Journal of Accounting in Emerging Economies

Emerald Article: Corporate Governance and Disclosure Practices of Ghanaian Listed Companies Francis Aboagye-Otchere, Ibrahim Bedi, Teddy Ossei Kwakye

Article information:
To cite this document: Francis Aboagye-Otchere, Ibrahim Bedi, Teddy Ossei Kwakye, (2012),"Corporate Governance and Disclosure Practices of Ghanaian Listed Companies", Journal of Accounting in Emerging Economies, Vol. 2 Iss: 2 pp. 3 - 3 Downloaded on: 27-03-2012 To copy this document: permissions@emeraldinsight.com

Access to this document was granted through an Emerald subscription provided by UNIVERSIDADE CATOLICA DE BRASILIA For Authors: If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service. Information about how to choose which publication to write for and submission guidelines are available for all. Additional help for authors is available for Emerald subscribers. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.com With over forty years' experience, Emerald Group Publishing is a leading independent publisher of global research with impact in business, society, public policy and education. In total, Emerald publishes over 275 journals and more than 130 book series, as well as an extensive range of online products and services. Emerald is both COUNTER 3 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation.
*Related content and download information correct at time of download.

Article Title Page

Corporate Governance and Disclosure Practices of Ghanaian Listed Companies Author Details Author 1 Name: Francis Aboagye-Otchere Department: Department of Accounting University/Institution: University of Ghana Business School Town/City: Legon Country: Ghana Author 2 Name: Ibrahim Bedi Department: Department of Accounting University/Institution: University of Ghana Business School Town/City: Legon Country: Ghana Author 3 Name: Teddy Ossei Kwakye Department: Department of Accounting University/Institution: University of Ghana Business School Town/City: Legon Country: Ghana Corresponding author: Francis Aboagye-Otchere Corresponding Authors Email: faotchere@ug.edu.gh Please check this box if you do not wish your email address to be published Structured Abstract: Purpose The purpose of this study is to further increase the understanding of disclosure practices and the interrelationship between Corporate Governance (CG) and Corporate Disclosure (CD) of firms on the Ghana Stock Exchange (GSE). Design/methodology/approach The study follows the trinary procedure of Aksu and Kosedag (2006) and use the Standard and Poors T&D items in the construction disclosure index. Audit Committee (AC) characteristics are the governance attributes. The study used a Random Effect panel regression analysis to establish the relationship between CD and CG of 20 listed companies covering a period from 2003-2007. Findings The results indicate that albeit the improvement of disclosure practices over the years, the level of disclosure in Ghana is moderate/fair. The study also documents a significant positive relationship between the presence of accounting/finance expert(s) on the Audit Committees (ACs) and CD practices. Originality/value In spite of the numerous researches on companies on GSE, this paper is the first study in the country that considers the impact of CG characteristics on disclosure practices. Keywords: Corporate Governance, Disclosure, Transparency, Audit Committee, Ghana. Article Classification: Research paper

For internal production use only Running Heads:

Introduction Corporate governance (CG), transparency and disclosure (T&D) practices are envisioned as mechanisms of checks and balances that have evolved to mitigate conflict of interests and imbalances of power and control between stakeholders (agency problems) that exist in modern companies (Jensen and Meckling, 1976). Consequently, issues on CG and T&D have become an important concern globally, especially after the collapse of giant companies in developed countries and the Asian financial crisis. Good CG practices include a vigilant board of directors and timely and adequate disclosure of financial information. T&D practices that firms follow are a fundamental and important component and a leading indicator of CG quality (Aksu and Kosedag, 2006; OECD, 1999). Impliedly, CG and disclosure practices are intertwined in that, whiles T&D is an important principle of CG, a firms governance structure can influence the nature of its disclosure practices. Theory and prior evidence indicate that several determinants and factors affect a firms disclosure policy. These factors include firms characteristics such as size, listing status, industry, ownership and control, leverage (Ahmed and Courtis, 1999; Coulton et al., 2001; Ho and Wong, 2001; Bujaki and McConomy, 2002; Eng and Mark, 2003; Beeks and Brown, 2005; Cheng and Courtenay, 2006, Aksu and Kosedag, 2006; Mangena and Tauringana, 2007; Tsamenyi et al., 2007) and CG structures (Shleifer and Vishny, 1997, Haniffa and Cooke, 2002). However, most of the empirical literature on the CG and T&D practices and the factors affecting these practices have focused on developed countries and developed capital markets (Mangena and Tauringana, 2007) and the use of unregulated disclosures such as earnings forecasts, and environmental and social disclosures (Haniffa and Cooke, 2002). This study examines the CG and T&D practices of listed companies in Ghana a developing country and an emerging economy which has a dearth of literature on these practices. Tsamenyi et al. (2007) examined the CG and disclosure practices of companies listed on the Ghana Stock Exchange (GSE) and the extent to which factors such as ownership structure, firm size and leverage affect disclosure for two comparative years (2001 and 2002). Their study used T&D index of only 36 disclosure items but did not distinguish between mandatory and voluntary disclosures nor examined the influence of CG on disclosure practices. The present study constructed a comprehensive T&D index (i.e. consisting of 100 regulated and discretionary disclosure items) 1

drawn from the T&D index developed by S&P (2002), Aksu and Kosedag (2006) and Mangena and Tuaringana (2007) to allow for inference into the quality of disclosure at the international level. Unlike Tsamenyi et al. (2007), this study also investigated the influence of CG on disclosure practices over a 5 year period. Aksu and Kosedag (2006) in their study of determinants of T&D of firms on Istanbul Stock Exchange also considered only one year and proposed that subsequent studies should be for several years. This, they said, will ensure that possible lead lag relationships are not ignored and also allow for longitudinal generalization. In line with this, our paper made use of longitudinal data from 2003 to 2007 and thus, the present study is differentiated from previous studies in emerging economies because the study pooled time series and cross-sectional data. This paper aims to assist policy makers and practitioners to understand the current CG and T&D practices in Ghana and formulate policies that will enhance the effectiveness of these practices. It will also build on previous studies and contribute to the limited literature on these practices in emerging economies, specifically, Ghana. Our paper examined the disclosure practices of Ghanaian listed firms and how CG structures affect the level of T&D of these firms by answering these questions: 1. What is the T&D level of Ghanaian listed companies? 2. Do CG structures of firms affect their T&D level? The Ghana Stock Exchange (GSE) As is the case of most stock exchanges on the African continent, the market size of the GSE is small (Aksu and Kosedag, 2006). Despite the steadily increase in market size of GSE since 2004, the market capitalization of the stock market at the end of 2008 was 179,000 billion cedis (smaller size as compared to that of other developed countries). The apparent increase in market capitalisation over the years is largely due to the result of price appreciations and the listing of new shares on the market (GSE factbook, 2008). According to Tsamenyi et al. (2007), an indispensable feature of the GSE is the higher level degree of concentration. For instance, the four largest companies on the exchange constituted 77.95% of the market capitalisation at the end of 2002. The degree of concentration has kept increasing since then, re-affirming the high level of concentration on the Ghanaian stock market. The higher concentration on the market is 2

believed to have resulted from the fact that majority of the companies were listed through the privatisation process, where the government of Ghana sells a proportion or all of its interests in the said companies to other investors (Tsamenyi et al., 2007). The privatisation process has aided the existence of block control, as the sale of the governments interests was done in blocks rather than on a dispersed basis. In addition, GSE has seen several foreign companies listing on the exchange as well as a couple of mergers and takeovers of listed firms for the past couple of years. At the end of 2007, the GSE had 32 companies listed on the exchange comprising of the Banking, Finance and Insurance sector (9); the Manufacturing sector (7); the Trading and Distribution sector (5); the Food and Beverage sector (3); the Mining sector (2); Information Communication Technology (ICT) sector (2); Pharmaceuticals sector (2); and Printing and Publishing sector (2).1 CG and Disclosure Regulatory Framework in Ghana The Ghanaian regulatory framework for both CG and T&D comprises the Ghana Companies Act (1963), the Securities Industry Law, 1993 (PNDCL 333) as amended, and the Membership and Listing Regulations of the Ghana Stock Exchange (GSE, 1990). CG Framework in Ghana The increased emphasis on CG around the world has set out the Institute of Directors of Ghana (IOD-Ghana) to promote compliance with the principles of good CG. Their efforts received a boost with the publication of the SEC Corporate Governance Guidance of Best Practices in Ghana and also with the various amendments to the GSE Membership and Listing Rules. The regulatory framework provides for accessibility of information to shareholders and equitable treatment of all shareholders (both majority and minority shareholders). For instance, shareholders have the right to obtain relevant information on the firms on a timely and regular basis and to be sufficiently informed on decisions concerning fundamental corporate changes (The Companies Act, 1963). The Securities Industry Law also prohibits and penalizes insider trading and abusive self-dealing. The Companies Act provides for the appointment, retirement and removal of directors as well as the basic responsibilities of the board of directors of a
1

