Voluntary Disclosure in the Annual Reports

Advances in Accounting, incorporating Advances in International Accounting 25 (2009) 255–265 Contents lists available at ScienceDirect Advances in Accounting, incorporating Advances in International Accounting j o u r n a l h o m e p a g e : w w w. e l s ev i e r. c o m / l o c a t e / a d i a c Voluntary disclosure in the annual reports of an emerging country: The case of Qatar Mohammed Hossain ? , Helmi Hammami 1 Department of Accounting and Information Systems, College of Business and Economics, Qatar University, PO Box 2713, Qatar a r t i c l e i n f o a b s t r a c t

This study sets out to examine empirically the determinants of voluntary disclosure in the annual reports of 25 listed ? rms of Doha Securities Market (DSM) in Qatar forming approximately 86% of the total ? rms incorporated in DSM. It also reports the results of the association between company-speci? c characteristics and voluntary disclosure of the sample companies. A disclosure checklist consisting of 44 voluntary items of information is developed and statistical analysis is performed using multiple regression analysis. The ? ndings indicate that age, size, complexity, and assets-in-place are signi? ant and other variable pro? tability is insigni? cant in explaining the level of voluntary disclosure. However, this paper has contributed to the academic literature that ? rms in the Middle East provide voluntary corporate information which builds a con? dence to the investors in general and Qatar in particular. © 2009 Elsevier Ltd. All rights reserved. 1. Introduction This study explores the extent and levels of voluntary disclosures in the annual reports of the listed company in the Doha Securities Market (DSM) in Qatar, a growing emerging country. The disclosure of ? ancial information in annual reports is a key area of accounting research and, more speci? cally, voluntary disclosure has received a great attention to the academicians and several research is done both in developed (Firth, 1979; Spero, 1979; Bradbury, 1992; Raffournier, 1995; Hossain, Perera, & Rahman, 1995) and developing countries (Cooke, 1991, 1989b; Chow & Wong-Boren, 1987; Hossain, Tan, & Adams, 1994; Ferguson et al. , 2002; Hossain & Reaz, 2007; Hossain, 2008), however, a very few attention is done in the Middle East (AlRazeen & Karbhari, 2004; Alsaeed, 2006; Naser et al. 2006; AlShammari, 2008; Aljifri, 2008) in general and Qatar in particular. The annual report is a signi? cant element in the overall disclosure process, because it is the most widely disseminated source of information on publicly held corporations (Arnold, Moizer & Noreen, 1984; Chang, Most, & Brain, 1983; Todd & Sherman, 1991) however, voluntary disclosure in the annual report means in nature the information beyond the required content in the ? nancial statements (Kumar, Wilder, & Stocks, 2008).

In other words, voluntary disclosure is to disclose more information based on managerial incentives (Healy & Palepu, 2001). 2 ? Corresponding author. Tel. : +974 485 1845; fax: +974 485 2355. E-mail address: m. hossain@qu. edu. qa (M. Hossain). Tel. : +974 485 1834; fax: +974 485 2355. Here mandatory disclosure and voluntary disclosure are both included in an information disclosure system (Lanen & Verrecchia, 1987). The ? nancial Accounting Standard Board (FASB, 2000) describes “voluntary disclosures” as “information primarily outside of the ? ancial statements that are not explicitly required by accounting rules or standards”. 2 1 The available literature has suggested many ways in which a ? rm or its management can bene? t from improve disclosure (Lang & Lundholm, 1993, 1996; Frankel, McNichols, & Wilson, 1995; Healy, Hutton, & Palepu, 1999). Moreover, while information disclosure is socially desirable (Frolov, 2004; Diamond, 1985), the interplay between its bene? ts and costs (Meek et al. , 1995) may lead to partial or no disclosure, and one thereupon should ask whether the disclosure should be voluntary or mandatory. In addition, he economic and accounting literature has asserted that, in the view of informational asymmetry, (costless) disclose of private information brings general gains in economic ef? ciency. However, the size of the gains and the ultimate effect on ? nancial prices may vary considerably depending on the ‘informativness’ of disclosed information and on the ways the information is disseminated and used (Hossain & Reaz, 2007). Drawing on this framework, ? rms are expected to disclose voluntary information and therefore, when the perceived bene? ts exceed the direct and indirect costs of doing so (Ferguson et al. 2002). Within this context, we underlie that ? rms disclose voluntary information in the annual reports and companies listed on DSM, Qatar is not exceptional, which contributes to the accounting literature the aspects of the voluntary information in the annual reports in the region of Middle East. To our knowledge, it is the ? rst to empirically examine the voluntary disclosure practices of the Qatari companies. Qatar has unique economy that has gained increased importance in the global capital markets and has one of the highest levels of GDP per capita ($67,000) in the world (The Economic Survey, 2007).

The Doha Securities Market (DSM) is the principal stock market of Qatar established on 1995 and currently (till December 31, 2008) 42 companies listed and their market capitalization of $136 billion. Moreover, DSM’s 25% stake will be taken by the New York Stock Exchange (NYSE) Euro next for $250 million. 0882-6110/$ – see front matter © 2009 Elsevier Ltd. All rights reserved. doi:10. 1016/j. adiac. 2009. 08. 002 256 M. Hossain, H. Hammami / Advances in Accounting, incorporating Advances in International Accounting 25 (2009) 255–265

