Determinants ofCorporate VoluntaryD

Determinants ofCorporate VoluntaryDisclosureinBrazil*



Fernando Dal-Ri Murcia
Universidade de São Paulo
[e-mail]
and
Ariovaldo dos Santos
Universidade de São Paulo
[e-mail]
Comments Welcomed
First Version: January 2010
Abstract
The central objective of this paper is to identify the factors that explain the level of voluntary disclosure of Brazilian public companies. The theory underpinning this work is the Discretionary-based Disclosure (Verrecchia, 2001). Sample is composed by the top 100 largest non-financial public companies listed in Bovespa. Information has been gathered from Financial Statements for the years ended in 2006, 2007 and 2008 with the use of content analysis. For these, a disclosure framework based on 27 studies has been elaborated. This framework contains a total of 92 voluntary items, divided in two dimensions: economic (43), social-environmental (49). Based on the existing literature, a total of 12 hypotheses have been elaborated and tested using a panel data approach. We have also analyzed the association between voluntary disclosure and company’s sector, which has been confirmed by the Chi- square test at a significance level of 1%. Correspondence Analysis, by means of the perceptual map, has evidenced that (i) retail sector is associated with a ‘bad’ level of disclosure and (ii) electric sector is associated with a ‘good’ and ‘great’ level of voluntary disclosure. Panel data analysis has evidence that: (i) ‘Sector’ and ‘Origin of Control’ are statically significant in all three models tested: economic, social-environmental, and total; (ii) ‘Profitability’ is relevant in the economic model and in the total model; (iii) Tobin’s Q is relevant in the social-environmental model and in the total disclosure model, (iv) ‘Leverage’ and ‘Auditing Firm’ are relevant, only, in the economic disclosure model; (v) ‘Size’, ‘Governance’, ‘Stock Issuing’, ‘Growth Opportunities’ and ‘Concentration of Control’ are not statistically significant in any of the three models of disclosure.


Keywords: Accounting, Disclosure, Discretionary Disclosure, Voluntary Disclosure,
Determinant Factors, Brazilian market.



* We wish to thank Gerlando Lima, Paulo Roberto Lustosa, A. Gledson de Carvalho, Bruno Salloti, Suli Rover, Márcio Machado and Gilberto Martins for comments on the earlier versions of this paper. We also would like to thank the Universidade de São Paulo, FIPECAFI and CNPq for financial support.









Electronic copy available at: http://ssrn.com/abstract=1531767

1. Introduction
Voluntary disclosure is the disclosure that exceeds what is recommended by law and represents a free choice from managers to disclose additional information (Meek, Roberts and Gray, 1995). In this sense, voluntary disclose is a choice, just like other accounting choices regarding recognition and measurement of economic transactions (for instance FIFO or LIFO for inventory). But why would managers and/or companies choose to disclose more information than required by law?
Recent studies have showed that companies enjoy several benefits with increased disclosure, like for instance: lower cost of equity capital (Botosan, 1997; Hail, 2002; Alencar, 2007), lower cost of debt (Sengupta, 1998; Lima, 2007), greater market liquidity (Welker,
1995. Leuz and Verrecchia, 2000) and more analyst following (Healy, Hunton and Palepu,
1999. Lang and Lundholm, 2000).
However, if companies do not disclose all the information they have, i.e. they are not fully transparent, one should presume that there are costs involved with voluntary disclosure, like for example, costs related to personnel and certification (Leuz and Wysocki, 2008) and property costs, regarding the disclosure of an information that is strategic to the company (Verrecchia, 2001).
In this scenario, managers possess different kinds of information of which disclosure is not mandatory and they exercise discretion with regard to the information about which they have knowledge (Verrecchia, 2001). The rationale is that costs and benefit influence the choice of engaging in voluntary disclosure.
In this environment, characterized by costs and benefits, the Discretionary-based Disclosure (Verrecchia, 2001) provides the conceptual and theoretical framework to examine the incentives that motivates voluntary disclosure. This theory evaluates under which circumstances companies will choose to disclose certain kinds of information. Therefore, voluntary disclosure can be explained by corporate characteristics like size, profitability, leverageetc. (Cunha andRibeiro, 2006).
Prior works on the determinant factors of voluntary disclosure have been conduct in several countries: France (Depoers, 2000); Hong Kong (Wallace and Naser, 1995), Japan (Cooke, 1992), Malaysia (Hossain, Tan and Adams, 1994), Czech Republic (Patton and Zelenka), Sweden (Cooke, 1989) and Switzerland (Raffounier, 1995).
In that same line of thinking, the objective of this paper is to identify the factors that explain the level of voluntary disclosure of Brazilian public companies.
The main justifications for conducting this research are: (i) Brazil is a “BRIC”, the largest economy in South America and one of the largest economies in the World and (ii) the Brazilian Market is characterized by low enforcement, incentives for manipulation of financial statements due to tax influence, instable financial market and poor governance standards (Lopes and Walker, 2008) where a great variability of disclosure level is expected. For these reasons, Brazil represents a unique scenario for an empirical test of the determinant factors of voluntary disclosure.
At the same time, this paper extends the existing literature in two different manners. First, most prior studies have analyzed only one dimension of disclosure (like for instance onlysocial-environmental information). On the other hand, this paper uses a disclosure index, which has been based on 27 prior studies, composed of 92 kinds of information that takes into consideration social, environmental, and economic dimensions. This is important because factors (profitability, for example) that explain certain dimensions of disclosure might not