The number of companies in each of the sectors is in parenthesis

company. These provisions are supplemented by the Listing Regulations of the GSE, which inter alia requires all listed companies to establish and maintain audit committees (AC) to revise and supervise their financial reporting and internal controls. It also recommends that other subcommittees (including remuneration and nomination committees) be established to enhance the effectiveness of the board. These requirements are in tandem with provisions of most CG codes (notably, UKs Cadbury Report and Combined Codes, SOX of the USA, OECD principles). Despite recent developments in regulating CG practice in Ghana, the practice is still unconvincing. Mensah et al. (2003) opines that, the mechanisms of CG which ensure that managers of companies act in the best interest of shareholders and other stakeholders are relatively inactive in Ghana as compared to those of developed countries. For instance, in Ghana, there are limited markets for takeovers; proxy contests are almost non-existent; monitoring of corporate behaviour is very limited; markets are fairly inactive and legal protections are poorly enforced (Mensah et al., 2003). Furthermore, compensation systems, such as stock options, profit sharing and bonuses, which could be used to align the interests of management and shareholders, are not necessarily applied to this end in Ghana (Tsamenyi et al., 2007). Disclosure Framework in Ghana As a British colony before independence, Ghana has a common-law system and its accounting system was largely influenced by British accounting practices. This system typically assumes that transactions are conducted at arms length (Ho and Wong, 2001), i.e. by parties who do not know each other. Such a system tends to require high standards of public disclosure which applies particularly to public listed companies in a large stock market. Consequently, Ghana follows a disclosure-based regime, with corporate disclosure and reporting being influenced by the Companies Act (1963) and the accounting profession (Institute of Chartered Accountants, Ghana) via the Ghana National Accounting Standards [and recently its adoption of International Financial Reporting Standards (IFRS)]. It is supported by other industry specific regulations and laws. The Companies Act requires that annual audited accounts and reports (prepared in accordance with GAAP) are presented to shareholders at an annual general meeting. The Act stipulates the minimum basic requirements of financial reports as the basic financial statements (i.e. the income statement, the balance sheet and the cash flow statements) and the notes to 4

accounts. For quality presentation of the financial information, companies in Ghana are required to comply with the standards adopted and issued by the Institute of Chartered Accountants, Ghana (ICAG). Furthermore, the regulatory framework specifies the channels for dissemination of information to the GSE, shareholders and the general public in the case of listed companies as well as placing a continuing periodic reporting obligation on listed companies via publication of interim reports (usually unaudited). The listing regulations also require listed companies to report to investors any relevant and material information of price sensitive nature, necessary to enable investors to evaluate the performance of companies (such as members of the board and key executives and their remuneration, material foreseeable risk factors, major share ownership and voting rights, material issues regarding employees and other stakeholders and the financial and operating results of the company). In Ghana, the monitoring of financial reporting and

compliance with standards is the responsibility of the ICAG. However, the ICAG does not have the power to enforce compliance with the standards it adopts, and only works through its membership to persuade companies to comply. The GSE, on the other hand, has the power to suspend or de-list non-complying companies from the exchange. A Brief Literature Review A number of studies have examined the CG and T&D practices of companies and the factors that influence these practices. Most of these researches have focused on developed countries (Meek et al., 1995 in USA and UK; Coulton et al., 2001 in Australia; Ho and Wong, 2001 in Hong Kong; Bujaki and McConomy, 2002 in Canada; Eng and Mark, 2003 in Singapore; Beeks and Brown, 2005 in Australia; Cheng and Courtenay, 2006 in Singapore). These studies concluded that CG and T&D practices have improved over the years. They also identified various factors that influence the CG and T&D practices of companies i.e. firm characteristics (such as firm size, listing status, ownership and control, leverage), environmental and institutional factors (such as culture, legal system, political system, efficiency of capital markets) and CG structures (such as board characteristics, AC characteristics). However, the results from these studies are usually mixed. Moreover, the findings of these researches may not be generalizable to other countries with different developmental stages and business environments. Several studies on CG and T&D practices have also been made in developing countries and emerging economies (Hossain et al. 5

1994 in Malaysia; Owusu-Ansah, 1998 in Zimbabwe; Haniffa and Cooke, 2002 in Malaysia; Barako et al., 2006 in Kenya; Aksu and Kosedag, 2006 in Turkey; Mangena and Tauringana, 2007 in Zimbabwe). In Ghana, limited studies have documented CG and T&D practices (Mensah et al., 2003, Kyereboah-Coleman, 2007, Tsamenyi et al., 2007). However, most of these studies in emerging economies and developed countries have focused on unregulated disclosures and how CG practices affect the firm value and performance (usually using board characteristics as proxy for CG structures and constructing disclosure index with fewer disclosure items). Studies which also investigated the factors influencing T&D practices failed to examine the interrelationship between CG and T&D practices and also did their studies using either one or two comparative years (Aksu and Kosedag, 2006 ; Tsamenyi et al., 2007). This study examined the CD and T&D practices of Ghanaian listed firms by investigating whether CG attributes (specifically, AC characterisitics) in addition to firm specific characteristics are possible determinants of T&D practices using pooled time series and cross-sectional data. In addition, the disclosure items used and analysed in this study consisted both regulated and unregulated as the disclosure index was constructed bearing in mind the regulatory framework in Ghana. Theoretical Framework This research made used of the agency theory to establish the relationship between CG and T&D. According to this theory, the basic agency problem in modern firms is primarily due to the separation of ownership and management. Jensen and Meckling (1976) assumes that the existence of a conflict of interest between managers (or controlling shareholders) and outside (or minority shareholders) will provide the tendency for the former to extract perquisites (or perks) out of a firms resources and be less interested to pursue new profitable ventures (Kyereboah-Coleman, 2007). Furthermore, the agency theory sees the firm as a nexus of

contracts which are incomplete (i.e. shareholders do not specify completely the duties and responsibilities of managers) hence, most residual control rights are held by managers due to expertise and information asymmetry. Good CG and T&D practices are envisioned as mechanisms of checks and balances that have evolved to mitigate these agency problems. CG the mechanisms and rules designed to align the interests of owners and managers of corporations (Jensen and Meckling, 1976) is to ensure that board of directors direct and operate the 6