An important practical motivation for this study is the better understanding of the voluntary disclosure practices in a non-AngloAmerican country that has not been extensively examined. Specially, this study seeks to establish the extent to which voluntary information is associated with corporate attributes in which the research is undertaken. 2. Research paradigm and theoretical orientation The ? rm’s decision to voluntarily disclose information depends on its conjectures about the beliefs held by competitors and investors (Dontoh, 1989). The study of Milgrom (1981) and Grossman (1981) concluded that if the ? m can make credible disclosures about its value to uninformed investors, in equilibrium the ? rm will disclose all of its information regardless of how good or bad the news. Many recent studies have hypothesized that ? rms’ voluntary disclosure choices are aimed at controlling the interest con? icts among shareholders, debt holders, and management (Holthausen & Leftwich, 1983; Kelly, 1983; Watts & Zimmerman, 1986). It is meant that the extent of these interest con? icts, hence the incentives behind voluntary disclosure choices vary with certain ? m characteristics (Chow & Wong-Boren 1987). A comprehensive review of the voluntary disclosure literature is provided by Healy and Palepu (2001). They notice that research into voluntary disclosure decision trends focuses on the information role of reporting for capital market participants. Indeed, academic researchers, practitioners, and regulators have analyzed and emphasized the role of disclosure plays in reducing information asymmetry between insiders and outsiders (Gandia, 2005). Actually the study of Healy and Palepu (2001) identi? es ? e factors/hypotheses that affect mangers’ disclosure decisions for capital market reasons: capital market transaction hypothesis, corporate control contest hypothesis, stock compensation hypothesis, litigation cost hypothesis, and proprietary cost hypothesis. The very abstract way of these hypotheses has been discussed in the study of Collett and Hrasky (2005). They stated the following hypotheses: 1. The capital market transaction hypothesis: Firm’s have incentives to make voluntary disclosures for reducing information asymmetry and consequently reduce the cost of external ? ancing through reduced information risk; 2. The corporate control contest hypothesis: When ? rms performance is poor, managers use voluntary disclosures in an attempt to increase ? rm valuation and to give explanation for the poor performance, thus reducing the risk of management job losses; 3. The stock compensation hypothesis: Managers who are rewarded with stock compensation have an incentive to use voluntary disclosures in order to reduce the possibility of insider trading allegations, and ? ms also have incentives to increase disclosures for reducing contracting costs with managers receiving stock compensation; 4. The litigation cost hypothesis: Managers have an incentive to disclose bad news to avoid legal actions for inadequate disclosure, but have also an incentive to decrease disclosures of forecasts that might prove to be inaccurate; and 5. The proprietary cost hypothesis: Voluntary disclosures will be constrained if managers perceive that disclosure could be competitively harmful.

However, it has been shown empirically that disclosure is a complex function of several reasons: it depends on both companyspeci? c (internal) factors and external factors related to the environmental context of the company, which include, among others, culture, legal system, and institutional background (Lopes & Rodrigues, 2007). Moreover, stakeholders of companies demand information disclosure about the operations of the companies to get clear understanding which form the basis for their decision-making Stolowy & Lebas, 2004; Foster, 1986). In addition, the International Accounting Standards Committee (1989) states that information provided by corporate entities to be useful for the decision-making process of the users, it must be understandable, relevant, reliable, comparable and timely. Even prior research has utilized various theoretical models as foundation for understanding why disclosures are made to stakeholders including the agency and legitimacy theories (Jensen & Meckling, 1976; Watts & Zimmerman, 1986; and Raffournier, 1995).

In order to understand the general underlying motives and bene? ts of voluntary disclosure, it is necessary to discuss the compact features of voluntary disclosure. Researchers provide arguments in favour of voluntary disclosure (Latridis, 2008; Mcknight & Tomkins, 1999; Skinner, 1994; Trueman, 1986). The motives for voluntary disclosure can be summarized in the following ways: 1. Disclosure is required because managers are held responsible and have to meet certain business and ? nancial targets (Latridis, 2008); 2.

Managers tend to disclose information about their performance in order to get favour in stock markets (Mcknight & Tomkins, 1999); 3. Inadequate disclosure may motive managers to provide voluntary disclosure for reduction of cost of litigation (Skinner, 1994); and 4. Managers may provide voluntary disclosures and forecasts to show to investors that are aware of the ? rm’s economic environment and able to quickly respond to changes (Trueman, 1986). The above arguments have been addressed by Healy and Palepu (2001) under ? e hypotheses listed above and all of these give positive signal to investors and positively affect the stock returns and market value of the ? rm (La Porta et al. , 2000; Reese & Weisbach, 2002). However, it is also true that ? rms are inclined not to disclose information that will damage their competitive position (Newman & Sansing, 1993). Therefore, the above foregoing analyses come to the conclusion that voluntary disclosure in the annual reports depends apart from managerial motives, on culture, legal system, and institutional background of the country the ? ms work. The following section is thus discussing the environment of corporate reporting in Qatar. 3. The environment of corporate reporting in Qatar Qatar is an independent and sovereign State situated in the midway of the Western coast of the Arabian Gulf having a land and maritime boundary with Saudi Arabia, and also maritime boundaries with Bahrain, United Arab Emirates and Iran. Qatar is one of the smallest Gulf Countries in terms of population and geographical area but the second largest gas reserves in the world representing more than 5% of the world total.

The prosperity of natural resources coupled with the growing and diversifying economy means enormous access to investment opportunities and incentives. The Qatari government adopts a policy aiming at diversifying income resources and developing economic infrastructure. Speci? cally, the government expanded the exploration projects in oil and gas sectors and offered numerous incentives to attract foreign investors to carry out similar projects (http://www2. dsm. com. qa). While the economy in Qatar has rapidly grown, the accounting system has remained in infant stage.

For example, Qatar has not established its own Accounting Standards (Ass), however the increasing number of foreign banks that voluntarily used International Accounting Standards (IASs) led the Qatar Central Bank (QCB) to require all banks (foreign and national) to adopt IASs (QCB, 2004). A circular of the central Bank of Qatar in 1999 [Circular No. 27 of 1999 issued on 19 February 1999] states that every bank and investment and ? nance companies have to adopt IASs effective from January 1, 1992. M. Hossain, H.

Hammami / Advances in Accounting, incorporating Advances in International Accounting 25 (2009) 255–265 257 Qatar has only one stock exchange, i. e. Doha Securities Market (DSM), and working as an independent government entity. DSM is supporting the country’s economy by protecting accredited and non accredited investors by providing fair, orderly, ef? cient and facilitated trading, providing access to information to the public, overseeing key participants in securities world, ensuring correct disclosure of vital information, and enforcing securities law.

