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General Topic of the paper: Financial Reporting (disclosure)


Voluntary Disclosure in the Annual Reports of the Qatari Companies: An Empirical Assessment

Dr. Mohammed Hossain*

Assistant Professor

Department of Accounting and Information Systems

College of Business and Economics

Qatar University, PO Box 2713


Phone: +974 485 1845

Fax: +974 485 2355


Dr. Helmi Hammami

Head, Department of Accounting and Information Systems

College of Business and Economics

Qatar University, PO Box 2713


Corresponding Author: Dr. Mohammed Hossain, email:


Voluntary Disclosure in the Annual Reports of the Qatari Companies: An Empirical Assessment


(This study sets out to examine empirically the determinants of voluntary disclosure in the annual reports

of 25 listed firms of Doha Securities Market (DSM) in Qatar which forming approximately 86 percent of the

total firms incorporated in DSM. It also reports the results of the association between company specific

characteristics and voluntary disclosure of the sample companies. A disclosure checklist consisting of 44

voluntary items of information is developed and statistical analysis is performed using multiple

regression analysis. The findings indicate that age, size, complexity, and assets-in-place are significant and

other variable profitability is insignificant in explaining the level of voluntary disclosure. However, this

paper has contributed to the academic literature that firms in the Middle East provide voluntary corporate

information which builds a confidence to the investors in general and Qatar in particular).

1. Introduction

The study explores the extent and levels of voluntary disclosures in the annual reports of the listed

company in the Doha Securities Market (DSM) in Qatar, a growing emerging country. The disclosure of

financial information in annual reports is a key area of accounting research and more specifically,

voluntary disclosure has received a great attention to the academicians and several research is done both

in developed (Firth, 1979; Spero, 1979; Bradbury, 1992; Raffournier, 1995; Hossain et. al., 1995) and

developing countries (Cooke, 1991, 1989b; Chow et al., 1987; Hossain et al., 1994; Ferguson et al., 2002;

Hossain and Reaz, 2007; Hossain, 2008), however, a very few attention is done in the Middle East (Al-

Reazzen and Karbhari, 2004; Alsaeed, 2006; Naser et al., 2006; Al-Shammari, 2008; Ajifri, 2008) in general

and Qatar in particular. The annual report is a significant element in the overall1 disclosure process,

because it is the most widely disseminated source of information on publicly held corporations (Arnold,

et. al., 1984; Chang, et. al., 1983; Todd and Sherman, 1991) however, voluntary disclosure2 in the annual

Here mandatory disclosure and voluntary disclosure are both included in an information disclosure system (Lanen
and Werrecchia, 1987). 
The financial Accounting Standard Board (FASB, 2000) describes “voluntary disclosures” as “information primarily
outside of the financial statements that are not explicitly required by accounting rules or standards”. 

report means in nature that the information beyond the required content in the financial statements

(Kumar et. al.,2008). In other words, voluntary disclosure is to disclose more information based on

managerial incentives (Healy and Palepu, 2001). The available literature has suggested many ways in which

a firm or its management can benefit from improve disclosure (Lang and Lundholm, 1993, 1996; Frankel

et. al., 1995; Healy et. al., 1999). Moreover, while information disclosure is socially desirable (Frolov, 2004;

Diamond, 1985), the interplay between its benefits and costs (Meek et al., 1995) may lead to partial or no

disclosure, and one thereupon should ask whether the disclosure should be voluntary or mandatory. In

addition, the economic and accounting literature has asserted that, in the view of informational

asymmetry, (costless) disclose of private information brings general gains in economic efficiency.

However, the size of the gains and the ultimate effect on financial prices may vary considerably depending

on the ‘informativness’ of disclosed information and on the ways the information is disseminated and

used (Hossain and Masruz, 2007). Drawing on this framework, firms are expected to disclose voluntary

information and therefore, when the perceived benefits exceed the direct and indirect costs of doing so

(Ferguson et. al., 2002). Within this context, we underlying that firms disclose voluntary information in the

annual reports and companies listed on DSM, Qatar is not exceptional, which contributes to the

accounting literature the aspects of the voluntary information in the annual reports in the region of

Middle East.

To our knowledge, it is the first to empirically examine the voluntary disclosure practices of the Qatari

companies. Qatar has unique economy that has gained increased importance in the global capital markets

and has one of the highest levels of GDP per capita ($67,000) in the world (The Economic Survey, 2007).

The Doha Securities Market (DSM) is the principal stock market of Qatar established on 1995 and currently

(till December 31, 2008) 42 companies listed and their market capitalization of $136 billion. Moreover,

DSM’s 25% stake will be taken by the New York Stock Exchange (NYSE) Euro next for $250 million.

An important practical motivation for this study is that better understanding of the voluntary disclosure

practices in a non-Anglo-American country that has not extensively examined. Specially, this study seeks

to establish the extent to which voluntary information is associated with corporate attributes in which the

research is undertaken.

The paper is structured as follows. In the next section we review the research paradigm and theoretical

orientation of the study and research. We then report the environment of Qatar financial reporting

followed by literature review and hypothesis development. The research method is outlined, followed by

the presentation of our findings. The paper concludes with a discussion of the results, followed by an

outline of the limitations of the research and future research direction.

2. Research Paradigm and Theoretical Orientation

The firm’s decision to voluntarily disclose information depends on its conjectures about the beliefs held

by competitors and investors (Dontoh, 1989). The study of Milgrom (1981) and Grossman (1981)

concluded that if the firm can make credible disclosures about its value to uninformed investors, in

equilibrium the firm will disclose all of its information regardless of how good or bad the news is. Many

recent studies have hypothesized that firms’ voluntary disclosure choices are aimed at controlling the

interest conflicts among shareholders, debt holders, and management ( Holthausan and leftwich, 1983;

Kelly, 1983; and Watts and Zimmerman, 1986). It is meant that the extent of these interest conflicts, hence

the incentives behind voluntary disclosure choices vary with certain firm characteristics (Chow and Wong,


A comprehensive review of the voluntary disclosure literature is provided by Healy and Palepu (2001).