activities of the company from within as well as control and oversee from the outside the way in which companies affect outsiders (Coyle, 2005). This will ensure that corporate performance and accountability are improved leading to creation of long-term shareholder value and hence, aligning the interest of both managers and shareholders. Again, agency theory postulates that the agency relationship between managers and shareholders gives rise to the problem of information asymmetry. Management therefore have the incentive to increase disclosure to convince shareholders that they are acting optimally if they know that shareholders control their behaviour through bonding and monitoring activities (Healy et al., 1999; Watson et al., 2002). One way that managers can reduce such an agency cost is improved T&D practices the effective periodic disclosure of firm-specific information (both quantitative and qualitative), on a either voluntary or mandatory basis, to interested parties mainly via published annual reports. Accordingly, Healy and Palepu (2001) documented that disclosure helps to reduce agency conflicts by bridging the information gap that exists between managers and shareholders and between informed and uninformed investors (Leuz and Verrechia, 2000). The association between a firms governance structure and its disclosure policies is based on the premise that well-governed firms use increased disclosure as a means of mitigating agency problems between managers and shareholders (Goodwin et al., 2007). Core (2001) suggests that a well-designed governance structure can help ensure that the firms disclosure policy is optimal via making more disclosures (Beeks and Brown, 2005). The T&D practices that firms follow are also fundamental, an important component and a leading indicator of a firms governance quality. This is because, good CG ensures that clear, timely and reliable information is adequately prepared, disclosure is made regarding all material matters concerning the corporation to various stakeholders and these information are equally accessible to all stakeholders. Nonetheless, other studies have established no relationship between CG and T&D practices (Coulton et al., 2001). Hypothesis Development Board Composition Board composition (usually measured as the proportion of non-executive directors (NEDs) on a board) indirectly reflects the independence of boards and the monitoring role of NEDs. Based on the agency theory, boards are needed to monitor and control the actions of directors due to 7

opportunistic behaviour (Berle and Means, 1932; Jensen and Meckling, 1976) and NEDs are believed to have more opportunity for control (Mangel and Singh, 1993). NEDs are therefore seen as the check and balance mechanisms to enhance board effectiveness (Haniffa and Cooke, 2001). The quantity of information disclosed in the annual reports and the time the information is released is influenced by the board. For this reason, if the board is independent and observe their responsibility of accountability and transparency to stakeholders, they will disclose on time all the relevant information. Again, NEDs may usually be considered as decision experts (Fama and Jensen, 1983) who act as positive influence over board deliberations and decisions and according to Weisbach (1988), NEDs will not be intimidated by the CEO. This means that, although NEDs are seen as playing a monitoring and advisory role rather than decision-making role, they are respected for their expertise and independence and thus, will be influential in decision making and policy implementation (Haniffa and Cooke, 2001). More disclosure may therefore be expected if NEDs actually carry out their roles, rather than their perceived roles. Similarly, their dominance (in terms of numbers) can empower them to enforce disclosure by management. Leung and Horwitz (2004) examined voluntary segment data disclosures in Hong Kong and concluded that NEDs have a positive impact on the level of voluntary disclosure, but only when there is low executive stock ownership. Cheng and Courtenay (2006) found that boards with a larger proportion of independent directors are significantly and positively associated with higher levels of voluntary disclosure in Singapore. In addition, Chen and Jaggi (2000) in their study of the association between independent directors and T&D, found a positive relationship between a board with a higher proportion of independent directors and comprehensive financial disclosure. These findings are consistent with agency theory view that a higher proportion of independent directors enhance voluntary financial reporting (Barako et. al., 2006). However, Eng and Mak (2003) argue that companies with a large proportion of independent directors could bring conflicts and lack real independence (Demb and Neubauer, 1992) and thus, the extent of disclosure may reduce since they will not be able to effectively carry out their actual roles. Ho and Wong (2001) also found no relationship between the proportion of NEDs and information disclosure. The following hypothesis was therefore examined H1 There is no relationship between the proportion of NEDs on the board and the level of disclosure practices of firms. 8

AC Composition Audit Committees (ACs) of board of directors are mechanisms for reducing information asymmetry (McMullen, 1996), protecting investors (McDaniel et al., 2002), and maintaining the quality of financial information disclosure and control systems (Barako et al, 2006). The board usually delegates the responsibility for oversight of financial reporting to the AC to enhance the relevance and reliability of annual report (DeZoort, 1997). Also, ACs are usually viewed as monitoring mechanisms that enhance audit attestation function of external reporting (Bradbury, 1990). In this regard, ACs can be a monitoring mechanism that improves the quality of information flow between firms management and shareholders, especially in the financial reporting environment where ownership and management have disparate information levels (Barako et. al, 2006). Various studies have documented a positive association between AC characteristics and T&D practices (McMullen, 1996, Ho and Wong, 2001 in Hong Kong, Barako et al., 2006 in Kenya). AC composition (the proportion of NEDs on the AC) also reflects the independence of AC. An independent AC will increase the effectiveness and efficiency of the board in monitoring the financial reporting process of a company. According to the agency theory, the independent members in AC can help the shareholders to monitor the activities of management and hence reduce benefits from withholding information. The existence of AC with a higher proportion of independent directors should reduce the agency cost and improve the internal control that will lead to greater quality of disclosures (Forker, 1992). As a result, the independence of NEDs on the AC helps to increase the level of disclosure by listed companies. According to Beasley et al., (2000), companies with financial reporting problems are less likely to have ACs dominated by outside directors. Abbot et al. (2004) study on the impact of the ACs independence on the quality of nancial reporting also found that companies with independent AC were less likely to suffer sanctions by the SEC for fraudulent nancial reporting. Considering the influence of independent AC on disclosure and the content of annual reports, the study hypothesized that: H2 There is no relationship between the proportion of NEDs on the AC and the disclosure practices of firms. AC competence 9

AC competence (represented by the presence of accounting/financial expertise on the AC) is another important dimension of AC effectiveness that has gained the attention of regulators and academics (DeZoort, 1997; SOX, 2002). Advocates propose that the presence of financial experts in AC composition will assist the committee in critically analyzing accounting policies and financial statements, identifying potential problems, and solving them. Accordingly, most CG codes (UKs Cadbury Report and Combined Codes, SOX of the USA, OECD principles) mandate the membership of ACs for listed companies to comprise of at least one member who is a financial expert or otherwise, and to disclose reasons for not adopting this requirement (DeFont et al., 2005). Prior studies argue that financial reporting issues involve the highest level of technical detail among AC effective areas and ideal AC members should have knowledge of accounting concepts and the auditing process to enhance their understanding of the financial reporting process, recognize problems, ask probing questions of the management and auditor and make leadership contributions to audit committees (McDaniel et al., 2002). Carcello et al. (2006) found that the presence of nancial experts on a companys AC made fraudulent reporting appreciably less likely. However, they fail to document any evidence of a pronounced association between AC accounting expertise and financial reporting quality. This study hypothesized that: H3 The presence of accounting/finance expert(s) on the AC has no relationship with a companys disclosure practices. Ownership Structure Ownership structure (in this study measured by the ownership concentration) has been documented as one of the factors that influence the level of T&D of a firm (Owusu-Ansah, 1998; Eng and Mak, 2003; Haniffa and Cooke, 2002; Barako et al., 2006; Mangena and Tauringana, 2007). According to Jensen and Meckling (1976), the potential agency conflicts due to the separation of management and ownership in modern corporations becomes greater where ownership are dispersed that if shares were held by the few. This is because if shares are widely held there will be diverse interests between contracting parties (Fama and Jenses, 1983). T&D (especially voluntary disclosure) provides management with the opportunity to demonstrate that they are acting in the best interest of owners. Hence, management will disclose more information 10