In Qatar, both company law and securities market law govern corporate ? nancial reporting by listed companies in DSM. In Qatar, Company Law No. 11 of 1981 and Doha Securities Market Law No. 14 of 1995 are two important legislations for ? nancial reporting (Shammari, 2005; Shammari, Brown, & Tarca, 2008). However, in terms of ? nancial reporting requirements, the company law in Qatar contains general principles of corporate ? nancial reporting. The law does not specify the content or format of the ? nancial statements other than requiring at least an annual report balance sheet and pro? and loss statement (Shammari, 2005). In addition, the law requires companies to maintain proper books of account and to prepare and submit audited annual ? nancial statements to their shareholders in order to re? ect a “true and fair view” of the company’s state of affairs. The ? nancial statements must be submitted to the Companies Registrar of the Ministry of Economy and Commerce within six months after the ? nancial year-end date. Table 1 shows the depiction of ? nancial reporting legislation in Qatar.

In terms of auditing, listed companies must prepare accounts in accordance with internationally accepted accounting principles and have them audited by independent auditors. Indeed, independent auditors’ report has to be submitted in the company’s annual general meeting (AGM) to the shareholders. The auditors shall report as to whether the relevant accounts show a true and fair view of the ? nancial affairs of the body in question during the ? nancial year in question and its assets and liabilities at the end of the year in question. However, Qatar has recently established a scienti? association for accountants and has ? nalized the of? cial procedures for establishing the accountants association (Alattar & Al-Khater, 2007). Moreover, the auditor must audit the accounts of companies in light of generally accepted auditing standard (GAAS), however, GASS is not de? ned. The Central Bank of Qatar (CBQ) required banks and ? nance and investment companies to comply with IASs in 1992, 1999 and 1999 respectively (Shammari, 2005). Apart from ? nancial regulation for ? nancial reporting in Qatar, there are some speci? c features that exited in Qatar which indicate that a healthy ? ancial environment is going to be developed. For example, in 2005, the authorities launched the Qatar Financial Centre (QFC) with the main objective of attracting top ? rms in ? nance, energy, tourism, transportation, health, and education to increase the integration of Qatar in the global economy. At year-end 2006, among the 33 ? rms licensed by the QFC, about 10 were foreign banks mainly active in project ? nance and wealth management (http://www. qfcra. com/about/index. php). In terms of ? nancial sector, the Qatari commercial banking system had total assets as at end-August 2006 of QAR156. billion (US$43. 1 billion). Deposits stood at QAR103. 3 billion (US$28. 4 billion), with loans and advances of QAR85. 2 billion (US$23. 4 billion). There are approximately 100 branches and 350 ATMs serving a population of 800,000, while distribution channels are complemented by the increasing use of Internet and phone banking. Qatari banks are enjoying stellar ? nancial performance, solid capitalization, and good asset quality. 4. Literature review As stated before that there is an extensive research in developed and developing countries to measure corporate disclosure on ? ancial and non-? nancial companies, for example, the work of Cerf (1961), Singhvi and Desai (1971), Buzby (1974), Marston (1986), Wallace (1987), Cooke (1989a,b, 1991, 1992, 1993), Malone, Fries, and Jones (1993), Hossain, Tan, and Adams (1994), Ahmed and Nicholls (1994), Wallace, Naser, and Mora (1994), Wallace and Naser (1995), Raffournier (1995), Inchausti (1997), Marston and Robson (1997), Patton and Zelenka (1997), Craig and Diga (1998), Hossain (2001), Haniffa and Cooke (2002), Al-Razeen and Karbhari (2004), Ghazali and Weetman (2006), Naser et al. 2006), Alsaeed (2006), Hossain and Reaz (2007), Aljifri (2008), Wang, Sewon and Claibone (2008), and Shammari et al. (2008). A few of their studies has been discussed below in order to understand the nature, methodology and ? ndings that will help to compare and ? nd the gap with the study. The study of Kamal, Al-Hussaini, Al-Kwari and Nuseibeh (2006) examined to test the validity of theories employed in the literature to explain variation in the extent of corporate voluntary disclosure within the corporate social disclosure context under Qatari companies. The ? dings indicate that variations in corporate social disclosure by the sampled Qatari companies are associated with the ? rm size, business risk and corporate growth. Aljifri (2008) examined the extent of disclosure in annual reports of 31 listed ? rms in the UAE and also determined the underlying factors that affect the level of disclosures. The study hypothesized that four main factors would affect the extent of disclosure in the UAE, namely, the sector type (banks, insurance, industrial, and service), size (assets), debt–equity ratio, and pro? tability. Findings indicated that signi? ant differences were found among sectors; however, the size, the debt–equity ratio, and the pro? tability were found to have insigni? cant association with the level of disclosure. Alsaeed (2006) studied the association between ? rm-speci? c characteristics and disclosure in Saudi Arabia. A total of 20 voluntary items developed to assess the level of disclosure in the annual reports of 40 ? rms. The results showed that the mean of the disclosure index was lower than average. It was also found that ? rm size was signi? cantly positively associated with the level of disclosure however, debt, ownership dispersion, age, pro? margin, industry and audit ? rm size were found to be insigni? cant in explaining the variation of voluntary disclosure. The study of Al-Razeen and Karbhari (2004) investigated the interaction between the compulsory and voluntary disclosures in the annual reports of Saudi Arabian companies. The sample comprised both listed and non-listed companies. The data were analyzed by constructing three separate disclosure indices relating to mandatory disclosure, voluntary disclosure that closely relates to mandatory disclosure and voluntary disclosure that was not closely related to mandatory disclosure.