They notice that research into voluntary disclosure decisions trends focus on the information role of

reporting for capital market participants. Indeed, academic researchers, practitioners, and regulators have

analyzed and emphasized the role of disclosure plays in reducing information asymmetry between

insiders and outsiders (Gandia, 2005). Actually the study of Healy and Palepu (2001) identify five

factors/hypotheses that affect mangers’ disclosure decisions for capital market reasons: capital market

transactions hypothesis, corporate control contests hypothesis, stock compensation hypothesis, litigation

cost hypothesis, and proprietary cost hypothesis. The very abstract way of these hypotheses has

discussed in the study of Collett and Hrasky (2005). They stated that

i. The capital market transactions hypothesis: Firm’s have incentives to make voluntary

disclosures for reducing information asymmetry and consequently reduce the cost of

external financing through reduced information risk;

ii. The corporate control contest hypothesis: When firms performance is poor, managers use

voluntary disclosures in an attempt to increase firm valuation and to give explanation for

the poor performance, thus reducing the risk of management job losses;

iii. The stock compensation hypothesis: Managers who are rewarded with stock

compensation have an incentive to use voluntary disclosures in order to reduce the

possibility of insider trading allegations, and firms also have incentives to increase

disclosures for reducing contracting costs with managers receive stock compensation;

iv. The litigation cost hypothesis: Managers have an incentive to disclose bad news to avoid

legal actions for inadequate disclosure, but have also an incentive to decrease disclosures

of forecasts that might prove to be inaccurate; and

v. The proprietary costs hypothesis: Voluntary disclosures will be constrained if managers

perceive that disclosure could be competitively harmful.

However, it has been shown empirically that disclosure is a complex function of several reasons: it

depends on both company-specific (internal) factors and external factors related to the environmental

context of the company, which include, among others, culture, legal system, and institutional background

(Lopes and Rodrigues, 2007). Moreover, stakeholders of companies demand information disclosure about

the operations of the companies to get clear understanding which form the basis for their decision-

making (Stolowy and Lebas, 2004 and Foster, 1986). In addition, the International accounting Standard

committee (1989) states that information provided by corporate entities to be useful for the decision-

making process of the users, it must be understandable, relevant, reliable, comparable and timely. Evan

prior research has utilized various theoretical models as foundation for understanding why disclosures

are made to stakeholders including the agency and legitimacy theories (Jensen and Meckling, 1976; Watts

and Zimmerman, 1986; and Raffournier, 1995).

However, in order to understand the general underlying to motives and benefits of voluntary disclosure, it

is necessary to discuss the compact features of voluntary disclosure. Researchers provide arguments in

favour of voluntary disclosure (Latridis, 2008; Mcknight and Tomkins, 1999; Skinner, 1994 and Trueman,


The motives for voluntary disclosure can be summarized such ways:

i. Disclosure is required because managers are held responsible and have to meet certain

business and financial targets (Latridis, 2008);

ii. Managers tend to disclose information about their performance in order to get favour in

stock markets (Mcknight and Tomkins, 1999);

iii. Inadequate disclosure may motives managers to provide voluntary disclosure for

reduction of cost of litigation (Skinner, 1994); and

iv. Managers may provide voluntary disclosures and forecasts to show to investors that are

aware of the firm’s economic environment and able to quickly respond to changes

(Trueman, 1986).

These above arguments have addressed by Healy and Palepu (2001) under five hypotheses and all of these

give positive signal to investors and positively affect the stock returns and market value of the firm (La

Porta et al., 2000; Reese and Weisbach, 2002). However, it is also true that firms are inclined not to

disclose information that will damage their competitive position (Newman and Sansing, 1993).

Therefore the above foregoing analyses come to conclusion that voluntary disclosure in the annual reports

depends apart from managerial motives, on culture, legal system, and institutional background of the

country the firms work. The following section is thus discussing the environment of corporate reporting

in Qatar.

3. The Environment of Corporate Reporting in Qatar

Qatar is an independent and sovereign State situated in the midway of the Western coast of the Arabian

Gulf having a land and maritime boundary with Saudi Arabia, and also maritime boundaries with Bahrain,

United Arab Emirates and Iran. Qatar is one of the smallest Gulf Countries in terms of population and

geographical area but the second largest gas reserves in the world representing more than 5% of the world

total. The prosperity of natural resources coupled with the growing and diversifying economy means

enormous access to investment opportunities and incentives. The Qatari government adopts a policy

aiming at diversifying income resources and developing economic infrastructure. Specifically, the

government expanded the exploration projects in oil and gas sectors and offered numerous incentives to

attract foreign investors to carry out similar projects (

While the economy in Qatar has rapidly grown, the accounting system is remained infant stage. For

example, Qatar has not established its own Accounting Standards (Ass), however the increasing number of

foreign banks that voluntarily used International Accounting Standards (IASs) led the Qatar Central Bank

(QCB) to require all banks (foreign and national) to adopt IASs (QCB, 2004). In a circular of the central

Bank of Qatar in 1999 [Circular No. 27 of 1999 issued on 19 February 1999] states that every banks and

investment and finance companies have to adopt IASs effective from January 1 1992.

Qatar has only one stock exchange, i.e Doha securities market (DSM), and working as an independent

government entity. DSM is supporting the country’s economy by protecting accredited and non accredited

investors by providing fair, orderly, efficient and facilitated trading, providing access to information to

public, overseeing key participants in securities world, ensuring correct disclosure of vital information,

and enforcing securities law.