to reduce agency conflict with shareholders. On the contrary, other researchers are of the view that dispersed ownership implies lack of monitoring and control due to the low ownership percentage of individual shareholders (Shleifer and Vishny, 1986). In order to mitigate this problem, Shleifer and Vishny (1986) argue for the concentrated ownership structure, which will involve large shareholders (block holders) to monitor and control activities of management. These block holders are also predicted to demand more information to be disclosed in annual reports to reduce information asymmetry among the small shareholders. Findings on studies on the relationship between ownership structure and disclosure have been mixed. For instance, Hossain et al. (1994) and Tsamenyi et al. (2007) document a negative relationship in their studies on listed companies in Malaysia and Ghana respectively by arguing that firms with higher concentration of ownership structure may disclose less information to shareholders through discretionary disclosure. Haniffa and Cooke (2002) studies in Malyasia, basing their ownership structure on the proportion of shares held by the top ten shareholders (reflecting diffusion), found a positive significant relationship. This is also corroborated by Barako et al. (2006) studies on Kenyan listed companies. However, Eng and Mak (2003) found no relationship between block holder ownership and disclosure for listed companies in Singapore. The study therefore hypothesized that: H4 The ownership structure of a firm has no relationship with a companys disclosure practices. Firm Size Researchers have argued that larger firms tend to have higher proportion of outside capital (i.e. more dispersed shareholding) and higher agency cost (i.e. higher information asymmetry) which could lead to higher cost of capital (Jensen and Meckling, 1976; Tsamenyi et al., 2007) Larger firms, therefore, require more disclosure to mitigate these effects and impliedly, larger firms are likely to have higher levels of disclosure than smaller firms. Moreover, gathering and disclosing information are costly procedures and therefore it is easier for large companies (deriving economies of scale and having more resources) to produce comprehensive and detailed information (Firth, 1979; Tsamenyi et al., 2007). Firth (1979) also suggests that managers of smaller firms may feel that fuller disclosure of their activities will put them at a competitive 11

disadvantage compared with larger firms in their industry. Large firms therefore have lower costs of competitive disadvantage from voluntary disclosure compared with smaller firms. Based on these arguments, it is expected that larger firms may disclose more information than small sized firms because of relatively lower direct costs of disclosure, higher agency costs. Barako et al. (2006) studied the factors influencing voluntary corporate disclosure by Kenyan companies and found that size of the firm is one of the factors that positively influence a firm to disclose more information. This was corroborated by studies of Bujaki and McConomy (2002) in Canada, Eng and Mark (2003) in Sinagpore, Hossain et al. (1994) in Malaysia and Tsamenyi et al. (2007) in Ghana by proposing that, managers of larger companies are more likely to realise the possible benefits of better disclosure and small companies are more likely to feel that full disclosure of information could endanger their competitive position. H5 Leverage Agency theory again suggests a strong relationship between the leverage of a firm and disclosure (Jensen and Meckling, 1976). Because the presence of debt holders in a firms capital structure (especially, highly geared firms) exacerbates agency conflicts (i.e. more monitoring costs), management seeks to reduce these costs by disclosing more information in their annual reports (Jensen and Meckling, 1976). Highly indebted companies are also motivated to voluntarily disclose more information to accommodate the interests of creditors. This information is used to assess a firms future growth and enhance the firms chances of obtaining funds from financial institutions (Barako et al., 2006). Whereas Bradbury (1992), Eng and Mark (2003) and Barako et al. (2006) provide evidence that leverage is positively related to the extent of voluntary disclosure, Hossain et al. (1994), Aksu and Kosedag (2006) and Tsamenyi et al. (2007) found no relationship between leverage and disclosure. The study examined the following hypothesis: H6 The leverage of a firm has no relationship with its disclosure practices. The size of a firm has no relationship with its disclosure practices.

12

Methodology This exploratory study was approached taking into consideration the results of Tsamenyi et al (2007) for the Ghanaian economy and Mangena and Tauringana (2007) for sub-Saharan Africa, and Aksu and Kosedag (2006) for a broader emerging markets evidence on disclosure and CG. However, unlike Tsamenyi et al. (2007), and as proposed by Aksu and Kosedag (2006), the study made use of longitudinal data starting from 2003 to 2007. Panel data was used due to its advantage of having a large potential for resolving issues and inherent limitations of crosssection models. All companies listed on the Ghana Stock Exchange (GSE) constituted the population of the study as these companies are all subjected to similar disclosure requirements on the exchange (some industries may have other industry-specific requirements). However, due to availability of information, data was collected and analysed on twenty (20) listed companies for a 5-year period (i.e. 2003 2007).2 Table 1.1 gives the summary of the distribution of companies by sector included in the sample. Data for this study was mainly collected from the annual reports of the companies for the various years under study and the GSE fact book for years 2003 2008. Other relevant data for the study were collected from codes, guidelines and the various laws and regulations in Ghana governing the T&D and CG practices of listed companies notably, the Companies Code 1963 (Act 179), The Securities Regulations, Securities and Exchange Commission (SEC) CG Guidelines, Bank of Ghana Act, 2002 and the Banking Act, 2004.

Although there were twenty-three (23) companies listed on the exchange at the end of 2003, Trust Bank (The Gambia) Ltd., British American Tobacco (BAT) and Ashanti Goldfields Company (AGC) were excluded from the sample for reasons of inadequate information, de-listing and re-listing respectively.

13

Table 1.1

Distributions of Companies by Sectors

Sector

Number of companies listed3 3 6 2 5 6 1 23

Number included in sample 3 6 2 4 5 0 20

% included

Food and Beverage Manufacturing Printing and Publishing Distribution and Trading Banking & Finance and Insurance Mining Total

100.00 100.00 100.00 80.00 83.33 0.00 86.96

The data collected was analysed using descriptive, correlation and regression (Random Effect panel regression) analyses. The Hausman test was used to test the orthogonality between the effects and regressors, specifically, to determine the extent of correlation between the unobserved fixed effect (i) and any of the regressors as well as the appropriate estimation technique. The correlation matrix was also used to test for possible multicolinearity among independent variables. The following panel regression model was developed to investigate the relationship: DISCLit = it + 1CGit + 2 FATTRit + it Where, DISCLit represents the level of disclosure practices of a firm i in time t.
3

The list of companies and sector definitions are as contained in the GSE Fact book, 2004.

14

CGit is a vector for CG variables; Board Size (BDSIZE); AC Composition (ACCOMP); and Competence of AC (ACEXPT) FATTRit represents a control vector for firm specific attributes; Firm size (FSIZE); Ownership Structure (OWNSTURE) of the firm; and Leverage (LEVRG) it is the error term. The disclosure score of a firm was obtained in line with the studies of Aksu and Kosedag (2006) as: DISCL =
j

TOTS
k

S jk

Where, j = the attribute category subscript, j =1, 2, 3, k = the attribute subscript, k = 1. . . 100, Sjk = the number of info items disclosed (answered as yes) by the firm in each category, TOTS = the total maximum possible yes answers for each firm Disclosure items used in scoring the firms were collected from the annual reports provided by the companies for the period of the study. In all, the research used 100 items to measure the disclosure levels of the firms. These items were drawn from the Standard and Poors (S&P) transparency and disclosure instruments and the disclosure index developed by Aksu and Kosedag (2006). Even though S&Ps study had 98 attributes and Aksu and Kosedag (2006) study had 106 attributes, items of their disclosure index which do not pertain to the Ghanaian environment were not included in the construction of the disclosure score index for this study. In choosing the disclosure attributes, the disclosure requirements for Ghanaian companies, such as the SEC Corporate Governance Guidelines on Best Practices disclosure requirements, GSE Listing Rules disclosure requirements and disclosure provisions in Ghanas Companies Code were considered. T&D score index for this study was evaluated by the inclusion of best practices information items (attributes) over the years of study. According to OECD principles (1999), CG 15

frameworks should ensure that timely and accurate disclosure is made on companies with regards to financial situation, performance, ownership and governance. This formed the bases of the S&Ps disclosure and transparency categorization and the categories of disclosure employed in the study of Tsamenyi et al. (2007) and Aksu and Kosedag (2006). This study also categorized T&D into ownership structure and investor relationship disclosures (20 attributes), financial and transparency disclosures (45 attributes), and CG disclosures (35 attributes) see appendix. A disclosure score sheet was designed to score companies on their level of disclosure. Each attribute was scored on a binary basis (1 for a yes and 0 for no) for objectivity, and an overall score assigned from the number of attributes present in the annual report. Table 1.2 shows how the CG and firm specific characteristics were measured. Table 1.2 Measurement of CG Attributes and Firm Specific Characteristics Measurement Criteria Proportion of NEDs on the board Number of Directors on the board Proportion of NEDs on the committee Dummy variable - '1' for presence of at least a financial/accounting experts and '0' for otherwise Number of AC members End of year total assets End of year market capitalisation Proportion of shares held by substantial shareholders in excess of 5% of total shareholding. Debt to total capital ratio (debt excludes current debts)

Characteristics/Attributes Board Composition Board Size AC Composition AC Competence AC size Firm Size Ownership Structure Leverage

In order to make the analysis robust, the T&D attributes were further classified into mandatory and voluntary disclosure items based on the regulatory framework of disclosure practices in Ghana. 45% of the total attributes to be examined were required by law and other regulatory bodies, while the remaining was voluntary. Table 1.3 shows the number of attributes looked at in each of the categories with regards to mandatory and voluntary disclosures.