The results revealed that there is a signi? cant, positive correlation between mandatory disclosure and voluntary disclosure related to the mandatory Table 1 Financial reporting legislation in Qatar. Company law Company Law No. 11 of 1981 Securities and exchange law Doha Securities Market Law No. 14 of 1995 Company registrar Ministry of Economy and Commerce Financial statements to be prepared Balance sheet and pro? t and loss statement To whom should ?nancial statements be submitted All shareholders registrar of companies Guidelines for preparing ? nancial statements Must provide a true and fair valuea Note: Due date for submission of ? ancial statements is within six months after the ? nancial year-end date. Source: adopted from Shammari, 2005. a There is no statutory de? nition of “true and fair view” provided in any GCC company law. 258 M. Hossain, H. Hammami / Advances in Accounting, incorporating Advances in International Accounting 25 (2009) 255–265 disclosure index. The study also reported that a correlation between voluntary disclosure and the other two indices was found to be weak and insigni? cant. Hossain and Reaz’s (2007) study reported the results of an empirical investigation of the extent of voluntary disclosure by 38 listed banking companies in India.

It also reports the results of the association between company-speci? c characteristics and voluntary disclosure of the sample companies. The study revealed that Indian banks are disclosing a considerable amount of voluntary information. The ? ndings also indicated that size and assets-in-place are signi? cant and other variables such as age, diversi? cation, board composition, multiple exchange listing and complexity of business are insigni? cant in explaining the level of disclosure. The study of Wang et al. (2008) examined empirically the determinants of voluntary disclosure in the annual reports of Chinese listed ? ms that issue both domestic and foreign shares. The results indicated that the level of voluntary disclosure is positively related to the proportion of state ownership, foreign ownership, ? rm performance measured by return on equity, and reputation of the engaged auditor. However, there is no evidence, however, that companies bene? t from extensive voluntary disclosure by having a lower cost of debt capital. Haniffa and Cooke (2002) examined the relationships between a number of corporate governance, cultural, and ? rm-speci? c characteristics, and the extent of voluntary disclosure in the nnual reports of a sample of Malaysian companies. A total of 65 items were selected and an unweighted disclosure index was used in the study. The ? ndings indicated a signi? cant association between corporate governance and the extent of voluntary disclosure. In addition, one cultural factor (proportion of Malay directors on the board), was found to be signi? cantly associated with the extent of voluntary disclosure. Craig and Diga (1998) analyzed corporate annual report disclosure practices in ? ve ASEAN countries, namely Singapore, Malaysia, Indonesia, the Philippines and Thailand.

They surveyed 145 public companies listed on ASEAN stock exchanges which were selected randomly from companies listed on principal national stock exchanges as of 31 December 1993. In total, 530 items of information were included in the disclosure index adopted after considering the company legislation and stock market regulations in the various countries. Their results revealed that statistically signi? cant differences existed among companies in terms of their disclosure scores, asset sizes, turnover, and debt–equity ratios. Cooke’s (1991) study sought to investigate the impact of certain ? rm-speci? characteristics on voluntary disclosure of 106 items in Japanese corporate annual reports for the year 1988. The study showed that size was the single most important independent variable that helped to explain variations in voluntary disclosure in Japanese corporate annual reports. Therefore, it is clear that there have been extensive research work in voluntary disclosure around the world, however, little attention has been given in Qatar, in general and disclosure in particular. Moreover, the selection of voluntary items varies from country to country (Cooke, 1991; Ahmed & Nicholls, 1994; Hossain & Reaz, 2007).

Most of the researchers used disclosure indices and OLS in their study and the present study also used the same methodology. 5. Research methodology 5. 1. Sample selection The total number of companies listed on the Doha Securities Market (DSM) is 42 as of 31st December 2008. Annual reports for the year 2007 have been used for the study. However, the main criteria used for sampling the ? rms were: (i) annual reports must be available at the stock exchange or company web site or collectable through communication and (ii) the ? rm must have been listed for the entire period of the study 2006.

We have excluded ? rms that did not meet these criteria. Therefore, under this criterion, six companies were excluded because they were listed after 2007, three companies listed in 2007, and seven were excluded because their annual reports were not available. Therefore, the total number of companies cover under the study is 25. The companies listed on the DSM are classi? ed into four main sectors: banking and ? nancial sector; insurance sector; industry sector; and service sector. Table 2 summarises the distribution of sample ? rms by sectors.

At least 60% of companies in each of the four sectors are represented in the survey. Such a cohesive representation enables the research ? ndings to be generalisable to companies listed on the DSM. It is noted that annual reports were requested by mail and email from these companies with two followup requests to non-respondents. A list of the companies surveyed is given in Appendix A. 5. 2. Selection of voluntary items of information It is understand that the selection of voluntary items is a subjective judgment. Moreover, such selection depends on the nature and context of the industry and the country context (e. g. what industrial sector or sectors is being considered and whether the companies are in a developing or developed country). As we saw in our literature review while there is extensive literature focusing on disclosures of non? nancial companies, including voluntary disclosure, research addressing the disclosure by ? nancial companies, including their voluntary disclosures is much less numerous. Some studies have considered the social reporting of ? nancial companies (including Islamic banks), and the international ? nancial institutions (e. g. the IMF, and World Bank) have also stressed the importance of transparency and disclosure by ? ancial companies. Additionally, other organizations, both public and private, like the US FSAB, the International Accounting Standards Committee/International Accounting Standards Board, and Standard & Poor’s have published guidelines regarding the disclosure of voluntary items. We reviewed recommendations from the following sources to arrive at the selection of a list of voluntary items of information to be included in the disclosure index: 1. Literature related to studies focused on voluntary disclosure; 2. Academic literature concerned with developed and developing countries; 3.

Academic literature focused on ? nancial and non-? nancial companies; 4. International ? nancial institutions’ recommendations; 5. Other institutions’ published works. Table 2 Sector representation in the sample. Sector Number of companies Listed on 31st Dec. 2007 Banking and ? nancial Insurance Industry Service Total 8 5 6 19 38 Listed after 2007 – – 1 5 6 Listed in 2007 1 – 1 1 3 Total available for study 7 5 4 13 29 Annual reports received 7 3 3 12 25 % 100% 60% 75% 92% 86% M. Hossain, H. Hammami / Advances in Accounting, incorporating Advances in International Accounting 25 (2009) 255–265 259

After investigating all the above data sources, 44 items of voluntary information were identi? ed as relevant for disclosure in the annual reports of Qatari companies. These 44 items were then grouped to produce 8 categories, containing between 2 and 9 items each. Table 3 shows the 14 categories, and identi? es some of their sources. It is not intended to be a fully comprehensive record of all the sources which in? uenced the selection of each individual item as this was a complex process of inter-action and judgment but it instead it serves as an indication of the methodology adopted and a justi? cation based on at least one source.