In Qatar, both company law and securities market law govern corporate financial reporting by listed

companies in DSM. In Qatar, Company Law No. 11 of 1981 and Doha Securities Market Law No. 14 of 1995

are two important legislations for financial reporting (Shammari, 2005; Shammari et al., 2008).However, in

terms of financial reporting requirements, the company law in Qatar contains general principles of

corporate financial reporting. The law does not specify the content or format of the financial statements

other than requiring at least an annual report balance sheet and profit and loss statement (Shammari,

2005). In addition, the law requires companies to maintain proper books of account and to prepare and

submit audited annual financial statements to their shareholders in order to reflect a "true and fair view"

of the company's state of affairs. The financial statements must be submitted to the Companies Registrar

of the Ministry of Economy and Commerce within six months after the financial year-end date. The Table

1 shows the depiction of financial reporting legislation in Qatar.

In terms of auditing, listed companies must prepare accounts in accordance with internationally accepted

accounting principles and have them audited by independent auditors. Indeed, independent auditors'

report has to submit in the company annual general meeting (AGM) to the shareholders. The auditors shall

report as to whether the relevant accounts show a true and fair view of the financial affairs of the body in

question during the financial year in question and its assets and liabilities at the end of the year in

question. However, Qatar has recently established a scientific association for accountants and has

finalized the official procedures for establishing the accountants association (Alattar and Khalid, 2007).

Moreover, auditor must audit the accounts of companies in light of generally accepted auditing standard

(GAAS), however, GASS are not defined. The Central Bank of Qatar (CBQ) required banks and finance and

investment companies to comply with IASs in 1992, 1999 and 1999 respectively (Shammari, 2005).

Apart from financial regulation for financial reporting in Qatar, there are some specific features exited in

Qatar which indicate a healthy financial environment is going to be developed. For example, in 2005, the

authorities launched the Qatar Financial Centre (QFC) with the main objective of attracting top firms in

finance, energy, tourism, transportation, health, and education to increase the integration of Qatar in the

global economy. At year-end 2006, among the 33 firms licensed by the QFC, about 10 were foreign banks

mainly active in project finance and wealth management ( In

terms of financial sector, the Qatari commercial banking system had total assets as at end-August 2006 of

QAR156.9 billion (US$43.1 billion). Deposits stood at QAR103.3 billion (US$28.4 billion), with loans &

advances of QAR85.2 billion (US$23.4 billion). There are approximately 100 branches and 350 ATMs

serving a population of 800,000, while distribution channels are complemented by the increasing use of

Internet and phone banking. Qatari banks are enjoying stellar financial performance, solid capitalization,

and good asset quality.

Table 1

Financial Reporting Legislation in the Qatar

Company Securities and Company Financial To whom should Guidelines for

law Exchange Law registrar statements to financial preparing financial
be Prepared Statements be statements

Company Doha Ministry of Balance Sheet All shareholders Must provide a

Law No. 11 Securities Economy and and Profit and Registrar of true and fair
of 1981 Market Law Commerce Loss Companies value*
No. 14 of 1995 Statement

Note: Due date for submission of financial statements is within six months after the financial year-end
date. *There is no statutory definition of “true and fair view” provided in any GCC company law.

Source: adopted from Shammari, 2005.

4. Literature Review

As stated before that there is an extensive research in developed and developing countries to measure

corporate disclosure on financial and non-financial companies, for example, the work of Cerf (1961),

Singhvi and Desai (1971), Buzby (1974), Marston (1986), Wallace (1987), Cooke (1989a, 1989b, 1991, 1992,

1993), Malone et al. (1993), Hossain et al. (1994), Ahmed and Nicholls (1994), Wallace et al. (1994), Wallace

and Naser (1995), Raffournier (1995), Inchausti (1997), Marston and Robson (1997), Patton and Zelenka

(1997), Craig and Diga (1998), Hossain (2001), Haniffa and Cooke (2002), Al-Reazzen and Karbhari (2004),

Ghazali and Weetman, (2006), Naser et al., (2006), Alsaeed (2006), Hossain and Reaz (2007), Aljifri

(2008)., Wang et. al., (2008) , and Shammari (2008). A few of them studies has been discussed below in

order to understand the nature, methodology and findings that will help to compare and finding gap with

the study.

The study of Kamal et. al., (2006) examined to test the validity of theories employed in the literature to

explain variation in the extent of corporate voluntary disclosure within the corporate social disclosure

context under Qatari companies. The findings indicate that variations in corporate social disclosure by the

sampled Qatari companies are associate with the firm size, business risk and corporate growth.

Aljifri (2008) examined the extent of disclosure in annual reports of 31 listed firms in the UAE and also

determined the underlying factors that affect the level of disclosures. The study hypothesized that four

main factors would affect the extent of disclosure in the UAE, namely, the sector type (banks, insurance,

industrial, and service), size (assets), debt equity ratio, and profitability. Findings indicated that significant

differences were found among sectors; however, the size, the debt equity ratio, and the profitability were

found to have insignificant association with the level of disclosure.

Alsaeed (2006) studied the association between firm-specific characteristics and disclosure in Saudi

Arabia. A total of 20 voluntary items developed to assess the level of disclosure in the annual reports of

40 firms. The results showed that the mean of the disclosure index was lower than average. It was also

found that firm size was significantly positively associated with the level of disclosure however, debt,

ownership dispersion, age, profit margin, industry and audit firm size were found to be insignificant in

explaining the variation of voluntary disclosure. The study of Al-Reazzen and Karbhari (2004) investigated

the interaction between the compulsory and voluntary disclosures in the annual reports of Saudi Arabian

companies. The sample comprised both listed and non-listed companies. The data were analyzed by

constructing three separate disclosure indices relating to mandatory disclosure, voluntary disclosure that

closely relates to mandatory disclosure and voluntary disclosure that was not closely related to mandatory

disclosure. The results revealed that there is a significant, positive correlation between mandatory

disclosure and voluntary disclosure related to the mandatory disclosure index. The study also reported

that a correlation between voluntary disclosure and the other two indices were found to be weak and