16

Table 1.3

Distribution of Mandatory and Voluntary Disclosure Attributes in Each Category

Ownership Disclosure Disclosure Type No. Of % of Total

Financial Disclosure

Governance Disclosure

No. of

% of Total

No. Of

% of Total

Attributes

Attributes

Attributes

Attributes

Attributes

Attributes

Mandatory

11

55.00

27

60.00

20.00

Voluntary

45.00

18

40.00

28

80.00

Total

20

100.00

45

100.00

35

100.00

Empirical Results and Findings Descriptive Summary Statistics Table 1.4 gives the summary of the mean, standard deviation, minimum and maximum values for the overall sample. The mean values of the variables for each year are also presented in Table 1.5. CG Characteristics The mean board size is 9 with the minimum and maximum directors on the board being 5 and 13 respectively. The average board size is above the minimum of 2 required by the Companies Code of Ghana. In terms of board composition, the mean proportion of NEDs on board is 0.63. This suggests that, on the average, only 37% of the board members of listed companies are executive directors. Thus, more outsiders serve on boards as compared to insiders. The implication is that, on the whole, boards of listed companies are relatively independent as they are mostly dominated 17

by NEDs. All the companies have ACs established in their companies with AC size ranging between 3 and 6 and the mean size of about 4 members. This is consistent with most CG guidelines on ACs which should consist of at least 3 members (OECD Principles; GSE CG Guidelines; UK Combined Code; US SOX). Table 1.4 Summary Statistics of Overall Sample (Observations = 100)

Variable Board Characteristics Board Size (Number) Board Composition (%) AC Characteristics AC Size (Number) AC Composition (%) ACs Competence Firm Specific Characteristics Total Assets (GH Million) Market Capitalization (GH Billion) Ownership Structure (%) Leverage (%)

Mean

Std. Dev.

Min

Max

8.55 0.63

1.98 0.13

5.00 0.33

13.00 0.86

3.95 0.87 0.85

0.95 0.16 0.36

3.00 0.33 0.00

6.00 1.00 1.00

106.22 63.58 0.70 0.31

204.69 84.87 0.11 0.32

0.37 0.30 0.41 0.01

1142.12 457.50 0.87 0.90

18

Firm Disclosure Scores (%) Ownership Disclosure Financial Disclosure CG Disclosure Overall Disclosure Score 55.90 62.48 32.74 50.76 1.34 4.13 4.52 8.13 20.00 42.22 8.57 30.00 65.00 82.22 57.14 64.00

In addition, these ACs are dominated by NEDs with an average proportion of 87% and thus, the ACs are, to a large extent, independent. ACs competence has a mean of 0.85. This means that on the average the ACs of these firms are competent (i.e. have accounting/finance experts). Impliedly, majority of the companies comply with the recommendations made by the notable CG codes. Firm Specific Characteristics Firm size in terms of total assets and market capitalisation had mean values of GH106.22 million and GH63.58 billion respectively. However, there is a wide variation in the sizes of the firms over the period as evident in their respective standard deviations. The average total assets of the firms also increased remarkably over the period from GH70.94 million in 2003 to GH160.31 million in 2007. Market capitalisation on the average also increased over the period with the exception of 2005 where mean market capitalisation declined from GH73.59 billion in 2004 to GH58.42 billion (Table 1.5). Ownership structure has a maximum ratio of 0.87 and a minimum of 0.41. The mean ownership structure is 0.70 which implies that significant shareholders (with 5% or more) own 70% of the shares of the listed companies. Shareholding is highly concentrated and the listed firms are characterised by large (block) shareholders. Consistent with Tsamenyi et al (2007), these block holders are mostly companies/institutions and in some cases government bodies. The minimum and maximum leverage of the companies over the period was 0.01 and 0.90 respectively implying that on the average the companies finance

19

their operations largely with equity capital (i.e. mean leverage of 31%). However, the mean leverage of the firms increased steadily over the period (Table1.5). Disclosure Score The mean overall disclosure score of the companies is 50.76% with maximum and minimum scores of 64% and 30% respectively. T&D is therefore at a moderate level although some companies show relatively high scores. Among the 3 disclosure categories, financial transparency disclosure had the highest mean score index of about 62.48% of its possible attributes. Ownership and governance disclosures had an average score index of 55.90% and 32.74% of their possible attributes respectively. This means that the firms disclose more of their financial information than information on their ownership and governance structures. Table 1.5 Mean of Variables for the Five Year Period (2003 2007)

Variables Board Characteristics Board Size (number) Board Composition (%) AC Characteristics AC Size (number) AC Composition (%)

2003

2004

2005

2006

2007

8.45 0.59

8.50 0.58

8.60 0.63

8.70 0.62

8.50 0.63

3.90 0.89

3.90 0.89

3.90 0.89

4.00 0.84

4.05 0.83

20

Firm Specific Characteristics Total Assets (GH million) Market Capitalisation (GH billion) Ownership Structure (%) Leverage (%) Firm Disclosure Scores (%) Ownership Disclosure Financial Disclosure Governance Disclosure Overall Disclosure Disclosure Practices of Firms Table 1.6 shows a dispersion of mean disclosure levels of the companies and their respective percentages. In general, two firms had a mean total disclosure score index of less than 40% of the total disclosure attributes, three companies disclosed information on more than an average of 60% and the mean disclosure score index of the remaining firms was between 40% and 60% of the disclosure items. Listed companies therefore exhibit fair/moderate disclosure practices. This assertion is supported by the fact that, about 75% of the firms fall within the moderate disclosure score index range, coupled with the mean overall disclosure score index of about 50.76%. The level of disclosure among Ghanaian companies is akin to that of other emerging markets. For instance, the Standard and Poors (S&Ps) average disclosure scores for South Africa, Hungary and Thailand in year 2000 were 56.12%, 43.87% and 50.00% respectively (Patel et al., 2002 as cited in Tsamenyi et al., 2007). Analysis of the trend of average disclosure scores showed that 21 54.50 60.44 29.57 48.45 56.00 61.78 32.57 50.40 55.00 62.33 33.71 50.85 56.50 63.33 32.86 51.30 57.50 64.56 35.00 52.80 70.94 32.59 0.63 0.28 81.51 73.59 0.70 0.29 93.33 58.42 0.71 0.30 125.01 59.55 0.71 0.32 160.31 93.73 0.71 0.35

there was a marginal increase from year to year over the five year period. This implies that even though the average level of disclosure is moderate, the companies are improving on their T&D practices although others recorded no improvement with only a few recording a decline in their T&D level. Table 1.6 Dispersion of Average Disclosure Levels made by Companies (2003-2007)

Average Disclosure Score Range Less than 40% (Low level) Between 40% and 60% (Moderate level) Greater than 60% (High level) Total

