DETERMINANTS OF QUALITATIVE INFORMATION DISCLOSURE: EVIDENCE FROM QUOTED FIRMS ON NIGERIAN STOCK EXCHANGE.

• Author: Ohonba, Nosa
• Position: Clinical report

INTRODUCTION

Information disclosure is one of the basic principles of the stock market and it is a powerful tool for protecting investors and monitoring companies. Information provided in a corporate report consists of financial information (FI) which is expressed in monetary terms and non-financial information (NFI). Financial information is quantitative while non-financial information is qualitative. Corporate reporting is used as a medium for communicating both quantitative and qualitative corporate information to shareholders, investors and other users (Al-Shammari, 2008). According to Hieu and Lan (2015), adequate information disclosure is important because it gives room to judge opportunities, performance, risks of the investment and how the firm is being run.

KPMG (2011) noted that since the 1990s, the number of firms that endorse qualitative information disclosure has increased to a large extent while the volume of such disclosures has equally risen respectively for the benefits of users. For instance, decision-making concerning investment in a specific share requires some reliance not only on quantitative information but also on qualitative information. Similarly, investors and creditors also take into account the profitability and qualitative information in the corporate report (Eccles & Krzus, 2009).

Qualitative information disclosure may be mandatory or voluntary. In this context, several countries have enacted mandatory requirements for firms to report on qualitative issues. For instance, France, Spain, the Netherlands, the United Kingdom, Sweden, and Denmark have introduced legal requirements to enlarge the scope of conventional corporate reporting to include non-financial performance parameters (Eccles & Krzus, 2009). Emerging exchange markets are not left out in the move to promote qualitative information disclosure. For example, exchanges in Brazil, China, Egypt, India, Indonesia, Malaysia, and South Africa have launched non-financial disclosure rules in their various countries (Eccles & Krzus, 2009). However, qualitative information disclosure still appears to be voluntary and this suggests that firms have the absolute discretion in the decision to report.

Issues of qualitative information disclosure remain a major concern due to the insufficiency of traditional and non-financial information in the corporate report. Ping (2012) posited that qualitative information disclosure has been seriously criticised as it was unable to meet investors' expectation of investment decisions purposes. Similarly, prior studies indicated that qualitative information disclosure was accorded a lower priority compared to traditional financial information which involves numerical or quantitative disclosure in the annual reports (Gibbins, Richardson, & Waterhouse 1990). Hieu and Lan (2015) stated that qualitative information disclosure is linked to low transparency and information asymmetry. Low transparency implies that not enough information is communicated to the investing community and users of the corporate report which presupposes that there exists information asymmetry between those who know the information and those who do not.

Barako (2007) explained that management can take advantage of the lack of disclosed qualitative information in the corporate report to undertake in activities to enhance interest to the detriment of owners. Lokman (2011) opined that poor qualitative information disclosure exposes outside shareholders to the risk of losing their money due to a lack of adequate information in the corporate report. Li and Zhao (2011) observed that creditors derive some advantages from nonfinancial information disclosure which is qualitative to protect their interests by way of increasing the interest rate resulting in an increase in the firm cost of capital.

The idea of using profitability as a basis for determining qualitative information disclosure has been criticised because firms with higher profits are more vulnerable to regulatory intervention, and hence, can be more interested in disclosing detailed information in their corporate reports to justify their financial performance and to reduce political costs (Hossain & Hammami, 2009). Okike (2000), Adeyemi (2006), Ofoegbu and Okoye (2006) and Umoren (2009) observed that the Nigerian corporate reporting practice are weak. Similarly, Osisioma (2001) stated that nondisclosure of qualitative information largely contributes to the premature development of accounting practice in developing nations like Nigeria which could have some implications on the firm.