Hossain and Reaz (2007) study reported the results of an empirical investigation of the extent of

voluntary disclosure by 38 listed banking companies in India. It also reports the results of the association

between company specific characteristics and voluntary disclosure of the sample companies. The study

revealed that Indian banks are disclosing a considerable amount of voluntary information. The findings

also indicated that size and assets in- place are significant and other variables such as age, diversification,

board composition, multiple exchange listing and complexity of business are insignificant in explaining

the level of disclosure. The study of Wang et al. (2008) examined empirically the determinants of

voluntary disclosure in the annual reports of Chinese listed firms that issue both domestic and foreign

shares. The results indicated that the level of voluntary disclosure is positively related to the proportion

of state ownership, foreign ownership, firm performance measured by return on equity, and reputation of

the engaged auditor. However, there is no evidence, however, that companies benefit from extensive

voluntary disclosure by having a lower cost of debt capital. Haniffa and Cooke (2002) examined the

relationships between a number of corporate governance, cultural, and firm-specific characteristics, and

the extent of voluntary disclosure in the annual reports of a sample of Malaysian companies. A total of 65

items was selected and an unweighted disclosure index was used in the study. The findings indicated a

significant association between corporate governance and the extent of voluntary disclosure. In addition,

one cultural factor (proportion of Malay directors on the board), was found to be significantly associated

with the extent of voluntary disclosure.

Craig and Diga (1998) analysed corporate annual report disclosure practices in five ASEAN countries,

namely Singapore, Malaysia, Indonesia, the Philippines and Thailand. They surveyed 145 public companies

listed on ASEAN stock exchanges which were selected randomly from companies listed on principal

national stock exchanges as at 31 December 1993. In total, 530 items of information were included in the

disclosure index adopted after considering the company legislation and stock market regulations in the

various countries. Their results revealed that statistically significant differences existed among

companies in terms of their disclosure scores, asset sizes, turnover, and debt-equity ratios. Cooke’s (1991)

study sought to investigate the impact of certain firm-specific characteristics on voluntary disclosure of

106 items in Japanese corporate annual reports for the year 1988. The study showed that size was the

single most important independent variable that helped to explain variations in voluntary disclosure in

Japanese corporate annual reports.

Therefore it is clear that the there have been extensive research work in voluntary disclosure around the

world however, little attention has been given in Qatar, in general and disclosure in particular. Moreover,

the selection of voluntary items varies from country to country (Cook, 1991; Ahmed and Nicholls (1994,

Hossain and Reaz, 2007). Most of the researchers used disclosure indices and OLS in their study and the

present study also used the same methodology.

5. Research Methodology

5.1 Sample Selection

The total number of companies listed on the Doha Securities Market (DSM) is 42 as on 31st December 2008.

Annual reports for the year 2007 have been used for the study. However, the main criteria used for

sampling the firms were: (i) annual reports must be available at the stock exchange or company web site

or collectable through communication and (ii) the firm must have been listed for the entire period of the

study 2006. We have excluded firms that did not meet these criteria. Therefore, under this criterion, six

companies were excluded because they were listed after 2007, three companies listed in 2007, and seven

were excluded because their annual reports were not available. Therefore, the total number of companies

cover under the study is 25. The companies listed on the DSM are classified into four main sectors:

banking and financial sector; insurance sector; industry sector; and service sector. Table 2 summarises the

distribution of sample firms by sectors. At least 60 percent of companies in each of the four sectors are

represented in the survey. Such a cohesive representation enables the research findings to be

generalisable to companies listed on the DSM. It is noted that Annual reports were requested by mail and

email from these companies with two follow-up requests to non-respondents.

5.2 Selection of Voluntary Items of Information

It is understand that the selection of voluntary items is a subjective judgment. Moreover, such selection

depends on the nature and context of the industry and the country context (e.g., what industrial sector or

sectors is being considered and whether the companies are in a developing or developed country). As we

saw in our literature review while there is extensive literature focusing on disclosures of non-financial

Table 2
Sector Representation in the Sample

Sector No of No. of No. of Total No of Annual Sample in

companies companies companies companies reports %
Listed as on listed after listed in available for received
31st Dec. 2007 2007 2007 study (sample size)
1. Banking 8 - 1 7 7 100%
and Financial
2. Insurance 5 - - 5 3 60%
3. Industry 6 1 1 4 3 75%
4. Service 19 5 1 13 12 92%
38 6 3 29 25 Average=86%
companies, including voluntary disclosure, research addressing the disclosure by financial companies,

including their voluntary disclosures is much less numerous. Some studies have considered the social

reporting of financial companies (including Islamic banks), and the international financial institutions (eg

the IMF, and World Bank) have also stressed the importance of transparency and disclosure by financial

companies. Additionally, other organizations, both public and private, like the US FSAB, the International

Accounting Standards Committee/International Accounting Standards Board, and Standard & Poor’s have

published guidelines regarding the disclosure of voluntary items. We reviewed recommendations from the

following sources to arrive at the selection of a list of voluntary items of information to be included in the

disclosure index:

1. Literature related to studies focused on voluntary disclosure;

2. Academic literature concerned with developed and developing countries;

3. Academic literature focused on financial and non-financial companies;

4. International financial institutions’ recommendations;

5. Other institutions’ published works;

After investigating all the above data sources, 44 items of voluntary information were identified as

relevant for disclosure in the annual reports of Qatari companies. These 44 items were then grouped to

produce 8 categories, containing between 2 and 9 items each. Table 3 shows the 14 categories, and

identifies some of their sources. It is not intended to be a fully comprehensive record of all the sources

which influenced the selection of each individual item as this was a complex process of inter-action and

judgment but it instead it serves as an indication of the methodology adopted and a justification based on

at least one source. The total list of the 44 voluntary items is presented in Appendix 1.