Number of Companies 2 15 3 20

% in the Sample 10.00 75.00 15.00 100.00

This corroborates the findings of Patel et al. (2002) and Tsamenyi et al. (2007) that T&D levels of companies across economies improve comparatively over time. Tsamenyi et al. (2007) study in Ghana observed that although disclosure levels for the companies they sampled improved for a significant number of companies, others registered no improvements and a few experienced a decline. Disclosure levels for each of the 3 disclosure categories also changed from year to year within the period. To further enrich the analysis, the disclosure levels of the firms were analysed with regards to the way disclosure was categorised for this study. As shown in Table 1.4, the level of financial and transparency disclosure of listed firms is high (averagely 62.49%), ownership disclosure level is moderate (averagely 55.90%) and governance disclosure is low (less than 40%). The high and fair disclosure practices exhibited by the firms in terms of financial and ownership disclosures respectively may be due to the fact that most of the attributes in these categories are mandatory in nature as shown in Table 1.3. Companies are therefore obliged to disclose these items to prevent sanctions and penalties from regulators. The low level of governance disclosure score, on the other hand, is expected because of the principle-based CG system in Ghana. This makes such disclosures voluntary since companies have to comply or 22

explain the reason for non-compliance unlike the rule based system where such disclosures might be mandatory. This suggests that policy makers in Ghana could explore the possibility of a hybrid model of CG (a balance between the rule-based and principle-based) to increase the level of governance disclosures. It must be emphasised here that, although on the average the governance disclosure practices were low, some companies exhibited fair governance disclosure practices especially those who have corporate institutions and government as their block holders. Table 1.7 Mean Mandatory and Voluntary Scores for the Firms

Mandatory Category of Disclosure Mean Score (%) Ownership Disclosure Financial Disclosure Governance Disclosure Overall Disclosure 80.36 76.48 68.29 76.16

Voluntary Mean Score (%) 26.00 41.50 23.86 29.98

Furthermore, the study shows that disclosure level is high in terms of mandatory disclosures as the mean overall mandatory disclosure score was 76.16%. This was the case for all the categories as evidenced in table 1.7. The results also indicate that firms which exhibited a very high level of compliance with mandatory disclosure requirements are largely owned by foreign institutions and thus, companies with concentrated foreign ownership are more compliant with regulatory requirements than locally owned companies. Ghanaian regulatory bodies are seen to be relaxed and less stringent in dealing with non-compliance issues. The low level of education of Ghanaians on the rights of shareholders can be a major contributing factor for locally owned companies being less compliant. The level of mandatory disclosure practice exhibited by the firms may suggest that Ghanaian listed companies are effective (on a scale of very ineffective to 23

very effective) in terms of compliance with regulatory requirements. It must be noted that, even though on the average disclosure practices are high in terms of mandatory disclosures, governance items that need to be compulsorily disclosed by companies had the least compliance level an additional evidence of the level of development of CG in the country. On the other hand, with a mean voluntary disclosure score of 29.98%, it is very glaring that the firms hardly disclose information voluntarily. Regression Analysis A multicollinearity test was also performed to identify possible correlations between the independent variables in the model. The test results of the correlation matrix (shown in the appendix) indicated that, although majority of these variables were somehow correlated but insignificant, a firms total asset was significantly correlated with the market capitalization of the firm. The leverage of the firm was also significantly correlated with the total assets of the firm. Consequently, two regressions were run one excluded both market capitalization and leverage, and the other excluded total assets and the results are as shown in Tables 1.8 and 1.9. The results of the regression show that both CG characteristics exhibited by companies and the firms specific characteristics - except firm size (both total assets and market capitalization) and AC competence - are not significantly related to companies disclosure practices. As shown in Tables 1.8 and 1.9, AC competence has a positive significant association with disclosure practices at a 1% significant level. This implies that if more members of the AC are accounting/finance experts, the disclosure practices of companies are greatly improved. A reason for this could be that people with accounting/finance backgrounds are capable of understanding and interpreting reports prepared by financial managers. Moreover, such people understand the rules and standards governing such reports better than non-experts (McDaniel et al., 2002). As a result, any non-compliance (in terms of mandatory disclosure) and non-disclosure of items relevant and useful to stakeholders will be readily identified and discussed to enforce their disclosure in the annual reports. The findings however are inconsistent with the results of the Carcello et al., (2006) study since they fail to document any evidence of a pronounced association between AC accounting expertise and financial reporting quality.

24

Table 1.8

Random Effects Panel Regression of Estimates (2003-2007) Dependent Variable is Overall Disclosure Score and Independent Variables Exclude Market Capitalization and Leverage

Independent Variables Board Composition Audit Committee Composition Audit Committee Competence Ownership Structure Total Assets Constant R-Square Within Between Overall Wald Chi-square (5)

Estimated Co-efficient 5.22 -3.07 8.60 -5.43 0.01 46.21

Z Score 0.97 -1.14 4.31*** -0.92 1.83* 7.25

P > |Z| 0.33 0.25 0.00 0.36 0.07 0.00

0.1806 0.3634 0.3464 25.73 P > Chi-square 0.0001

*** and * indicate that it is significant at 1% and 10% significant levels respectively. The results also show that there is a positive and significant relationship between firm size (both market capitalisation and total assets) and overall disclosure. This is to say that firms with higher market capitalisation and total assets disclose more information than companies with low market capitalisation and total assets on the stock market. The results are consistent with the findings of Bujaki and McConomy (2002) in Canada, Eng and Mark (2003) in Sinagpore, Hossain et al. (1994) in Malaysia and Tsamenyi et al. (2007) in Ghana. A possible reason could be that managers of larger companies are more likely to realise the possible benefits of better disclosure and so will disclose more. Small companies, on the other hand, are more likely to feel that full disclosure of information could be very expensive and may also endanger their competitive position.

25

Table 1.9

Random Effects Panel Regression of Estimates (2003-2007) - Dependent Variable is Overall Disclosure Score and Independent Variables Exclude Total Assets

Independent Variables Board Composition Audit Committee Composition Audit Committee Competence Ownership Structure Market Capitalisation Leverage Constant R-Square Within Between Overall Wald Chi-square (6)

Estimated Co-efficient 2.80 -3.24 8.83 -8.32 0.02 0.58 49.16

Z Score 0.51 -1.17 4.41*** -1.40 2.73** 0.31 7.67

P > |Z| 0.61 0.24 0.00 0.16 0.01 0.76 0.00

0.2009 0.4403 0.4146 31.88 P > Chi-square 0.0000

*** and ** indicate that it is significant at 1% and 5% significant levels respectively. The overall R2 of the regression indicates that only 45.95 % of the variations in disclosure can be attributed to the independent variables and thus, there are other variables which result in the differences in disclosure practices of listed companies. Again, the regression results show that H3 and H5 should be rejected since their computed z-scores exceed the critical value at a 1% and 10% significance level respectively. The study concludes that the presence of accounting/finance expert(s) on the AC of companies and the size of a firm (in terms of market capitalization) are both positively related to a firms disclosure practices. However, a firms board and AC composition, ownership structure and leverage have no association with the level of disclosure of the company.

26

Conclusions In conclusion, the study documents that Ghanaian listed companies fairly/moderately disclose information to their stakeholders. Despite the moderate disclosure practices, disclosure on information relating to CG practices of the firms is still very low. Furthermore, mandatory disclosure practices of Ghanaian listed companies are very high. Yet, there is still an appreciable level of non-compliance to some obligatory disclosure requirements. Again, smaller-sized firms disclose less information to their stakeholders as compared to large companies. In addition, firms listed on the GSE have an AC of which the board and ACs of these companies are dominated with NEDs. Companies with accounting/finance expert(s) on their ACs disclose more information than those without. Finally, even though CG practices of Ghanaian listed companies have improved consistently over the years, the improved CG practices have concentrated much on issues such as company-stakeholder relationship and financial reporting and auditing. Other governance issues, especially information and communication, directors remuneration and risk management are yet to be developed. Policy Implications of the Study The CG and T&D practices in Ghana call for a highly effective regulatory framework. Proper enforcement of compliance with mandatory disclosure by regulatory bodies (through the effective implementation of penalties and sanctions for non-compliance) could enhance the level of disclosure of Ghanaian listed companies. Other institutions within the regulatory framework, which lacks the legal backing for enforcement of best practices, should also be empowered. For instance, the ICAG could enforce quality disclosure practices in the country via carrying out an effective and a regular peer review of the work of its members, especially auditors, in ensuring that good and standard governance and disclosure practices are adhered to by their clients (the companies they audit). Moreover, increased education of all the major stakeholders of companies on their roles and responsibilities would ensure good CG and T&D practices of their firms. For example, management should be made to understand all aspects of their CG and T&D system and see these practices as important systems to guide their policies and value added decisions.

