Financial disclosure practices among Malaysian local authorities: a case study

• Pages: 42-64
• DOI: https://doi.org/10.1108/IJPSM-05-2017-0138
• Published date: 14 January 2019
• Date: 14 January 2019
• Author: Neilson Anak Teruki,Robert Ochoki Nyamori,Kamran Ahmed
• Subject Matter: Public policy & environmental management,Politics,Public adminstration & management

Financial disclosure practices

among Malaysian local

authorities: a case study

Neilson Anak Teruki

Department of Social Science, Faculty of Agriculture and Food Sciences,

Universiti Putra Malaysia Bintulu Campus, Bintulu, Malaysia

Robert Ochoki Nyamori

College of Business, Abu Dhabi University, Abu Dhabi,

United Arab Emirates, and

Kamran Ahmed

Department of Accounting, College of Arts Social Sciences and Commerce,

La Trobe University, Bundoora, Australia

Abstract

Purpose –The purpose of this paper is to understand and explain the financial disclosure processes among

Malaysian local authorities (MLAs).

Design/methodology/approach –Employing semi-structured interviews, data were collected from

26 members in five case study organisations, and interpreted using Gibbins et al. (1990, 1992) framework of

financial disclosure.

Findings –The study finds that financial disclosure is influenced by a hierarchical structure consisting of

accountants, the Financial Accounts Committee, the mayor and other managers. The decision to disclose or

not disclose was influenced by how sensitive the issue was. External auditors and mediators influenced both

the identification of issues, disclosure position and disclosure output. Though there are many laws governing

financial accounting, MLAs opportunistically chose to apply the Federal Treasury Circular largely because

the external auditors used it.

Research limitations/implications –This study contributes to the literature by illuminating who makes

disclosure decisions, what influences these decisions and how. The study reveals hitherto un-researched

contextual factors that affect disclosure, namely, religion and external auditors and the opportunistic choice

of which laws and regulations to apply in financial disclosure. Future studies might want to apply this

approach in other contexts to see what we can learn from them.

Originality/value –Using case studies in the study of financial disclosure provided valuable insights into

the complex and multi-dimensional phenomenon of financial information disclosure. The application of

Gibbins et al. (1990, 1992) framework in the public sector and in Malaysia is novel.

Keywords Case study, Malaysia, Local government, Financial disclosure

Paper type Research paper

1. Introduction

This study investigates the processes of financial disclosure among Malaysian local

authorities (MLAs). Financial disclosure refers to “any deliberate release of financial

information, whether numerical or qualitative, required or voluntary, or via formal or

informal channels”(Gibbins et al., 1990, p. 122). Studies investigating disclosure practices in

the public sector have mostly focussed on the incentives for disclosure of financial

information (e.g. Perez et al., 2008; Laswad et al., 2005); or on disclosure quality (Robbins and

Austin, 1986). There is, however, paucity of studies that examine the organisational, social

and environmental context within which financial disclosure occurs (Gibbins et al., 1990;

International Journal of Public

Sector Management

Vol. 32 No. 1, 2019

pp. 42-64

© Emerald PublishingLimited

0951-3558

DOI 10.1108/IJPSM-05-2017-0138

Received 7 June 2017

Revised 19 November 2017

9 February 2018

13 April 2018

Accepted 15 April 2018

The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/0951-3558.htm

The authors thank Manzurul Alam, Janet Lee, Menga Negash, Zahirul Hoque and participants at the

AFAANZ Conference in Perth, two anonymous reviewers and the Editor of this journal, Sandra van

Thiel for their comments which have improved the paper.

42

IJPSM

32,1

Adams, 1997; Hopwood, 2000; Carpenter and Feroz, 2001). Those which have sought to

address this issue have approached it from outside the context in which disclosure decisions

are made by analysing financial reports, surveys or websites and speculating how the

factors they study might have affected financial disclosure decisions (e.g. Garcia and Garcia-

Garcia, 2010). Who makes particular disclosure decisions and the range of influences on this

decision process is an empirical question that this study seeks to answer.

Furthermore, most previous studies have been conducted in western countries

(e.g. Garcia and Garcia-Garcia, 2010; Laswad et al., 2005; Robbins and Austin, 1986;

Serrano-Cenca et al., 2016). Little attention has been devoted to the issue of accounting

disclosure in local governments in South East Asian countries (see exceptions Coombs and

Tayib, 1999; Ghani and Said, 2010; Tooley et al., 2010a, b). Those studies which have been

undertaken have not addressed how MLAs arrive at the information in the annual reports

(Coombs and Tayib, 1999) or websites (Ghani and Said, 2010) that they analyse. This study

was undertaken within the context of Malaysia, a rapidly emerging economy, and

specifically on local authorities. Focus on public sector financial disclosure in Malaysia is

thus timely because this sector has been criticised as inefficient, unaccountable and corrupt

(Siddiquee, 2006; Tooley et al., 2010a, b; The Sun, 2006). But at the same time, the country

has embraced new public management (NPM) reforms (Hood, 1995) which implies adoption

of private sector-like practices in the public sector (Abdul Khalid, 2008)[1].

This paper contributes to the existing literature by providing a greater understanding of

disclosure processes in the Malaysian local government sector. The study applies Gibbins

et al.’s (1990, 1992) framework to answer the following research questions:

RQ1. Who are the actors involved in financial disclosure?

RQ2. What are the internal and external forces influencing them?

RQ3. How do they decide what and whether to disclose financial data?

The case study research method (Yin, 1989) employed in this paper provides important

insights into the complex and multi-dimensional phenomenonof disclosure. This approach is

deemed to beappropriate considering thedearth of disclosure studiesemploying it. The study

should be of interest to policy makers who wish to enhance accountability to their citizens.

The paper is structured into seven sections as follows. The following section reviews the

relevant background literature. Section 3 describes the Malaysian context, Section 4 outlines

the theoretical framework and Section 5 describes the methods. Section 6 describes the

results with Section 7 discussing the results and concluding the paper.

2. Literature review

Public sector financial disclosure studies can be categorised into two broad themes. The first

consists of those which have been concerned to identify the use and users of government

financial reports (e.g. Steccolini, 2004; Tooley et al., 2010b). The second consists of those

which have sought to identify the contextual factors that inform financial disclosure

decisions (e.g. Laswad et al., 2005; Serrano-Cenca et al., 2016, Garcia and Garcia-Garcia, 2010;

Styles and Tennyson, 2007).

The first typeof studies have failed to reach a consensusas to the information needsof the

users of financial statements (Steccolini, 2004). Tayib et al. (1999), for example, found that

though taxpayers in Malaysia wanted information on the income and expenditure of their

municipalities, the information provided by MLAs could not meet their needs. Some studies

have found that though most local governments in many countries disclose financial

information,citizens have difficulty in accessing it and even then the numberof citizens using

it is likely to be small ( Jones, 1992; Brusca and Montesinos, 2006; Marcuccio and Steccolini,

2009). This situation has been attributed to lack of awareness of availability of financial

43

Financial

disclosure

practices