The introduction and application of international accounting standards to accounting disclosure regulations of a capital market in a developing country : the case of Egypt

The purpose of this study is to perform a rigorous testing and analysis of accounting disclosure practices in a developing country which has adopted the International Accounting Standards (IASs) and has changed towards an economic policy of privatisation after many years of a socialist era. The study also measures the effects on disclosure levels of changes in the economic policy and the new regulations. Furthermore, it investigates the relationship between disclosure levels and company characteristics. A review of the theories which have been used in previous research as a basis for explaining disclosure practices is used to establish a priori expectations. The Egyptian economic and social environment and the Egyptian accounting regulations and standards are outlined. From the theory, previous research and the particular circumstances of Egypt, specific empirical research questions are generated and then transformed into hypotheses. A mandatory disclosure list is created which combines the disclosure requirements of the IASs and national regulations using a technique of segmentation which takes into consideration four factors: a) whether the IASs disclosure item is also required both by local established regulations (Companies Act; CA) and by local new regulations (CML); b) whether the IASs disclosure item is required only by local new regulations; c) whether the IASs disclosure item is available in the native language; and d) in which part of the annual report is the disclosure item located. This technique of segmentation leads to different combinations of disclosure total indices (IASs, CML, CA), partial indices (Partial CML Arabic and Partial IASs not Arabic) and nine sub-indices. This allows detailed statistical analysis and richer interpretation of results. Matched pairs of the annual reports of a sample of Egyptian listed companies in 1991 and 1995 are compared using the aforementioned segmentation of total, partial and sub-indices. Also, a larger sample of 1995 annual reports is analysed to compare the different indices and to investigate any relationship between the indices and selected company characteristics using both univariate and multivariate analysis. .\---The study concludes that accounting disclosure by Egyptian listed companies was significantly greater in 1995 than in 1991. Public sector companies which were the largest in size and actively traded in the Stock Exchange provided the highest CML disclosure. Companies audited by one of the `big-six' offered the highest IASs disclosure. Specific explanations for the increase in various accounting disclosure items and the relationship between various disclosure practices and specific company characteristics are offered based on the segmentation. Theoretical models of agency and capital needs appear to be applicable to the findings regarding Egypt, but the applicability of signalling theory is not clear. Other issues relating to theory are explored in the context of the research findings. Several conclusions are drawn and some policy implications are discussed.

[1]  J. Lorie,et al.  The Stock Market: Theories and Evidence , 1973 .

[2]  P. Weetman,et al.  International Financial Accounting: A Comparative Approach , 1998 .

[3]  Terence Cooke,et al.  Financial disclosure regulation and its environment: A review and further analysis , 1990 .

[4]  Keith G. Stanga.  DISCLOSURE IN PUBLISHED ANNUAL REPORTS , 1976 .

[5]  Ronald A. Dye,et al.  Mandatory vs. Voluntary Disclosures: The Cases of Financial and Real Externalities , 1990 .

[6]  Ross L. Watts,et al.  Corporate Financial Statements, A Product of the Market and Political Processes , 1977 .

[7]  G. Monroe,et al.  Voluntary Environmental Disclosure by Australian Listed Mineral Mining Companies: an Application of Stakeholder Theory , 1997 .

[8]  Terence Cooke.  An empirical study of financial disclosure by Swedish companies , 1989 .

[9]  S. A. Helles.  The evolution of accounting in developing countries : the study of Jordan , 1992 .

[10]  M. Firth.  The Impact of Size, Stock Market Listing, and Auditors on Voluntary Disclosure in Corporate Annual Reports , 1979 .

[11]  Pascal Dumontier,et al.  Why Firms Comply Voluntarily with IAS: an Empirical Analysis with Swiss Data , 1998 .

[12]  Terence Cooke,et al.  Global Surveys of Corporate Disclosure Practices and Audit Firms: A Review Essay , 1989 .