27

References Abbott, L. J., Y. Park and S. Parker (2000), The Effects of Audit Committee Activity and Independence on Corporate Fraud., Managerial Finance, Vol.26, pp. 55-67 Ahmed, K and Courtis, J.K (1999), Associations between Corporate Characteristics and Disclosure levels in Annual Reports: A Meta Analysis, British Accounting Review, Vol. 31, No.1, pp 35-61 Aksu M. and Kosedag A., (2006): Transparency & Disclosure Scores and their Determinants in the Istanbul Stock Exchange, CG, Vol. 14, No. 4, pp 277-296 Bank of Ghana Act, 2002 (Act 612) Barako D.G., Hancock P and Izan H. Y (2006), Factors Influencing Voluntary Corporate Disclosure by Kenyan Companies, CG, Vol. 14, No. 2 pp 107-125 Beeks, W. and Brown, P. (2006), Do Better Governed Australian Firms Make More Informative Disclosures?, Journal of Business Finance & Accounting, Vol. 33, No. 3 & 4, pp. 422-450 Bearle, A. A. and G. C. Means (1932), The Modern Corporation and Private Property, MacMillan, New York. Beasley, M. S., J. V. Carcello, D. R. Hermanson and P. D. Lapides, (2000), Fraudulent Financial Reporting: Consideration of Industry Traits and Corporate Governance Mechanisms, Accounting Horizons, Vol.14, pp. 441-454 Bradbury, M.E. (1990), The Incentives for Voluntary Audit Committee Formation, Journal of Accounting and Public Policy, Vol.9, No.1, pp. 19-36 Bradbury, M.E. (1992), Voluntary Disclosures of Financial Segment Data: New Zealand Evidence, Accounting and Finance, Vol. 32, No.1, pp.15-26

28

Bujaki, M. and McConomy, B. J. (2002), Corporate Governance: Factors Influencing Disclosure by Publicly Traded Canadian Firms, Canadian Accounting Perspectives, Vol.1, pp.105139 Cadbury, S A (1992): Report of the Committee on the Financial Aspects of Corporate Gorvernance. Gee Ltd. (Professional Publishing Ltd.), London Carcello, J. V. and Neal, T. L. (2003): Audit Committee Independence and Disclosure: Choice for Financially Distressed Firms, Corporate Governance: An International Review, 11, 289 299 Chen, C. J. P., and B. Jaggi. 2000. Association between Independent Non-Executive Directors, Family Control and Financial Disclosures in Hong Kong. Journal of Accounting and Public Policy 19 (4-5): 285-310 Cheng, E.C.M. and Courtenay, S.M. (2006), Board Composition, Regulatory Regime and Voluntary Disclosure, International Accounting Journal of Accounting, Vol. 14 No. 3, pp. 262289 Companies Code, 1963, (Act 179) Cooke, T.E. and Wallace, R.S.O. (1990), Financial Disclosure Regulation and its Environment: A Review and Further Analysis, Journal of Accounting and Public Policy 9(2), 79110. Core, J.E (2001), A Review of Empirical Disclosure Literature: Discussion, Journal of Accounting and Economics, Vol. 31, No. 1-3 (September), pp 441-456 Coulton, J., C. James and S. Taylor (2001), The Effect of Compensation Design and Corporate Governance on the Transparency of CEO Compensation Disclosures, Working Paper (University of Technology, Sydney) Coyle, B, (2005): Definitions and Issues in Corporate Governance, ICSA Study Text on CG, 3rd Edition, ICSA Publishing, London, UK

29

Demb, A. and F. F. Neubauer (1992), The Corporate Board: Confronting the Paradoxes, Oxford University Press, Oxford DeZoort, F.T. (1997), An Investigation of Audit Committees Oversight Responsibilities, Abacus, Vol.33, No.2, pp. 208-227 Eng, L.L. and Mak, Y.T. (2003), Corporate Governance and Voluntary Disclosure, Journal of Accounting and Public Policy, Vol. 22 No. 2, pp. 325-45 Fama, E.F. and Jensen, M.C. (1983), Separation of Ownership and Control, The Journal of Law and Economics, Vol. 25, pp. 301-325 Firth, M. (1997), The Impact of Size, Stock Market Listing and Auditors on Voluntary Disclosure in Corporate Annual Reports, Accounting and Business Research, Vol. 9 (Autumn), pp. 273-280 Forker, J. J. (1992), Corporate Governance and Disclosure Quality, Accounting and Business Research, Vol. 22, pp 111124 Ghana Stock Exchange Listing Regulations, 1990, L. I. 1509 as Amended Gibbins, M., A. Richardson and J. Waterhouse (1990), The Management of Corporate Financial Disclosure: Opportunism, Ritualism, Politics, and Process, Journal of Accounting Research, Vol. 28, No. 1 (Spring), pp. 121-143 Goodwin, J., K. Ahmed, and R. Heaney (2007), Corporate Governance and the Prediction of the Impact of AIFRS Adoption, Working Paper, RMIT University, Melbourne, Vic Gray, S.J. and H.M. Vint, (1995), The Impact of Culture on Accounting Disclosures: Some International evidence. Asia-Pacific Journal of Accounting. Vol. 21: 33-43. Haniffa, R.M and T.E. Cooke (2002), Culture, Corporate Governance and Disclosure in Malaysian Corporations, Abacus, Vol. 38, No.3, pp 317-349

30

Healy, P.M and K.G. Palepu (2001), Information Asymmetry, Corporate Disclosure, and The Capital Markets: A Review of the Empirical Disclosure Literature, Journal of Accounting and Economics, Vol. 31 pp 405-440 Healy, P.A., A. Hutton and K. Palepu (1999), Stock Performance and Intermediation Changes Surrounding Sustained Increases in Disclosures, Contemporary Accounting Research, Vol. 16, No. 3, (Fall), pp 485-520 Ho, S.S.M. and Wong, K.S. (2001), The Study of the Relationship between Corporate Governance Structure and the Extent of Voluntary Disclosure, Journal of International Accounting, Auditing and Taxation, Vol. 10 No. 2, pp. 139-56 Holmstrong, B. and Kaplan, S. (2005), The State of US Corporate Governance: Whats Right and Whats Wrong?, as cited in Young S. and Thyil S. (2008), A Holistic Model of Corporate Governance: A New Research Framework, Corporate Governance, Vol. 8, No. 1 pp 94-108 Hossain, M., Tan L.M. and Adams, M. (1994), Voluntary Disclosures in the an Emerging Capital Market: Some Empirical Evidence from Companies Listed on Kuala Lumpur Stock Exchange, International Journal of Accounting, Vol. 29, No. 4, pp. 334-351 Jensen, M.C. and Meckling, W.H. (1976), The Theory of a Firm: Managerial Behaviour, Agency Costs and Ownership Structure, Journal of Financial Economics, Vol. 3, pp 305-360 Kyereboah-Coleman, A. (2007), Corporate Governance and Firm Performance in Africa: A Dynamic Panel Data Analysis, A paper prepared for the International Conference on Corporate Governance in Emerging Markets, Istanbul, Turkey from 15th-17th November, 2007. Leung, S. and B. Horwitz (2004), Director Ownership and Voluntary Segment Disclosure: Hong Kong Evidence, Journal of International Financial Management and Accounting, Vol. 15, No.3 (Autumn), pp. 235260 Leuz, C and R.E. Verrechia (2000), The Economic Consequences of Increased Disclosure, Journal of Accounting Research, Vol. 38, pp 322-349 31