Several studies on qualitative information disclosure have been conducted in developed countries of the world (such as Barac, Granic, and Vuko, 2014; Hossain & Hammami, 2009; Lakhal, 2004). To the best of our knowledge, very few of these studies have been carried out in developing countries like Nigeria. These few studies from Nigeria include Onoja and Agada (2015) who examine voluntary risk disclosure in corporate annual reports; Oyerogba (2014) study centres on voluntary disclosure in determining the quality of corporate reports using quoted firms in Nigeria; Efobi (2014) study centres on voluntary information disclosure practice of listed companies in Nigeria; and Kabir (2014) examines firm characteristics and voluntary segments disclosure among the largest firms in Nigeria.

The only closely related study from Nigeria was by Ikpor and Agha (2016) who investigated determinants of voluntary disclosure quality in emerging economies. Also, extant studies from Nigeria did not attempt or recognise the importance of combining four variables like corporate governance (voluntary) disclosure, intellectual capital disclosure, corporate social and environmental disclosure and risk management disclosure by employing checklists to achieved qualitative information disclosure. Thus, there lies a gap in knowledge which this study desires to fill. Hence, this study seeks to investigate the determinants of qualitative information disclosures in corporate reporting in Nigeria. Therefore, this study investigates the effect of the firm's ownership structure, investment decision, firm's profitability, firm's leverage, firm's size and industry type on the firm's qualitative information disclosure.

BACKGROUND OF THIS STUDY

Qualitative Information Disclosure

Corporate disclosure is seen from different perspectives. Adesina, Ikhu- Omoregbe and Olaleye (2015) noted that disclosure represents one of the pillars of corporate governance. Adesina, et.al (2015) further defined disclosure as transferring and presenting economic information, whether financial or nonfinancial for the interest of users. According to Taposh (2014), disclosure in financial reporting is referred to the presentation of information necessary for the optimum operation of an efficient capital market. FASB (2000) stated that qualitative information disclosure in the corporate annual report reveals information outside of the financial statements that are not explicitly required by accounting rules or standards. Whereas voluntary information disclosures are based on the discretion of firms which can be financial or nonfinancial, disclosed over and above the compulsory requirements (Barako, 2007). In effect, qualitative information disclosure relates to non-financial information in the corporate report for the interest of stakeholders.

In this study, qualitative information disclosure has been disaggregated into corporate social responsibility disclosure, corporate risk disclosure, corporate governance disclosure and intangible assets disclosure (Mohamad, et al., 2014). Corporate Social Responsibility (CSR) involves the practice whereby corporate organisations willingly integrate both social and environmental upliftment in their business values and operations (Mohammed & Abubakar, 2014). Intellectual capital disclosure represents an approach that can be used to measure intangible assets and describe the results of a company's knowledge-based activities (Ismail, 2008). According to Ismail and Rahman (2013), risk management refers to the management of any uncertainty faced by the organization that could lead to gains or losses. While Shleifer and Vishny (1997) view corporate governance as a set of mechanisms which ensures that potential providers of external capital receive a fair return on their investment because the firm's ownership is separated from their control.

Ownership Structure and Qualitative Information Disclosure

The ownership structure of the firm entails foreign ownership, managerial ownership, institutional ownership, ownership concentration, family control and state ownership (Vu (2012). Rouf and Harun (2011) study of 94 sampled listed firms in Bangladeshi found that the extent of corporate qualitative information disclosures is negatively associated with the higher management of ownership structure of the firm. Rouf (2011) evaluated the corporate voluntary disclosure of management's responsibilities of 132 Bangladeshi listed companies from 2005-2008 and established that voluntary disclosure level has a negative relation with the percentage of equity owned by the insiders of the firms.

Qu (2011) study of 297 listed companies on the Chinese Stock Market annual reports in the reporting periods of 1995-2006. Qu found that state ownership has a significant negative impact on companies' disclosure decisions. Elmans (2012) study found that there was a positive association between government ownership and voluntary information disclosures. Hieu and Lan (2015) study were on the factors affecting the extent of voluntary disclosure by examining the annual reports of 205 sampled industrial and manufacturing firms quoted on Ho Chi Minh Stock Exchange (HSX) and Hanoi Stock Exchange (HNX) for the year 2012. Using multiple regression analysis. Hieu and Lan found that foreign ownership is statistically significant and positively influenced...