The total list of the 44 voluntary items is presented in Appendix B. 5. 3. Scoring of the disclosure index Several approaches are available when developing a scoring scheme to determine the disclosure level of annual reports, and usually both a weighted disclosure index and an unweighted disclosure index have been used by researchers. Researchers such as Wallace (1987), Cooke (1991, 1992), Karim (1995), Hossain et al. (1994), Ahmed and Nicholls (1994), and Hossain (2000), adopted a dichotomous procedure in which an item scores one if disclosed and zero if not disclosed and this approach is conventionally termed the unweighted approach.

The weighted disclosure approach (used by, for example Courtis, 1978; Barrett, 1977; Marston, 1986), involves the application of weights above zero but less than one, to items of information which are disclosed (zero is the weight for nondisclosure). Previous experiences also show that the use of unweighted and weighted scores for the items disclosed in the annual reports and accounts of companies can make little or no difference to the ? ndings (Coombs & Tayib, 1998). Firth (1979), for example, noted that unweighted and weighted scores showed similar results. Thus, we used only an unweighted disclosure index approach in this research.

The fundamental theme of the unweighted disclosure index is that all items of information in the index are considered equally important to the average user. The obvious advantage of using an unweighted index is that it permits an analysis independent of the perception of a particular user group (Chow & Wong-Boren, 1987, p. INS; 537). After establishing the disclosure index, a scoring sheet was developed to assess the extent of voluntary disclosure. If a company disclosed an item of information included in the index, it received a score of 1, and 0 if it is not disclosed (see Cooke, 1989a,b, p. 82). The method of initially computing the disclosure score for each company can be expressed as follows: dj DCOR = ? j=1 n where: DCOR dj the aggregate disclosure score; 1 if the jth item is disclosed or 0 if it is not disclosed; and ? 1? n the maximum score each company can obtain. In this case, the key fact is whether or not a company discloses an item of information in the annual report. Thus, the unweighted disclosure method measures the total disclosure (TD) score of a company as additive (suggested by Cooke, 1992).

It is noted that companies were not penalized for nondisclosure of an item if it was deemed to be irrelevant to their business activities. As with prior research (e. g. , Cooke, 1989a,b), the entire annual report was read to assess the relevance of a particular item of information to the ? rm. 5. 4. Dependent and independent variable The unweighted disclosure index DCOR has been used as the basis for the dependent variable used in the empirical analysis of the study. However, the independent variables, the proxy and expected signs in the study are as follows: Variable Age Size Pro? ability Complexity Assets-in-place Proxy Number of years since foundation Natural log of total assets Return on equity = net pro? t/total shareholders’ equity Number of subsidiaries Fixed assets/total assets Expected sign ± + + + + 5. 5. General form of regression model The following is the general form of the OLS regression model which has been ? tted to the data in order to assess the effect of each variable on the disclosure data associated with the versions of the disclosure index DCOR and to test the associated hypotheses: Iij = ? 0 + ? 1 Agej + ? 2 Sizej + ? 3 Profitabilityj + ? Complexityj + ? 5 Assets in placej + ? ij where: I i j the voluntary disclosure index scores for sampled companies number of indices according to overall disclosure; number of companies (1,… 25). ?2? 6. Hypotheses development 6. 1. Age The extent of a company’s disclosure may be in? uenced by its age, with age proxying for the form’s stage of development and growth (Owusu-Ansah, 1998). Owusu-Ansah (1998, p. 5) argued three points in this case. First, younger companies may suffer competitive Table 3 Items included in the voluntary disclosure index and an indicative list of their sources.

Categories of disclosure A B C D E F G H Background about company Corporate strategy Corporate governance Financial performance General risk management Accounting policy review Corporate social disclosure Others Total No. of items 6 2 9 6 8 2 3 8 44 Evidence for inclusion Ahmed and Nicholls (1994); Singhvi (1968) Chau and Gray (2002) Haniffa and Cooke (2002) Cooke (1991, 1992) Hossain et al. (1994) Wallace et al. (1994) Rodriguez and LeMaster (2007) Firth (1979) Source: literature review by the researchers. 260 M. Hossain, H. Hammami / Advances in Accounting, incorporating Advances in International Accounting 25 (2009) 255–265 isadvantage if they disclose certain items such as information on research expenditure, capital expenditure, and product development. The second factor is the cost and the ease of gathering, processing, and disseminating the required information. These costs are likely to be more onerous for younger companies than for their older counterparts. The third and ? nal factor is the situation that younger companies may lack a ‘track record’ to rely on for public disclosure and therefore may have less information to disclose or less rich disclosures.

Therefore, in principle the age of the ? rm can be offered as an independent variable in explaining disclosure level. Under the context of Qatar, it is not possible unambiguously to conclude that longer-established banks will necessarily disclose more information than more newly-established ? rm. However, on the balance of the theory and evidence we present the following hypothesis (with a weak expectation of a positive statistical relation): H1. Longer-established ? rm will tend to disclose more information than more newly-established ? rm. 6. 2. Size Size is identi? d as a signi? cant explanatory variable in explaining variation in the level of voluntary disclosure in previous studies. In literature, a number of theoretical explanations for expecting a positive relationship between company size and level of voluntary disclosure were provided. Agency theory (Jensen & Meckling, 1976) suggested that agency costs are associated with the separation of management from ownership, which is likely to be greater in larger companies. A number of reasons have been advanced in the literature in an attempt to justify this relationship on a priori grounds.