Table 3

Items Included in the Voluntary Disclosure Index and an Indicative List of their Sources

Categories of disclosure No. of items Evidence for inclusion

1 Background about the Company 06 Ahmed and Nicholls (1994); Singhvi (1968)

2 Corporate strategies 02 Chau and Gray, 2002

3 Corporate governance 09 Haniffa and Cooke , 2002

4 Financial performance 06 Cooke, 1991, 1992

5 General risk management 08 Hossain et al., 1994

6 Accounting policy review 02 Wallace et. Al., 1994

7 Corporate social disclosure 03 Rodriguez et al., 2007

8 Others 08 Firth, 1979


Source: Literature review by the researchers

5.3 Scoring of the Disclosure Index

Several approaches are available when developing a scoring scheme to determine the disclosure level of

annual reports, and usually both a weighted disclosure index and an unweighted disclosure index have

been used by researchers. Researchers such as Wallace (1987), Cooke (1991 and 1992), Karim (1995),

Hossain et al. (1994), Ahmed and Nicholls (1994), and Hossain (2000), adopted a dichotomous procedure

in which an item scores one if disclosed and zero if not disclosed and this approach is conventionally

termed the unweighted approach. The weighted disclosure approach (used by, for example Courtis, 1979;

Barrett, 1977; and Marston, 1986), involves the application of weights above zero but less than one, to

items of information which are disclosed (zero is the weight for non-disclosure). Previous experiences also

show that the use of unweighted and weighted scores for the items disclosed in the annual reports and

accounts of companies can make little or no difference to the findings (Coombs and Tayib, 1998). Firth

(1979), for example, noted that unweighted and weighted scores showed similar results. Thus, we used

only an unweighted disclosure index approach in this research. The fundamental theme of the

unweighted disclosure index is that all items of information in the index are considered equally important

to the average user. The obvious advantage of using an unweighted index is that it permits an analysis

independent of the perception of a particular user group (Chow and Wong-Boren 1987, p.537).

After establishing the disclosure index, a scoring sheet was developed to assess the extent of voluntary

disclosure. If a company disclosed an item of information included in the index, it received a score of 1,

and 0 if it is not disclosed (see Cooke, 1989, p. 182). The method of initially computing the disclosure

score for each company can be expressed as follows:

DCOR = ∑ j =1 n

Where DCOR = the aggregate disclosure score; dj = 1 if the jth item is disclosed or 0 if it is not disclosed;

and n = the maximum score each company can obtain. In this case, the key fact is whether or not a

company discloses an item of information in the annual report. Thus, the unweighted disclosure method

measures the total disclosure (TD) score of a company as additive (suggested by Cooke, 1992).It is noted that

companies were not penalized for non-disclosure of an item if it was deemed to be irrelevant to their

business activities. As with prior research (e.g., Cooke, 1989), the entire annual report was read to assess

the relevance of a particular item of information to the firm.

5.5 Dependent and Independent Variable

The unweighted disclosure index DCOR has been used as the basis for the dependent variable used in the

empirical analysis of the study. However, the independent variables, the proxy and expected signs in the

study are as follows:

Variable Proxy Expected Sign

Age Number of years since foundation ±

Size Natural log of total assets +

Profitability Return on equity = net profit/total shareholders’ equity +

Complexity Number of subsidiaries +

Assets in Fixed assets/total assets +


5.6 General Form of Regression Model

The following is the general form of the OLS regression model which has been fitted to the data in order to

assess the effect of each variable on the disclosure data associated with the versions of the disclosure index

DCOR and to test the associated hypotheses:

I ij = βο + B1 Age j + B2 Size j + B3 Pr ofitability j + B4 complexity j + B5 Assets in place j + ε ij

Where: I = the voluntary disclosure index scores for sampled companies i= number of indices according to

overall disclosure; j = number of companies (1,….25), β0 = the intercept;

5.7 Hypotheses Development

The following hypotheses have been developed in the link with theoretical orientation of the study.

5.7.1 Age

The extent of a company’s disclosure may be influenced by its age, with age proxying for the form’s stage

of development and growth (Owusu-Ansah, 1998). Owusu-Ansah (1998, p.5) argued three points in this

case. First, younger companies may suffer competitive disadvantage if they disclose certain items such as

information on research expenditure, capital expenditure, and product development. The second factor is

the cost and the ease of gathering, processing, and disseminating the required information. These costs

are likely to be more onerous for younger companies than for their older counterparts. The third and final

factor is the situation that younger companies may lack a ‘track record’ to rely on for public disclosure

and therefore may have less information to disclose or less rich disclosures. Therefore, in principle the

age of the firm can be offered as an independent variable in explaining disclosure level. Under the context

of Qatar, it is not possible unambiguously to conclude that longer-established banks will necessarily

disclose more information than more newly-established firm. However, on the balance of the theory and

evidence we present the following hypothesis (with a weak expectation of a positive statistical relation):

H1: Longer-established firm will tend to disclose more information than more newly-established firm.

5.7.2 Size

Size is identified as a significant explanatory variable in explaining variation in the level of voluntary

disclosure in previous studies. In literature, a number of theoretical explanations for expecting a positive

relationship between company size and level of voluntary disclosure were provided. Agency theory

(Jensen and Meckling 1976) suggested that agency costs are associated with the separation of

management from ownership, which is likely to be greater in larger companies. A number of reasons have

been advanced in the literature in an attempt to justify this relationship on a priori grounds. Ahmed and

Nicholls (1994, p.65) argued that it is more likely that large firms will have the resources and expertise

necessary for the production and publication of more sophisticated financial statements and, therefore,

exhibit more disclosure compliance and greater levels of disclosure. Lang and Lundholm (1993) and

McKinnon and Dalimunthe (1993, p.39) pointed out that large firms tend to have more analyst followings

than small firms and therefore may be subjected to greater demand for information. Wallace and Naser

(1995, p.322) state that “size is a function of growth and the growth of a firm invariably results in a

greater need for external capital and consequently a greater need for more comprehensive information”.

