives (stock-based compensation and CEO shareholdings) are the two incentive factors that are examined in this research. The findings suggest that stock-based compensation statistically and positively affects the relationship between corporate governance quality and voluntary disclosures. However the other incentive factors do not affect the relationship. This study also examines the relationship between in-house qualified company secretaries and voluntary disclosures. It does this by distinguishing between two types of company secretaries, namely professional qualified versus license holders and in-house versus external. However, no evidence is found to support the hypothesis that in-house qualified company secretaries promote voluntary disclosures.