Ahmed and Nicholls (1994, p. 65) argued that it is more likely that large ? rms will have the resources and expertise necessary for the production and publication of more sophisticated ? nancial statements and, therefore, exhibit more disclosure compliance and greater levels of disclosure. Lang and Lundholm (1993) and McKinnon and Dalimunthe (1993, p. 39) pointed out that large ? rms tend to have more analyst followings than small ? rms and therefore may be subjected to greater demand for information. Wallace and Naser (1995, p. 322) state that “size is a function of growth and the growth of a ? m invariably results in a greater need for external capital and consequently a greater need for more comprehensive information”. Cooke (1991, p. 176) states that “larger ? rms are likely to be entities of economic signi? cance so that there may be greater demands on them to provide information for customers, suppliers and analysts, and governments as well as the general public”. These lines of reasoning provide strong grounds for predicting that larger companies are more likely to disclose voluntary information than smaller companies. Thus, it is hypothesized that: H2. Voluntary disclosure is positively associated with company size. . 3. Pro? tability Most researchers have found a positive relationship between pro? tability and the extent of disclosure (see for example, Cerf, 1961; Singhvi, 1967; Singhvi & Desai, 1971; Belkaoui & Khal, 1981; Wallace, 1987; Wallace et al. , 1994; Wallace & Naser, 1995; Raffournier, 1995; Inchausti, 1997; Hossain, 2001). Watts and Zimmerman (1986, p. 235) further argued that companies with larger pro? ts are more vulnerable to regulatory intervention and hence they could be more interested in disclosing detailed information in their annual reports in order to justify their ? ancial performance and to reduce political costs. Agency theory suggests that managers of larger pro? table companies may wish to disclose more information to obtain personal advantages like continuance of their management position and compensation (Inchausti, 1997). Hence, for these reasons, it is hypothesized that: H3. The level of voluntarily disclosure is positively associated with pro? tability. 6. 4. Complexity of business The study of Haniffa and Cooke (2002) suggested that structural complexity may be signi? cant in explaining variability in the extent of disclosure.

Courtis (1978), and Cooke (1989a), argued that structural complexity requires a ? rm to have an effective management information system for monitoring purposes, and that the availability of such a system helps to reduce the cost of information production per unit, and thus higher disclosure. This variable did not provide signi? cant results in the study of Haniffa and Cooke (2002), although it was expected to give positive sign. Based on the above arguments, we hypothesize: H4. The level of voluntary disclosure is positively associated with the complexity of the ? rm. 6. . Assets-in-place Financial reporting is one means of mitigating agency problems (Healy & Palepu, 2001; Jensen & Meckling, 1976). For example, Leftwich, Watts and Zimmerman (1981) found that the debt ratios of companies which were semi-annual reporters in the US were signi? cantly higher than the corresponding ratios for the other reporting frequencies; and assets-in-place, used in this context as a proxy for information asymmetry, of semi-annual reporting ? rms was lower than that for other reporters. Hossain and Mitra (2004) found assets-in-place to systematically in? ence the level of voluntary disclosure of US multinational companies. Butler, Kraft, and Weiss (2002) argued that ? rms with a higher percentage of tangible assets have lower agency costs because it is more dif? cult for managers to misappropriate wellde? ned assets-in-place than to extract value from uncertain growth opportunities. Therefore, since those ? rms with higher than average assets-in-place may tend to have lower levels of agency costs, they can reduce their reliance on disclosures in line with lower levels of agency costs. It may also be argued that ? ms with relatively high levels of debt ? nancing have higher agency costs, and therefore, exhibit a greater demand for monitoring by creditors and others. These relationships may be mitigated where there are relatively higher levels of (or increases in) a ? rm’s ? xed assets, thereby resulting in lower agency costs, and consequently lower disclosure (Myers, 1977). Myers (1977) assertion that wealth transfers can be more dif? cult between shareholders and debt holders for ? rms with a larger proportion of assets-in-place is the source of this mitigation.

However, some studies which have investigated the in? uence of variables capturing assets-in-place on voluntary disclosure in annual reports do not report any signi? cant relationship (Chow & Wong-Boren, 1987; Hossain et al. , 1994; Hossain et al. , 1995; Raffournier, 1995). Therefore, there is no unambiguous support for a hypothesis associating disclosure levels with assets-in-place. However, with this in mind and after considering the foregoing discussions the following hypothesis is offered: H5.

There is an association between the proportion of assets-in-place and the extent of voluntary disclosure. 7. Finding and analysis 7. 1. Descriptive statistics Descriptive statistics for the dependent variables and independent variables are reported in Panel A of Table 4. The table indicates that the M. Hossain, H. Hammami / Advances in Accounting, incorporating Advances in International Accounting 25 (2009) 255–265 Table 4 Descriptive statistics. Panel A: Descriptive statistics for dependent variable Variable Voluntary disclosure Mean 36. 84 Std. Dev. 10. 55 Min. 20 261 Max 67 Panel B.

Distribution of the voluntary disclosure indices Score Distribution of voluntary disclosure scores AVDa 0 0–10 11–20 21–30 31–40 41–50 51 and above Total 3 (12%) 5 (20%) 3 (12%) 5 (20%) 4 (16%) 3 (12%) 2 (8%) 25 BGa 0 0 0 3 (12%) 5 (20%) 8 (32%) 1 (4%) 25 CSa 1 (4%) 8 (32%) 3 (12%) 4 (16%) 4 (16%) 2 (8%) 0 25 CGa 10 (40%) 6 (24%) 4 (16%) 5 (20%) 2 (8%) 0 0 25 FPa 3 (12%) 1 (4%) 6 (24%) 7 (28%) 6 (24%) 2 (8%) 0 25 GRMa 2 (8%) 4 (16%) 3 (12%) 8 (32%) 5 (20%) 3 (12%) 0 25 APRa 0 0 0 2 (8%) 6 (24%) 4 (16%) 1 (4%) 25 CSRa 8 (32%) 5 (20%) 4 (16%) 4 (16%) 1 (4%) 2 0 25 Others 0 16 (64%) 4 (16%) 7 (28%) 3 (12%) 3 (12%) 0 25