Cooke (1991, p.176) states that “larger firms are likely to be entities of economic significance so that there

may be greater demands on them to provide information for customers, suppliers and analysts, and

governments as well as the general public”. These lines of reasoning provide strong grounds for

predicting that larger companies are more likely to disclose voluntary information than smaller

companies. Thus, it is hypothesized that:

H2: Voluntary disclosure is positively associated with company size.

5.7.3 Profitability

Most researchers have found a positive relationship between profitability and the extent of disclosure (see

for example, Cerf, 1961; Singhvi, 1967; Singhvi and Desai, 1971; Belkaoui and Khal, 1981; Wallace, 1987;

Wallace et al. 1994; Wallace and Naser, 1995; Raffournier, 1995; Inchausti, 1997; and Hossain, 2001). Watts

and Zimmerman (1986, p. 235) further argued that companies with larger profits are more vulnerable to

regulatory intervention and hence they could be more interested in disclosing detailed information in their

annual reports in order to justify their financial performance and to reduce political costs. Agency theory

suggests that managers of larger profitable companies may wish to disclose more information to obtain

personal advantages like continuance of their management position and compensation (Inchausti 1997).

Hence, for these reasons, it is hypothesized that:

H3: The level of voluntarily disclosure is positively associated with profitability.

5.7.4. Complexity of Business

The study of Haniffa and Cooke (2002) suggested that structural complexity may be significant in

explaining variability in the extent of disclosure. Curtis (1978), and Cooke (1989a), argued that structural

complexity requires a firm to have an effective management information system for monitoring purposes,

and that the availability of such a system helps to reduce the cost of information production per unit, and

thus higher disclosure. This variable did not provide significant results in the study of Haniffa and Cooke

(2004), although it was expected to give positive sign. Based on the above arguments, we hypothesize:

H4: The level of voluntary disclosure is positively associated with the complexity of the firm.

5.7.5. Assets-in-place

As is well known, financial reporting is one means of mitigating agency problems (Healy and Palepu 2001;

Jensen and Meckling, 1976). For example, Leftwich et al. (1981) found that the debt ratios of companies

which were semi-annual reporters in the US were significantly higher than the corresponding ratios for the

other reporting frequencies; and assets-in-place, used in this context as a proxy for information

asymmetry, of semi-annual reporting firms was lower than that for other reporters. Hossain and Mitra

(2004) found assets-in-place to systematically influence the level of voluntary disclosure of US

multinational companies. Butler et al. (2002) argued that firms with a higher percentage of tangible assets

have lower agency costs because it is more difficult for managers to misappropriate well-defined assets-in-

place than to extract value from uncertain growth opportunities. Therefore, since those firms with higher

than average assets-in-place may tend to have lower levels of agency costs, they can reduce their reliance

on disclosures in line with lower levels of agency costs. It may also be argued that firms with relatively

high levels of debt financing have higher agency costs, and therefore, exhibit a greater demand for

monitoring by creditors and others. These relationships may be mitigated where there are relatively higher

levels of (or increases in) a firm’s fixed assets, thereby resulting in lower in agency costs, and

consequently lower disclosure (Myers, 1977). Myers (1977) assertion that wealth transfers can be more

difficult between shareholders and debt-holders for firms with a larger proportion of assets-in-place is the

source of this mitigation. However, some studies which have investigated the influence of variables

capturing assets-in-place on voluntary disclosure in annual reports do not report any significant

relationship (Chow and Wong-Boren 1987, Hossain et al., 1994, Hossain et al,. 1995, Raffournier, 1995).

Therefore, there is no unambiguous support for a hypothesis associating disclosure levels with assets-in-

place. However, with this in mind and after considering the foregoing discussions the following

hypothesis is offered:

H5: There is an association between the proportion of assets-in-place and the extent of voluntary


6. Finding and Analysis:

6.1 Descriptive statistics:

Descriptive statistics for the dependent variables and independent variables are reported in Panel A of

Table 4. The table indicates that the level of average voluntary disclosure in the sample companies is 37

per cent with a minimum of 20 percent and a maximum of 67 percent. It is consistent with Leventis and

Weetman (2004) in Greece (37%) Shaminari (2008) in Kuwait (46%) and Ghazali and Weetman (2006) in

Malaysia (31%).

Table 4 presents a distribution of overall voluntary disclosure and its eight categories. The table shows that

there is great variability in the level of overall voluntary disclosure and in each category. It shows that 32%

of the companies had a score less than 21% and only two companies have a score in excess of 50% in the

overall level of voluntary disclosure. With respect to categories of voluntary disclosure, the table shows that

highest percentage of companies (20%) scored in the disclosure range of 21-30 and 0 – 10, on the other

hand, 12% of the companies did not disclose any information in corporate strategy, corporate governance,

financial performance, general risk management and corporate social responsibility, and in this cases, the

highest number of companies observed in two areas, corporate governance (40%) and corporate social

responsibility 32%). It is also noted that only 16% of the companies disclosure score is in the range of 31-40.

A possible explanation for the variation in the level of voluntary disclosure could be related to the

company-specific characteristics. Therefore, the remaining parts of this study focus on this issue.