Mangel, R and Singh, H. (1993), Ownership Structure, Board Relationships and CEO Compensation in Large US Coporations, Accounting and Business Research, Vol. 23, pp. 339350 Mangena, M. and Tauringana, V. (2007) Disclosure, Corporate Governance and foreign share ownership on the Zimbabwe Stock Exchange, Journal of International Financial Management and Accounting, Vol.18, No.2, pp53-85 McDaniel, L., Martin, R.D. and Maines, L.A. (2002), Evaluating Financial Reporting Quality: The Effects of Financial Expertise Versus Financial Literacy, Accounting Review, Vol. 77, supplement, pp. 139-67 McMullen, D.A. (1996), Audit Committe Performance: An Investigation of the Consequences Associated with Audit Committees, Auditing: A Journal of Practice and Theory, Vol. 15 No. 1, pp. 87-103 McMullen, D.A. and Raghunandan, K. (1996), Enhancing Audit Committee Effectiveness, Journal of Accountancy, Vol. 182, No. 2, pp. 79-81 Meek, G. K., C. B. Roberts, and S. J. Gray (1995), Factors Influencing Voluntary Annual Report Disclosures by U. S., U. K. and Continental European Multinational Corporations, Journal of International Business Studies, Vol. 26, No.3, pp. 555-572 Membership and Listing Regulations of the Ghana Stock Exchange (GSE, 1990) Mensah, S., K. Aboagye, E. Addo, S. Buatsi, (2003) Corporate Governance and Corruption in Ghana: Empirical Findings and policy implications. African Capital Markets Forum OECD (1999), OECD Principles of Corporate Governance, Organization for Economic Cooperation and Development, Paris OECD (2004), OECD Guidelines on Corporate Governance of State Owned Enterprises, Organization for Economic Cooperation and Development, Paris

32

Owusu-Ansah, S. (1998), The Impact of Corporate Attributes on the Extent of Mandatory Disclosure and Reporting by Listed Companies in Zimbabwe, International Journal of Accounting, Vol. 33, No. 5, pp. 605-631 Parker, S. (1999), The Role of the Audit Committee in Curbing Aggressive Financial Reporting, Internal Auditing, (March/April), pp. 34-39 Securities and Exchange Commission (SEC) Corporate Governance Guidelines (2002) Securities and Exchange Commission (SEC) Regulations, 2003 (L.I. 1728) Securities Industry (Amendment) Act, 2000 (Act 590) Securities Industry Law, 1993 (PNDCL, 333) Shleifer, A and R. Vishny (1997), A Survey of Corporate Governance, Journal of Finance, Vol. 52, No. 2, (June), pp 737-783 Stock Exchange Commission (SEC) Corporate Governance Guidance of Best Practices in Ghana The Banking Act, 2004 (Act 673) The Ghana Stock Exchange Listing Rules The Securities Industry Law, 1993 (PNDCL 333) The Stock Exchange Act, 1971 (Act 384) Tsamenyi, M., Enninful-Adu, E. and Onumah, J. (2007), Disclosure and Corporate Governance in Developing Countries: Evidence from Ghana, Managerial Auditing Journal Vol. 22 No. 3, pp. 319-334 Weisbach, M.S. (1988), Outside Directors and CEO Turnover, Journal of Financial Economics, Vol. 20, pp.431-460

33

APPENDIX DISCLOSURE ATTRIBUTES USED Do annual reports contain information on the following: Ownership and Investor Disclosures (20 attributes) No. of issued and o/s ordinary shares?* Shares issued at no par value?* No. of auth but unissued & o/s ordinary shares?* Company's mission statement?* Information of company's registered office and secretary?* A list of 20 largest shareholders?* Statement of percentage of total shareholding of 20 largest shareholders?* Number of shares held by 20 largest shareholders?* Description of share classes?* Review of shareholders by type (class)?* How shareholders convene an EGM? Procedure for proposals at shareholders meetings? Review of last shareholders meeting (e.g. minutes)? Shareholding by senior managers? Voting rights for each voting share?* Brief History of the company? Organisational Structure/chart? Existence of Corporate Governance Charter or Code of Best Practice? Reproduction of its Corporate Governance Charter/Code of Best Practice? How or who nominates directors to board?

34

Financial and Transparency Disclosures (45attributes) Its accounting policies?* Accounting standards it uses for its accounts?* Accounts according to the local accounting standards / international standards?* B/S according to international accounting standard (IAS/GNAS)?* I/S according to international accounting standard (IAS/GNAS)?* Income surplus account according to the companies code?* C/F according to international accounting standard (IAS/GNAS)?* Name of its auditing firm?* Reproduction of the auditors report?* How much it pays in audit fees to the auditor?* Fees paid to auditors?* Consolidated financial statements (or only the parent/holding company)?* Methods of asset valuation?* 35 Efficiency indicators (ROA, ROE, etc.)?* Any industry-specific ratios?* List/register of related party transactions?* List/register of group transactions?* Off balance sheet financing information/contingent liabilities?* Period Financial highlights?* Chairmans statement/Directors report?* Internal control/Risk Management?* Brief Description of Companies Lands and Buildings (Freehold and leased)?* List of affiliates in which it holds a minority stake?* Gearing ratio?* Any plans for investment in the coming year(s)?* Characteristics of assets employed?* Accounts adjusted for inflation? Information on method of fixed assets depreciation?*

Basic earnings forecast of any kind? Detailed earnings forecast?

Detailed info about investment plans in the coming year(s)?

Financial information on a quarterly basis?

Overview of trends in its industry? Its market share for any or all of its businesses?

Segment analysis (broken down by business line)?

Social responsibility/CSR? Corporate governance statement and awareness?

Ownership structure of affiliates? Details of the kind of business it is in?

Details of the products or services produced/provided?

Five year financial summary? Forward looking information? Managing directors review? Value added statement/information

Discussion of corporate strategy?

Corporate Governance Disclosure attributes (35 attributes) List of board members (names)?* Details about role of the board of directors at the company?* Existence of an audit committee?* Existence of other internal audit functions besides Audit committee?* No. of shares in the company held by directors?* Specifics of directors salaries (e.g. numbers)?* 36 Details about previous employment/positions provided? Details about current employment/position of directors provided? Form of directors salaries (e.g. cash, shares, etc.)?* Changes in board directors?* Details about directors (other than name/title)?

When each of the directors joined the board?

Whether they provide director training? Decision-making process of directors pay?

Classification of directors as an executive or an outside director?

Decision-making of managers (not Board) pay?

Photographs of board members? Details about the chairman (other than name/title)?

Specifics of managers (not on Board) salaries (e.g. numbers)?

List of board committees? Names on audit committee? Existence of a remuneration/compensation committee?

Form of managers (not on Board) salaries?

Specifics on performance-related pay for managers?

Names on remuneration/compensation committee?

List of senior managers (not on the Board of Directors)? Backgrounds of senior managers? No. of shares held by managers in other affiliated companies?

Existence of a nomination committee? Names on nomination committee? Existence of other internal audit functions besides Audit committee?

Specifics on performance-related pay for directors?

Existence of a strategy/investment/finance committee?

Separation of chairman and CEO Details of the CEOs contracted

Review of last board meeting (e.g. minutes)?

Note: * Indicates mandatory attributes

37

CORRELATION MATRIX OF THE INDEPENDENT VARIABLES

DISCL DISCL BDCOMP ACCOMP ACEXPT FSIZEA FSIZEM OWNSTURE LEVRGE 1.00 0.29 0.18 0.46 0.47 0.61 -0.20 0.39 1.00 0.04 0.15 0.27 0.24 -0.31 0.31 1.00 0.20 0.29 0.23 -0.07 0.43 1.00 0.21 0.27 -0.01 0.09 1.00 0.71 -0.15 0.67 1.00 0.07 0.50 1.00 -0.14 1.00 BDCOMP ACCOMP ACEXPT FSIZEA FSIZEM OWNSTURE LEVRGE

38

39