Panel C. Descriptive statistics for other variables Variable Log assets ROE Assets-in-place Age Complexity Mean 15. 67 17. 32 0. 40 15. 36 2. 72 Std. Dev. 1. 42 9. 45 0. 35 12. 45 3. 18 Min. 13. 16 2. 70 1. 58 1. 00 0. 00 Max 18. 55 41. 20 0. 01 43. 00 11. 00 Figures in parentheses denote percentage of actual scoring. a AVD = average voluntary disclosure score; BG = background; CS means corporate strategy; CG = corporate governance; FP = ? nancial performance; GRM = general risk management; APR = accounting policy review; and CSR = corporate social disclosure. evel of average voluntary disclosure in the sample companies is 37% with a minimum of 20% and a maximum of 67%. It is consistent with Leventis and Weetman (2004) in Greece (37%), Al-Shammari (2008) in Kuwait (46%) and Ghazali and Weetman (2006) in Malaysia (31%). Table 4 presents a distribution of overall voluntary disclosure and its eight categories. The table shows that there is great variability in the level of overall voluntary disclosure and in each category. It shows that 32% of the companies had a score less than 21% and only two companies have a score in excess of 50% in the overall level of voluntary disclosure.

With respect to categories of voluntary disclosure, the table shows that highest percentage of companies (20%) scored in the disclosure range of 21–30 and 0–10, on the other hand, 12% of the companies did not disclose any information in corporate strategy, corporate governance, ? nancial performance, general risk management and corporate social responsibility, and in this cases, the highest number of companies observed in two areas, corporate governance (40%) and corporate social responsibility (32%).

It is also noted that only 16% of the companies’ disclosure score is in the range of 31–40. A possible explanation for the variation in the level of voluntary disclosure could be related to the company-speci? c characteristics. Therefore, the remaining parts of this study focus on this issue. In panel C, it is also observed that log assets ranged from 13. 16 to 18. 55, with a mean of 0. 15. 67. The size distribution is skewed. Skewness is mitigated by utilizing natural logarithm of size in the regression analysis, consistent with prior studies (Glaum & Street, 2003).

Pro? tability (ROE) for full sampled ranged from 2. 7 to 41. 20 with a mean of 17. 32. The variation is of the minimum and maximum is noticeable because the sample size included the ? nancial institutions. Assets-in-place ranged from 1. 58 to 0. 01 with a mean of 0. 40. It indicates that sampled companies have low ? xed assets against total assets. Company age ranges from 1 to 43 years with a mean of 15. 36 for the whole sample. Complexity ranges from 0 to 11. 00 with a mean of 2. 72. The ? ure of zero indicates that some companies effectively had no subsidiary. 7. 2. Correlation matrix and multicollinearity analysis Multicollinearity in explanatory variables has been diagnosed through analyses of correlation factors and Variable In? ation Factors (VIF), consistent with Weisberg (1985). Table 5 presents the correlation matrix of the dependent and continuous variables, from which, it has been observed that the highest simple correlation between independent variables was 0. 52 between log assets and assets-in-place. Judge, Grif? hs, Carter Hill, Lutkepohl, and Lee (1985), and Bryman and Cramer (1997) suggest that simple correlation between independent variables should not be considered harmful until they exceed 0. 80 or 0. 90. The VIF in excess of 10 should be considered an indication of harmful multicollinearity (Neter et al. , 1989). Alternatively, if the average VIF is substantially greater than 1 then the regression may be biased (Bowerman & O’Connell, 1990). The average VIF (1. 47) is close to 1 and this con? rms that collinearity is not a problem for this model. 3 These ? dings suggest that multicollinearity between the independent variables is unlikely to pose a serious problem in the interpretation of the results of the multivariate analysis. 7. 3. Multivariate analysis We performed an Ordinary Least Square (OLS) regression model for all variables, the results of which are presented in Table 6. The 3 The average VIF is computed by summing all VIF values in the last column located in Table 6 and then divided by the number of explanatory variables. 262 Table 5 Correlation matrix. Variable Vol disclosure Log assets ROE Assets-in-place Age Complexity a