Table 4

Descriptive Statistics

Panel A. descriptive statistic for dependent variable

Mean standard deviation Minimum Maximum

Voluntary disclosure 36.84 10.55 20 67

Panel B. Distribution of the Voluntary disclosure Indices

Score AVD Distribution of voluntary disclosure

BG* CS* CG* FP* GRM* APR* CSR* Others

0 3 0 1 10 3 2 0 8 0

[12%] [4%] [40%] [12%] [8%] [32%]

0 -10 5 0 8 6 1 4 0 5 16

[20%] [32%] [24%] [4%] [16%] [20%] [64%]

11 - 20 3 0 3 4 6 3 0 4 4

[12%] [12%] [16%] [24%] [12%] [16%] [16%]

21 - 30 5 3 4 5 7 8 2 4 7

[20%] [12%] [16%] [20%] [28%] [32%] [8%] [16%] [28%]

31 - 40 4 5 4 2 6 5 6 1 3

[16%] [20%] [16%] [8%] [24%] [20%] [24%] [4%] [12%]

41 - 50 3 8 2 0 2 3 4 2 3

[12%] [32%] [8%] [8%] [12%] [16%] [12%]

51 and 2 1 0 0 0 0 1 0 0
[8%] [4%] [4%]

Total 25 25 25 25 25 25 25 25 25

Note: Figures in the parenthesis denote percentage of actual scoring. * Here BG means Background; CS means corporate
strategy; CG means corporate governance; FP means financial performance; GRM means general risk management; APR
means accounting policy review; and CSR means corporate social disclosure.

Panel C. Descriptive statistic for other variables

Mean Standard deviation Minimum Maximum

Logassets 15.67 1.42 13.16 18.55

ROE 17.32 9.45 2.70 41.20

Assetsinplace 0.40 0.35 1.58 0.01

Age 15.36 12.45 1.00 43.00

Complexity 2.72 3.18 0.00 11.00

In the panel C, it is also observed that logassets ranged from 13.16 to 18.55, with a mean of 0.15.67. The

size distribution is skewed. Skewness is mitigated by utilizing natural logarithm of size in the regression

analysis, consistent with prior studies (Gluem and Street, 2003). Profitability (ROE) for full sampled ranged

from 2.7 to 41.20 with a mean of 17.32. The variation is of the minimum and maximum is noticeable

because the sample size included the financial institutions. In terms of assetsinplace ranged from 1.58 to

0.01 with a mean of 0.40. It indicates that sampled companies have low fixed assets against in total assets.

Company age range from 1 to 43 years with a mean of 15.36 for the whole sample. Complexity range from

0 to 11.00 with a mean of 2.72. The figure of zero indicates that some companies effectively had no


6.2. Correlation Matrix and Multicollinerity Analysis

Multicollinearity in explanatory variables has been diagnosed through analyses of correlation factors and

Variable Inflation Factors (VIF), consistent with Weisberg (1985). Table 5 presents the correlation matrix of

the dependent and continuous variables, from which, it has been observed that the highest simple

correlation between independent variables was 0. 52 between Logassets and Assetsinplace. Judge et al.

(1985), and Bryman and Cramer (1997) suggest that simple correlation between independent variables

should not be considered harmful until they exceed 0.80 or 0.90. The VIF in excess of 10 should be

considered an indication of harmful multicollinearity (Neter et al., 1989). Alternatively, if the average VIF

is substantially greater than 1 then the regression may be biased (Bowerman and O’Connell, 1990). The

average VIF3(1.47) is close to 1 and this confirms that collinearity is not a problem for this model. These

findings suggest that multicollinearity between the independent variables is unlikely to pose a serious

problem in the interpretation of the results of the multivariate analysis.

Table 5

Correlation matrix

Voldisclosure Logassets ROE Assetsinplace Age complexity

Voldisclosure 1.000 .662* .201 .638* .471* .020

Logassets .662* 1.000 .271 .515* .233 .017

ROE .201 .271 1.000 .317 -.132 -.244

Assetsinplace .638* .515* .317 1.000 .278 -.246

Age .471* .233 -.132 .278 1.000 -.397*

complexity .020 .017 -.244 -.246 -.397* 1.000

* significant at .05 (1-tailed)

The average VIF is computed by summing all VIF values in the last column located in Table 7 and then
divided by the number of explanatory variables.

6.3 Multivariate Analysis

We performed an Ordinary Least Square (OLS) regression model for all variables, the results of which are

presented in Table 6 and Table 7. The multiple regression model is significant (P>0.005). The adjusted

coefficient of determination (R squared) indicates that 61% of the variation in the dependent variable is

explained by variations in the independent variables. The coefficient representing assets (log of assets),

Assetsinplace, Age, and complexity are statically significant between 1% to 5% levels, while the coefficients

for ROE is not statistically significant..

Table 6: Model Summary

R R Square Adjusted R Square F Sig. Durbin-Watson

0.835 0.697 0 .617 8.73 0.00 1.524

Table 7: Regression Results

Variable β T Sig. VIF

Constant -15.116 -.934 0.362

Logassets 2.33 2.032 0.056 1.54

ROE 0.135 0.824 0.420 1.37

Assetsinplace 11.800 2.532 0.020 1.55

Age 0.353 2.735 0.013 1.49

Complexity 1.019 2.040 0.056 1.43

6.4 Discussion of regression result

Results of the OLS regression in Table 6 show that the F-ratio is 8.73 (P= 0.00). The result statistically

supports the significance of the model. R Square 0.617, which is a good result, implies that independent

variables explain 61.7 percent of the variance in disclosure index and this result compares favorably with

similar studies using disclosure indices Akhtaruddin (2005) at 55.7%, Haniffa and Cooke (2002) at 46.3%,

and Ahmed (1996) at 33.2%.

A detailed discussion of the regression result is now offered here on the basis of hypotheses.

The variable of age is positive and significant at 1% level which suggests that older companies will have

direct influence on the level of voluntary disclosure. This finding lends support to hypothesis H1. The

previous research studies Akhtaruddin (2005) and Haniffa and Cook (2002), Glaum and Street (2003) and

Hossain (2008) found insignificant in explaining the level of disclosure. The possible reasons for that

above studies seek to explain on mandatory disclosure including corporate governance rather than

voluntary disclosure. The empirical evidence derived from the regression model indicates that size by

assets is statistically related to the level of voluntary disclosure by the sample of companies in their

annual reports. It is significant at a .05% level and positive. The positive sign on the coefficient suggests

that size has a direct influence on level of disclosure in the companies in Qatar. Empirical evidence also

confirms the hypothesized positive association between company size and level of voluntary disclosure.