Electronic copy available at: http://ssrn.com/abstract=1531767

explain others. This paper takes this fact into consideration and tests the different dimensions of disclosure separately.
Also, most prior studies have analyzedcorporatedisclosure in only one period, using a cross section approach. This might be a problem because some variables (size, for example) may be significant when we compare different companies in one period (larger companies disclosure more information than smaller companies, for instance), but insignificant when we compare the company with itself along the years (company has grown, but disclosure has remain constant). For that reason, we analyzed corporate disclosure during three years with a panel dataapproach with takes both cross section and temporal aspectsinto consideration.
The remainder of this paper is organized as follow: Section 2 presents this study’s hypotheses and review Discretionary-based disclosure; Section 3 describes the methodological aspects; section 4 evidences the results and Section 5 presents this paper’s conclusions.



2. Hypotheses Development
The theory underpinning this study is the Discretionary-based Disclosure, which treats disclosure endogenously, by considering managers’ incentive to disclose certain kinds of information. According to Dye (2001) this is a special case of the Game Theory, where the central premise is that entities will always evaluate the information to be disclosed, as a function of costs and benefits.
The rationale is that thebenefits of voluntary disclosure should be higher than its costs (Dye, 2001). Basically, if managers’ objective is to maximize shareholder’s wealth, there seems to be equilibrium, where information that favors an entity is disclosed, while the one that harms it,is not (Verrecchia, 2001).
One can expect much of the voluntary disclosure to be beneficial to the entity (Dye, 2001). However, due to the risk of adverse selection derived from information asymmetry, entities may also disclose negative information whenever they believe there will be a higher penalty for the absence of certain information. This is because there are costs of being evaluatedby the marketas a “lemon” (Akerlof, 1970).
According to Dobler (2005), Discretionary-based Disclosure analyses the conditions in which information is voluntary disclosed by companied due to its strategic interaction with external agents (investors, competitors etc.). In this sense, this theory helps to identify in which circumstances managers and/or companies choose (or not) to disclose information. Hence, voluntary disclosure could be explained by characteristics related to the company.
In this paper, 12 factors have been extracted from the existing literature in order to explain the level of voluntary disclosure of Brazilian companies. Exhibit 1 illustrates the research design.

Tobin´s Q
Corporate Governance
Internationalization Profitability
Financial Leverage
Voluntary
Industry Stock Issuing
Disclosure
Growth Opportunity Concentration of Control
Auditing Firm Size
Origin of Control
Exhibit1 Research Design -Determinants Factors of Voluntary Disclosure
The 12 factors presented in Exhibit 1 are this study’shypotheses: (i) auditing firm; (ii) profitability; (iii) Tobin’sQ; (iv)internationalization; (v) size; (vi) corporate governance; (vii) financial leverage; (viii) concentration of control; (ix) stock issuing; (x) growth opportunity; (xi) sector and (xii) origin of control. Following a brief discussion of these hypotheses are presented.
H1: Companies audited by ‘Big Four’ tend to discl

Hasil (Bahasa Indonesia) 1:

