An empirical investigation of the financial disclosure practices of Cypriot and Greek companies
The main objectives of this study are to: (1) investigate empirically the extensiveness of the Cypriot and Greek corporate mandatory disclosure practices; (2) examine the relationship between each of a number of specific corporate characteristics and the Cypriot and Greek corporate mandatory disclosure practices; (3) assess whether the variations in the extensiveness of Cypriot and Greek corporate mandatory disclosure practices can be explained by the selected corporate characteristics together; and (4), compare the results found for Cyprus with those found for Greece. The corporate characteristics examined, which are used as proxies of agency, political and other costs, are: company size, age, profitability, liquidity, industry type, listing status and auditor type. The study begins with the provision of background information about the Cypriot and Greek accounting environments which reveals that companies in the two countries operate within substantially different accounting environments. The study continues with a synthesis of the conceptual framework for corporate financial disclosure that identifies the variables that are likely to affect the research problem. A review of the corporate disclosure literature identifies a gap in the literature, which the study aspires to fill, and establishes the background for choosing the appropriate methodology to be used in the study. To investigate the extensiveness of the Cypriot and Greek corporate mandatory disclosure practices, the 1996 corporate annual financial statements (CAFSs) of 50 Cypriot and 74 Greek companies were collected. Extensiveness was defined as the quantity and quality of mandatory information disclosed in CAFSs and was measured by applying a country—specific disclosure measuring instrument against the CAFSs of the sample companies from each country. The relationship between the extent of corporate disclosure and the selected corporate characteristics was examined by using both bivariate and multivariate statistical analyses for each of the two countries. The results of the empirical analyses have led to four main conclusions. First, the Cypriot and Greek corporate mandatory disclosure practices, on the whole, appear to be extensive. Second, Cypriot public companies which are more profitable, are classified as conglomerates or whose shares are listed on the Cyprus Stock Exchange (CSE), tend to disclose significantly more extensive mandatory information in their 1996 CAFSs. Third, Greek listed companies which are smaller, are classified as conglomerates or manufacturing, or whose shares are listed on the main market of the Athens Stock Exchange (ASE), tend to disclose significantly more extensive mandatory information in their 1996 CAFSs. Finally, on the basis of the comparative analyses undertaken, it can be concluded that although the influence of listing status and industry type on Cypriot and Greek mandatory disclosure practices is similar, the influence of company size is different. In contrast to Cyprus and most evidence reported in previous studies, company size has a negative influence on the extent of Greek corporate mandatory disclosure practices. This difference can be explained by theoretical, environmental, empirical and other considerations. For example, it can be attributed to the distinctive nature of the highly politicised Greek accounting environment and can be explained by political cost theory. Another possible explanation may be that Greek large companies disclose fewer details in their CAFSs but: (1) use other communication media to disclose mandatory information; or (2), use mandatory and voluntary disclosures as substitutes and replace the disclosure of less extensive mandatory information with more extensive voluntary disclosure. There are several possible policy implications that arise out of the above conclusions. The first implication is that improvements in Cypriot and Greek corporate mandatory disclosure can be made. Another policy implication is that corporate stakeholders who rely on CAFSs to get useful information should be wary of Cypriot companies which are less profitable, are classified as non—conglomerates or are not listed on the CSE; and Greek companies which are larger, are classified as others or are listed on the parallel market of the ASE. This is because these companies have been found to disclose less extensive mandatory information. The third policy implication arising out of the conclusions of the study is that it is possible that different predictions about the disclosure of corporate information may be derived from the political cost theory, depending on the environment within which the theory is examined. This is because although it is usually claimed that politically sensitive companies may disclose more extensively in order to reduce their political costs, the opposite may be true in the case of countries with specific environmental characteristics (similar to those existing in Greece in 1996): politically sensitive companies may disclose less extensively.