For examples, Hossain, et. al., 1994; Ahmed, 1996; Wallace and Naser, 1995; Haniffa and Cooke 2002;

Ghazali and Weetman, 2006; Hossain and Reaz, 2007; and Al-shammari, 2008). The variable is not

significant and therefore, hypothesis is not supported. This implies that more profitable companies do not

disclose significantly more voluntary information than do less profitable ones. The result is thus

inconsistent with other previous studies such as Singhvi and Desai, 1971, Hossain and Reaz, 2007,

however, other studies shows positive influence such as Ghazali and Weetman, 2006, Al-shammari, 2008.

Moreover, to date, the empirical evidence on the relation between firm performance and disclosure is

mixed (Camfferman & Cooke, 2002; Lang and Lundholm, 1993; Wallace et al., 1994). One possible answer

for insignificant the variable is that apparently Qatar has a short history of stock markets (starting 1997)

and small size of investor. The companies are reluctant to disclose voluntary information with considering

the cost of producing information. This variable is significant at 5%, providing evidence that if the

company has a subsidiary at home and/or abroad, it is likely that company will disclose more information

than a company with no such subsidiaries. This is an interesting result and may be reflective of the stage

of development of Qatari companies as it goes through a period of significant growth. The hypothesis is

accepted. This variable is significant at 2% and the sign is positive. The studies like Hossain and Mitra

(2004), Hossain (2001), and Hossain and Reaz (2007) have found positive influence the voluntary

disclosure. The hypothesis is accepted.

7. Conclusion

This study sought to empirically investigate the association between a number of company characteristics

and the extent of voluntary disclosure in the annual reports listed companies in the Doha Securities

Exchange in 2007. The finding indicates that voluntary disclosure of the listed companies in DSM depends

on some firm characteristics. It is revealed that age, assets, complexity and assets in-place variables are

significant in explanatorily variable to the levels of voluntary disclosure, on other hand the profitable

variable found insignificant. The results al least provide some sorts of knowledge of financial reporting

practices around the GULF reasons in general, and Qatar in particular. The users of financial reporting

including investors need confidence of financial markets and information disclosure is vital elements to

fulfill this confidence and in this case this study would provide a communication bridge to the various

stakeholders in the society.

6. Limitations and future research direction

One limitation of this study is that the findings are based on Qatari companies which may limit the

generalisability of the results to other jurisdictions. The findings are also based on observations of a

relatively small number of companies, that is, those listed Qatari companies that voluntarily information

disclosed in a particular one year. This raises further uncertainty about the extent to which the results are


In order to overcome this shortcoming, a study can be taken in the other Arab countries such as Gulf Co-

Operation Council (GCC) member states as comparative and/or longer period of time which will help to

validate the this study. The two most explanatorily variables such as corporate governance and board

composition can be considered in further studies.


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Appendix 1

No. List of Items

A Background about the bank/general corporate information (06):

1 Brief narrative history of the Bank

2 Basic organization structure/chart/description of corporate structure

3 General description of business activities

4 Date of establishment of the company

5 Official address/registered address/address for correspondence

6 Web address of the bank/email address

B Corporate Strategy (02):

7 Management’s objectives and strategies/corporate vision/motto/statement of

corporate goals or objectives

8 Future strategy - Information of future expansion (capital expenditures)/general

development of business

C Corporate Governance (11):

9 Detail about the chairman (other than name/title) background of the

chairman/academic/professional/business experiences

10 Details about directors (other than name/title) background of the

directors/academic/professional/business experiences

11 Number of shares held by directors

12 List of senior managers (not on the board of directors)/senior management


13 Directors’ engagement/directorship of other companies

14 Picture of all directors/board of directors

15 Picture of chairperson

16 Composition of Board of Directors

17 Number of BOD meetings held and date

D Financial Performance (13):

18 Brief discussion and analysis of a financial position

19 Return on equity

20 Net interest margin

21 Earning per share

22 Debt–to-equity ratio

23 Dividend per share

E General Risk Management (07):

24 Discussion of overall risk management philosophy and policy/framework

25 Narrative discussions on risk assets, risk measurement and monitoring

26 Information on Risk management committee

27 Information on Assets-liability management committee

28 Information on Risk management and reporting system

29 Disclosure of credit rating system/process

30 General descriptions of market risk segments

31 Disclosure of Interest Rate Risk

G Accounting Policy Review (02):

32 Discussion on accounting policy

33 Disclosure of accounting standards uses for accounts

H Corporate Social Disclosure (04):

34 Sponsoring public health, sponsoring of recreational projects

35 Information on donations to charitable organizations

36 Supporting national pride/government - sponsored campaigns

I Others (08):

37 Age of key employees

38 Chairman’s/MD’s report/directors report

39 Information on ISO 9001: 2000 certification

40 Graphical presentation of performance indicators

41 Performance at a glance -3 years

42 Related party disclosure

43 Details of non-compliance, penalties imposed by SE or SEBI

44 Year of listing at DSM

Appendix- 2

Name of the Companies under the study

Banking and Financial Sector:

1. Qatar National Bank
2. Qatar Islamic Bank
3. Commercial Bank Of Qatar
4. Doha Bank
5. Al-Ahli Bank
6. International Islamic Bank
Insurance Sector:
7. Qatar Insurance
8. Doha Insurance

9. Qatar General Insurance & Reinsurance

10. Islamic Insurance

Industrial Sector:
11. Qatar Industrial Manf. Co.
12. National Cement Co.
13. Industries Qatar
14. United Development Company
Services Sector:
15. Qatar Telecom
16. Electricity & Water
17. Q-Ship
18. Real Estate Co.
19. Salam International Investment.
20. Qatar Navigation
21. Qatar Fuel Company (QOQOD)
22. Nakilat
23. Dlala
24. Barwa , 1st jan
25. Aamal