Faktor penentu ofCorporate VoluntaryDisclosureinBrazil * Fernando Dal-Ri Murcia Universidade de São Paulo [e-mail] Ariovaldo dos SantosUniversidade de São [e-mail] menyambutVersi pertama: Januari 2010AbstrakThe central objective of this paper is to identify the factors that explain the level of voluntary disclosure of Brazilian public companies. The theory underpinning this work is the Discretionary-based Disclosure (Verrecchia, 2001). Sample is composed by the top 100 largest non-financial public companies listed in Bovespa. Information has been gathered from Financial Statements for the years ended in 2006, 2007 and 2008 with the use of content analysis. For these, a disclosure framework based on 27 studies has been elaborated. This framework contains a total of 92 voluntary items, divided in two dimensions: economic (43), social-environmental (49). Based on the existing literature, a total of 12 hypotheses have been elaborated and tested using a panel data approach. We have also analyzed the association between voluntary disclosure and company’s sector, which has been confirmed by the Chi- square test at a significance level of 1%. Correspondence Analysis, by means of the perceptual map, has evidenced that (i) retail sector is associated with a ‘bad’ level of disclosure and (ii) electric sector is associated with a ‘good’ and ‘great’ level of voluntary disclosure. Panel data analysis has evidence that: (i) ‘Sector’ and ‘Origin of Control’ are statically significant in all three models tested: economic, social-environmental, and total; (ii) ‘Profitability’ is relevant in the economic model and in the total model; (iii) Tobin’s Q is relevant in the social-environmental model and in the total disclosure model, (iv) ‘Leverage’ and ‘Auditing Firm’ are relevant, only, in the economic disclosure model; (v) ‘Size’, ‘Governance’, ‘Stock Issuing’, ‘Growth Opportunities’ and ‘Concentration of Control’ are not statistically significant in any of the three models of disclosure. Kata kunci: Akuntansi, pengungkapan, Discretionary pengungkapan, sukarela pengungkapan, Faktor penentu, pasar Brasil. * Kami ingin berterima kasih kepada Gerlando Lima, Paulo Roberto Lustosa, A. Gledson de Carvalho, Bruno Salloti, Suli Rover, Márcio Machado dan Gilberto Martins untuk komentar pada versi sebelumnya dari makalah ini. Kami juga ingin mengucapkan terima kasih Universidade de São Paulo, FIPECAFI dan CNPq untuk dukungan keuangan. Salinan elektronik tersedia di: http://ssrn.com/abstract=1531767 1. PendahuluanPengungkapan sukarela adalah pengungkapan yang melebihi apa yang direkomendasikan oleh hukum dan mewakili pilihan gratis dari manajer untuk mengungkapkan informasi tambahan (Meek, Roberts dan abu-abu, 1995). Dalam pengertian ini, sukarela mengungkapkan pilihan, seperti pilihan akuntansi lainnya mengenai pengakuan dan pengukuran transaksi ekonomi (misalnya FIFO atau LIFO untuk persediaan). Tapi mengapa manajer dan/atau perusahaan memilih untuk mengungkapkan informasi lebih dari yang dipersyaratkan oleh hukum?Penelitian terbaru telah menunjukkan bahwa perusahaan menikmati beberapa manfaat dengan peningkatan pengungkapan, seperti misalnya: menurunkan biaya modal ekuitas (Botosan, 1997; Salam, 2002; Alencar, 2007), menurunkan biaya utang (Sengupta, 1998; Lima, 2007), lebih besar likuiditas pasar (Welker, 1995. Leuz dan Verrecchia, 2000) dan analis lain yang mengikuti (Healy, Hunton dan Runtupalit, 1999. Lang dan Lundholm, 2000). However, if companies do not disclose all the information they have, i.e. they are not fully transparent, one should presume that there are costs involved with voluntary disclosure, like for example, costs related to personnel and certification (Leuz and Wysocki, 2008) and property costs, regarding the disclosure of an information that is strategic to the company (Verrecchia, 2001). In this scenario, managers possess different kinds of information of which disclosure is not mandatory and they exercise discretion with regard to the information about which they have knowledge (Verrecchia, 2001). The rationale is that costs and benefit influence the choice of engaging in voluntary disclosure.In this environment, characterized by costs and benefits, the Discretionary-based Disclosure (Verrecchia, 2001) provides the conceptual and theoretical framework to examine the incentives that motivates voluntary disclosure. This theory evaluates under which circumstances companies will choose to disclose certain kinds of information. Therefore, voluntary disclosure can be explained by corporate characteristics like size, profitability, leverageetc. (Cunha andRibeiro, 2006).Prior works on the determinant factors of voluntary disclosure have been conduct in several countries: France (Depoers, 2000); Hong Kong (Wallace and Naser, 1995), Japan (Cooke, 1992), Malaysia (Hossain, Tan and Adams, 1994), Czech Republic (Patton and Zelenka), Sweden (Cooke, 1989) and Switzerland (Raffounier, 1995). In that same line of thinking, the objective of this paper is to identify the factors that explain the level of voluntary disclosure of Brazilian public companies. The main justifications for conducting this research are: (i) Brazil is a “BRIC”, the largest economy in South America and one of the largest economies in the World and (ii) the Brazilian Market is characterized by low enforcement, incentives for manipulation of financial statements due to tax influence, instable financial market and poor governance standards (Lopes and Walker, 2008) where a great variability of disclosure level is expected. For these reasons, Brazil represents a unique scenario for an empirical test of the determinant factors of voluntary disclosure.At the same time, this paper extends the existing literature in two different manners. First, most prior studies have analyzed only one dimension of disclosure (like for instance onlysocial-environmental information). On the other hand, this paper uses a disclosure index, which has been based on 27 prior studies, composed of 92 kinds of information that takes into consideration social, environmental, and economic dimensions. This is important because factors (profitability, for example) that explain certain dimensions of disclosure might not Electronic copy available at: http://ssrn.com/abstract=1531767 explain others. This paper takes this fact into consideration and tests the different dimensions of disclosure separately. Also, most prior studies have analyzedcorporatedisclosure in only one period, using a cross section approach. This might be a problem because some variables (size, for example) may be significant when we compare different companies in one period (larger companies disclosure more information than smaller companies, for instance), but insignificant when we compare the company with itself along the years (company has grown, but disclosure has remain constant). For that reason, we analyzed corporate disclosure during three years with a panel dataapproach with takes both cross section and temporal aspectsinto consideration.
The remainder of this paper is organized as follow: Section 2 presents this study’s hypotheses and review Discretionary-based disclosure; Section 3 describes the methodological aspects; section 4 evidences the results and Section 5 presents this paper’s conclusions.



