The influence of the recent global financial crisis on corporate voluntary disclosures in Malaysia

Abstract

The recent global financial crisis was of great concern to many companies in the world, even those with the most developed governance structures (Goldin and Vogel, 2010). The current study attempts to provide empirical evidence on the influence of the recent global financial crisis in the extent and quality of Corporate Voluntary Disclosures (CVDs) in the Malaysian context. The study examines the annual reports of 85 listed Malaysian companies on Bursa Malaysia. In order to provide a meaningful insight into the influence of the financial crisis on CVDs, the research examines two data sets, before (2006) and after (2009) the recent global financial crisis. The study also investigates factors influencing the extent and quality of CVDs (i.e., corporate governance variables, ownership structure attributes, and corporate characteristics variables). The paper formulates 9 null hypothesis based on three theories namely, legitimacy theory, agency theory, and signalling theory. The findings reveal that both the extent and quality of CVDs significantly increased following the recent global financial crisis. Legitimacy theory posits that companies increase their annual report disclosures following a crisis period in order to avert legitimacy threats and appear a socially aware company. The results also seem to support the view that companies utilize their annual report disclosures as a means of influencing society`s perception of their operations, and as a means of legitimizing their future existence. In terms of factors influencing the extent and quality of CVDs, multiple regression analyses indicate that company size, profitability, and government ownership significantly and positively associate with the CVDs in the year 2006. None of the corporate governance variables examined in the study were significant in the year 2006. However, the 2009 multiple regression results show that company size and board size are significant and positive in explaining the extent and quality of CVDs in the annual reports of Malaysian listed companies. The results of the study have both theoretical as well as policy implications. Malaysian companies’ responses to the recent crisis for legitimacy purposes may indicate that theories originated from the West are applicable to the developing countries. The significance of board size, one of the corporate governance variables, in 2009 appears to suggest that the revised code in 2007 may have had implications on corporate boards. Notwithstanding several limitations inherent in the study’s methodology, the study contributes to the CVD literature in several ways. First, the disclosure practices “before” and “after” financial crisis has largely remained unexplored. Second, few prior studies simultaneously measured both the extent and quality of CVDs.