[13]  Jerold L. Zimmerman,et al.  Voluntary Corporate Disclosure: The Case of Interim Reporting , 1981 .

[14]  Sidney J. Gray,et al.  International Capital Market Pressures and Voluntary Annual Report Disclosures by U.S. and U.K. Multinationals , 1995 .

[15]  Robert E. Verrecchia,et al.  Disclosure, Liquidity, and the Cost of Capital , 1991 .

[16]  Baruch Lev,et al.  Information Disclosure Strategy , 1992 .

[17]  H. Koh,et al.  An Agency Theory and Probit Analytic Approach to Corporate Non-mandatory Disclosure Compliance , 1994 .

[18]  J. Tinbergen,et al.  Accounting Education in Economic Development Management , 1981 .

[19]  Thomas W. Jones,et al.  An Empirical Investigation of the Extent of Corporate Financial Disclosure in the Oil and Gas Industry , 1993 .

[20]  E. Fama,et al.  Agency Problems and Residual Claims , 1983 .

[21]  S. Owusu-Ansah.  The impact of corporate attribites on the extent of mandatory disclosure and reporting by listed companies in Zimbabwe , 1998 .

[22]  Michael Gibbins,et al.  THE MANAGEMENT OF CORPORATE FINANCIAL DISCLOSURE - OPPORTUNISM, RITUALISM, POLICIES, AND PROCESSES , 1990 .

[23]  T. E. Cook,et al.  AN ASSESSMENT OF VOLUNTARY DISCLOSURE IN THE ANNUAL REPORTS OF JAPANESE CORPORATIONS , 1991 .

[24]  Jerold B. Warner,et al.  On financial contracting: An analysis of bond covenants , 1979 .

[25]  Stephen L. Buzby.  COMPANY SIZE, LISTED VERSUS UNLISTED STOCKS, AND EXTENT OF FINANCIAL DISCLOSURE , 1975 .

[26]  Terence Cooke.  Regression Analysis in Accounting Disclosure Studies , 1998 .

[27]  S. Gray.  Towards a Theory of Cultural Influence on the Development of Accounting Systems Internationally , 1988 .

[28]  Alan R. Cerf,et al.  Corporate reporting and investment decisions , 1961 .

[29]  C. Firer,et al.  Information disclosure in annual reports in South Africa , 1986 .

[30]  C. Nobes.  Towards a General Model of the Reasons for International Differences in Financial Reporting , 1998 .

[31]  W. Chua.  Radical Developments in Accounting Thought , 1986 .

[32]  Ron S. Kenett,et al.  Statistics for Business and Economics. , 1988 .

[33]  Robert W. Holthausen,et al.  The economic consequences of accounting choice implications of costly contracting and monitoring , 1983 .

[34]  C. Adams,et al.  Measuring the quality of corporate disclosure in less developed countries: The case of Tanzania , 1993 .

[35]  Stephen L Taylor,et al.  DISCRETIONARY DISCLOSURE OF RESERVES BY OIL AND GAS COMPANIES: AN ECONOMIC ANALYSIS , 1992 .

[36]  Michael E. Bradbury,et al.  VOLUNTARY DISCLOSURE OF FINANCIAL SEGMENT DATA: NEW ZEALAND EVIDENCE , 1992 .

[37]  S. Gray,et al.  Voluntary information disclosure and the British multinationals : corporate perceptions of costs and benefits , 1986 .

[38]  Lee D. Parker,et al.  The impact of corporate characteristics on social responsibility disclosure: A typology and frequency-based analysis , 1987 .

[39]  Bernard Raffournier,et al.  The determinants of voluntary financial disclosure by Swiss listed companies , 1997 .

[40]  B. Lev,et al.  VOLUNTARY FORECAST DISCLOSURE, NONDISCLOSURE, AND STOCK-PRICES , 1990 .

[41]  Byron J. T. Morgan.  Analysis of Quantal Response Data , 1992 .