2. Hypotheses Development
The theory underpinning this study is the Discretionary-based Disclosure, which treats disclosure endogenously, by considering managers’ incentive to disclose certain kinds of information. According to Dye (2001) this is a special case of the Game Theory, where the central premise is that entities will always evaluate the information to be disclosed, as a function of costs and benefits.
The rationale is that thebenefits of voluntary disclosure should be higher than its costs (Dye, 2001). Basically, if managers’ objective is to maximize shareholder’s wealth, there seems to be equilibrium, where information that favors an entity is disclosed, while the one that harms it,is not (Verrecchia, 2001).
One can expect much of the voluntary disclosure to be beneficial to the entity (Dye, 2001). However, due to the risk of adverse selection derived from information asymmetry, entities may also disclose negative information whenever they believe there will be a higher penalty for the absence of certain information. This is because there are costs of being evaluatedby the marketas a “lemon” (Akerlof, 1970).
According to Dobler (2005), Discretionary-based Disclosure analyses the conditions in which information is voluntary disclosed by companied due to its strategic interaction with external agents (investors, competitors etc.). In this sense, this theory helps to identify in which circumstances managers and/or companies choose (or not) to disclose information. Hence, voluntary disclosure could be explained by characteristics related to the company.
In this paper, 12 factors have been extracted from the existing literature in order to explain the level of voluntary disclosure of Brazilian companies. Exhibit 1 illustrates the research design.

Tobin´s Q
Corporate Governance
Internationalization Profitability
Financial Leverage
Voluntary
Industry Stock Issuing
Disclosure
Growth Opportunity Concentration of Control
Auditing Firm Size
Origin of Control
Exhibit1 Research Design -Determinants Factors of Voluntary Disclosure
The 12 factors presented in Exhibit 1 are this study’shypotheses: (i) auditing firm; (ii) profitability; (iii) Tobin’sQ; (iv)internationalization; (v) size; (vi) corporate governance; (vii) financial leverage; (viii) concentration of control; (ix) stock issuing; (x) growth opportunity; (xi) sector and (xii) origin of control. Following a brief discussion of these hypotheses are presented.
H1: Companies audited by ‘Big Four’ tend to discl