M. Hossain, H. Hammami / Advances in Accounting, incorporating Advances in International Accounting 25 (2009) 255–265 Vol disclosure 1. 000 0. 662a 0. 201 0. 638a 0. 471a 0. 020 Log assets 0. 662a 1. 000 0. 271 0. 515a 0. 233 0. 017 ROE 0. 201 0. 271 1. 000 0. 317 ? 0. 132 ? 0. 244 Assets-in-place 0. 638a 0. 515a 0. 317 1. 000 0. 278 ? 0. 246 Age 0. 471a 0. 233 ? 0. 132 0. 278 1. 000 ? 0. 397a Complexity 0. 020 0. 017 ? 0. 244 ? 0. 246 ? 0. 397a 1. 000 Signi? cant at . 05 (1-tailed). multiple regression model is signi? cant (P ;0. 005). The adjusted coef? ient of determination (R2) indicates that 61% of the variation in the dependent variable is explained by variations in the independent variables. The coef? cient representing assets (log of assets), assets-inplace, age, and complexity are statically signi? cant between 1% and 5% levels, while the coef? cients for ROE is not statistically signi? cant. 7. 4. Discussion of regression result Results of the OLS regression in Table 6 show that the F-ratio is 8. 73 (P = 0. 00). The result statistically supports the signi? cance of the model. An R2 of 0. 617, which is a good result, implies hat independent variables explain 61. 7% of the variance in disclosure index and this result compares favourably with similar studies using disclosure indices of Akhtaruddin (2005) at 55. 7%, Haniffa and Cooke (2002) at 46. 3%, and Ahmed (1996) at 33. 2%. The variable of age is positive and signi? cant at 1% level which suggests that older companies will have direct in? uence on the level of voluntary disclosure. This ? nding lends support to Hypothesis 1. The previous research studies of Akhtaruddin (2005), Haniffa and Cooke (2002), Glaum and Street (2003) and Hossain (2008) found insigni? ance in explaining the level of disclosure. The possible reasons for that above studies seek to explain on mandatory disclosure including corporate governance rather than voluntary disclosure. The empirical evidence derived from the regression model indicates that size by assets is statistically related to the level of voluntary disclosure by the sample of companies in their annual reports. It is signi? cant at a . 05% level and positive. The positive sign on the coef? cient suggests that size has a direct in? uence on level of disclosure in the companies in Qatar. Empirical evidence also con? ms the hypothesized positive association between company size and level of voluntary disclosure. For examples, McNally et al. (1982), Hossain et al. (1994), Ahmed (1996), Wallace and Naser (1995), Depoers (2000), Haniffa and Cooke (2002), Eng and Mak (2003), Ghazali and Weetman (2006), Hossain and Reaz (2007), Hossain and Taylor (2007) and Al-Shammari (2008). The variable is not signi? cant and therefore, hypothesis is not supported. This implies that more Table 6 Regression results. Iij =? 0 + ? 1Agej +? 2Sizej +? 3Pro? tabilityj +? 4Complexityj + ? 5Assets-in-placej + ? j Variable Constant Log assets ROE Assets-in-place Age Complexity Model summary R R2 Adjusted R2 F-value Sig. Durbin–Watson 0. 835 0. 697 0. 617 8. 73 0. 00 1. 524 ? ?15. 116 2. 330 0. 135 11. 800 0. 353 1. 019 t-value ? 0. 934 2. 032 0. 824 2. 532 2. 735 2. 040 Sig. 0. 362 0. 056 0. 420 0. 020 0. 013 0. 056 VIF 1. 54 1. 37 1. 55 1. 49 1. 43 pro? table companies do not disclose signi? cantly more voluntary information than do less pro? table ones. The result is thus inconsistent with other previous studies such as Singhvi and Desai (1971) and Hossain and Reaz (2007), however, other studies show positive in? ence such as Ghazali and Weetman (2006) and Al-Shammari (2008). Moreover, to date, the empirical evidence on the relation between ? rm performance and disclosure is mixed (Camfferman & Cooke, 2002; Lang & Lundholm, 1993; Wallace et al. , 1994). One possible answer for the insigni? cance of the variable is that apparently Qatar has a short history of stock markets (starting 1997) and small size of investor. The companies are reluctant to disclose voluntary information considering the cost of producing information. This variable is signi? ant at 5%, providing evidence that if the company has a subsidiary at home and/or abroad, it is likely that the company will disclose more information than a company with no such subsidiaries. This is an interesting result and may be re? ective of the stage of development of Qatari companies as it goes through a period of signi? cant growth. The hypothesis is accepted. This variable is signi? cant at 2% and the sign is positive. The studies like Hossain and Mitra (2004), Hossain (2001), and Hossain and Reaz (2007) have found positive in? uence on the voluntary disclosure.

The hypothesis is accepted. 8. Conclusion This study sought to empirically investigate the association between a number of company characteristics and the extent of voluntary disclosure in the annual reports listed companies in the Doha Securities Exchange in 2007. The ? nding indicates that voluntary disclosure of the listed companies in DSM depends on some ? rm characteristics. It is revealed that age, assets, complexity and assets-in-place variables are signi? cant in explanatorily variable to the levels of voluntary disclosure, on other hand the pro? able variable was found insigni? cant. The results at least provide some sort of knowledge of ? nancial reporting practices around the GULF reasons in general, and Qatar in particular. The users of ? nancial reporting including investors need con? dence of ? nancial markets and information disclosure is a vital element to ful? ll this con? dence and in this case this study would provide a communication bridge to the various stakeholders in the society. 9. Limitations and future research direction One limitation of this study is that the ? dings are based on Qatari companies which may limit the generalisability of the results to other jurisdictions. The ? ndings are also based on observations of a relatively small number of companies, that is, those listed Qatari companies that voluntarily disclosed information in a particular one year. This raises further uncertainty about the extent to which the results are generalisable. In order to overcome this shortcoming, a study can be taken in the other Arab countries such as Gulf Co-Operation Council (GCC) member states as comparative and/or longer period of time which will help to validate this study.

The two most explanatorily variables such as corporate governance and board composition can be considered in further studies. M. Hossain, H. Hammami / Advances in Accounting, incorporating Advances in International Accounting 25 (2009) 255–265 263 Appendix A. Companies included in study Banking and ? nancial sector 1. 2. 3. 4. 5. 6. Qatar National Bank Qatar Islamic Bank Commercial Bank Of Qatar Doha Bank Al-Ahli Bank International Islamic Bank Insurance sector 7. 8. 9. 10. Qatar Insurance Doha Insurance Qatar General Insurance & Reinsurance Islamic Insurance Industrial sector 11. 12. 13. 14. Qatar Industrial Manufacturing Co.

National Cement Co. Industries Qatar United Development Company Services sector 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. Qatar Telecom Electricity & Water Q-Ship Real Estate Co. Salam International Investment. Qatar Navigation Qatar Fuel Company (QOQOD) Nakilat Dlala Barwa, 1st Jan Aamal Appendix B (continued) (continued) No. List of items 15 16 17 D 18 19 20 21 22 23 E 24 25 26 27 28 29 30 31 F 32 33 G 34 35 36 H 37 38 39 40 41 42 43 44 Picture of chairperson Composition of Board of Directors Number of BOD meetings held and date Financial performance (6): Brief discussion and analysis of a ? ancial position Return on equity Net interest margin Earnings per share Debt-to-equity ratio Dividend per share General risk management (8): Discussion of overall risk management philosophy and policy/framework Narrative discussions on risk assets, risk measurement and monitoring Information on risk management committee Information on assets–liability management committee Information on risk management and reporting system Disclosure of credit rating system/process General descriptions of market risk segments Disclosure of interest rate risk Accounting policy review (2): Discussion on accounting policy Disclosure of accounting standards uses for accounts Corporate social isclosure (3): Sponsoring public health, sponsoring of recreational projects Information on donations to charitable organizations Supporting national pride/government — sponsored campaigns Others (8): Age of key employees Chairman’s/MD’s report/directors report Information on ISO 9001: 2000 certi? cation Graphical presentation of performance indicators Performance at a glance — 3 years Related party disclosure Details of non-compliance, penalties imposed by SE or SEBI Year of listing at DSM References Appendix B. 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