[42]  Frederick D. S. Choi.  Financial Disclosure and Entry to the European Capital Market , 1973 .

[43]  Y. Lal Mahajan.  Corporate financing and investment decisions under asymmetric information , 1999 .

[44]  C. Adams,et al.  International accounting education in the UK , 1994 .

[45]  Rethinking disclosure requirements , 1995 .

[46]  Terence Cooke,et al.  Disclosure in the Corporate Annual Reports of Swedish Companies , 1989 .

[47]  Leslie Lawrence Spero,et al.  The extent and causes of voluntary disclosure of financial information in three European capital markets : an exploratory study , 1979 .

[48]  Philip J. Shrives,et al.  The use of disclosure indices in accounting research: A review article , 1991 .

[49]  Kamal Naser,et al.  Firm-specific determinants of the comprehensiveness of mandatory disclosure in the corporate annual reports of firms listed on the stock exchange of Hong Kong , 1995 .

[50]  R. S. O. Wallace,et al.  Corporate Financial Reporting in Nigeria , 1988 .

[51]  Douglas J. Skinner.  WHY FIRMS VOLUNTARILY DISCLOSE BAD-NEWS , 1994 .

[52]  G. Pownall,et al.  ACCOUNTING DISCLOSURE PRACTICES IN THE UNITED-STATES AND THE UNITED-KINGDOM , 1994 .

[53]  Maureen F. McNichols,et al.  Discretionary Disclosure and External Financing , 1995 .

[54]  Ronald A. Dye,et al.  Industry-Wide Disclosure Dynamics , 1995 .

[55]  Kenneth R. Austin,et al.  Disclosure Quality In Governmental Financial Reports - An Assessment Of The Appropriateness Of A Compound Measure , 1986 .

[56]  R. C. Merton,et al.  Presidential Address: A simple model of capital market equilibrium with incomplete information , 1987 .

[57]  James M. Patton,et al.  An empirical analysis of the determinants of the extent of disclosure in annual reports of joint stock companies in the Czech Republic , 1997 .

[58]  S. Gray,et al.  Factors Influencing Voluntary Annual Report Disclosures By U.S., U.K. and Continental European Multinational Corporations , 1995 .

[59]  M. E. Barrett.  FINANCIAL-REPORTING PRACTICES - DISCLOSURE AND COMPREHENSIVENESS IN AN INTERNATIONAL SETTING , 1976 .

[60]  G. McNally,et al.  Corporate Financial Reporting in New Zealand: An Analysis of User Preferences, Corporate Characteristics and Disclosure Practices for Discretionary Information , 1982 .

[61]  Douglas W. Diamond.  Optimal Release of Information By Firms , 1985 .

[62]  G. Hofstede,et al.  Culture′s Consequences: International Differences in Work-Related Values , 1980 .

[63]  Begoña Giner Inchausti.  The influence of company characteristics and accounting regulation on information disclosed by Spanish firms , 1997 .

[64]  C. Inclan,et al.  Corporate environmental disclosures: Competitive disclosure hypothesis using 1991 annual report data , 1996 .

[65]  Gerald L. Salamon,et al.  COMPANY SIZE AND FINANCIAL DISCLOSURE REQUIREMENTS WITH EVIDENCE FROM THE SEGMENTAL REPORTING ISSUE , 1980 .

[66]  S. Gray,et al.  Globalization of Stock Markets and Foreign Listing Requirements: Voluntary Disclosures by Continental European Companies Listed on the London Stock Exchange , 1989 .

[67]  Hayne E. Leland,et al.  INFORMATIONAL ASYMMETRIES, FINANCIAL STRUCTURE, AND FINANCIAL INTERMEDIATION , 1977 .

[68]  Terence Cooke.  Voluntary Corporate Disclosure by Swedish Companies , 1989 .

[69]  David Power,et al.  Social and Environmental Disclosure and Corporate Characteristics: A Research Note and Extension , 2001 .