Determinants of corporate reporting on the internet: an analysis of companies listed on the Istanbul Stock Exchange

Transcription

1 Determinants of corporate reporting on the internet: an analysis of companies listed on the Istanbul Stock Exchange Ali Uyar Faculty of Economics and Administrative Sciences, Fatih University, Istanbul, Turkey Adress: Fatih Üniversitesi, Büyükçekmece, İstanbul Tel: , Ext: 5042; Fax: Acknowledgement: The author would like to thank the Editor and two anonymous reviewers for their detailed comments and suggestions. He would also like to thank Professor Mustafa Dilber for his valuable support in editing the paper and to Professor Selim Zaim, Professor M. Raquibuz Zaman and Associate Professor Abdulkadir Civan for their support. 1

2 Determinants of corporate reporting on the internet: an analysis of companies listed on the Istanbul Stock Exchange Abstract Purpose The primary objective of this study is (1) to investigate the utilization of the internet by the Turkish companies listed on the Istanbul Stock Exchange (ISE) for corporate reporting, (2) to determine the company characteristics that influence the information disclosure level on the internet, and (3) to investigate whether there is a significant difference between the firms listed in the Corporate Governance Index of the ISE and those that are not in terms of disclosure level on the corporate web sites. Design/methodology/approach The methodology of the study was content analysis of corporate web sites of corporations listed on the ISE. Findings Firms, which are listed in the ISE Corporate Governance Index (XCORP), disclose significantly more information on corporate web sites compared to the firms, which are not listed in the XCORP. In addition, the results indicated that firm size and being listed in the XCORP are significant explanatory variables for the total disclosure score on the corporate web sites, while industry and profitability are not. Research limitations/implications Since the study was conducted on a sample of listed companies on the ISE, the findings are not necessarily representative of non-listed companies. Originality/value The study contributes to the scarce literature on internet reporting in developing countries and it incorporates the ISE Corporate Governance Index in the predictors of information disclosure level on corporate web sites. Keywords Internet, Disclosure, Reporting, Corporate reporting, Corporate governance, Turkey Paper type Research paper 2

3 Determinants of corporate reporting on the internet: an analysis of companies listed on the Istanbul Stock 1. Introduction Exchange The internet offers companies new opportunities to supplement, replace and enhance traditional ways of investor and stakeholder communication (Marston and Polei, 2004, p.286), and therefore, it has become, in a very short time, an indispensable communication tool for organizations (Capriotti and Moreno, 2007, p. 224). Various authors have stated that in recent years the internet has increasingly been used as a means of communication for business reporting purposes (Gallhofer and Haslam, 2006; Marston, 2003; Lymer, 1999). This could be attributable both to opportunities the internet provides and investors demand for getting informed online. Publicly traded companies can now disseminate financial information, make announcements for investors, disclose important events by press releases, and inform stakeholders about social responsibility activities through corporate web sites. Hence, the rise of the web as a source of information and as a communicative medium is widely acknowledged as a key phenomenon of our times (Gallhofer and Haslam, 2006). The Steering Committee of the Business Reporting Research Project lists some potential motives for companies to provide financial information on the internet including (FASB, 2000): Reducing the cost and time to distribute information Communicating with previously unidentified consumers of information Supplementing traditional disclosure practices Increasing the amount and type of data disclosed Improving access to potential investors for small companies. Albeit, the various benefits associated with the information disclosure on corporate web sites, there are some other aspects to be taken into consideration such as reliability, and selective reporting. While some disclosed information on web sites is audited such as financial statements, some information is unaudited. In order for the disclosed information to be useful for the decision makers, it needs to be fair and free from bias. In addition, managers may tend to engage in selective reporting such as disclosing some information while keeping others. This results in information asymmetry. In this sense, decision makers have to base their decisions on the provided information, which does not reflect complete picture of the 3

4 business. Hence, if supplied information is full and fair, the utmost benefit can be derived from it. Otherwise, information may lead to wrong decisions. Furthermore, there are some factors that impact information disclosure level such as legislation and institutional factors, competitive situation, and cost-benefit analysis (Sánchez et al., 2011). Legislation and institutional factors play important role in determining whether disclosure of an item is compulsory or voluntary. While firms have no possibility other than disclosing compulsory information, they have incentive to disclose voluntary information or not. Competitive situation is also another constraint on information disclosure level. If disclosing an item is likely to harm business competitive situation, although it is useful for decision-makers, managers may keep that information secret on condition that it is voluntary. Cost-benefit analysis impacts the information disclosure level as in other areas of the business. There are some costs associated with gathering, presenting, and disseminating information. If expected benefit from disclosing information exceeds the associated cost, then that information is disclosed. The tremendous increase in online reporting through web sites has not escaped the attention of academicians. Many have carried out empirical studies about corporate reporting on the internet. Even though previously published studies have comprised companies operating in both developed and developing countries, there is still a need for empirical studies on internet reporting practices due to the dynamic nature of internet reporting. Developments in internet-related technologies, regulatory recommendations, and increasing demand for information disclosure to stakeholders change the amount and characteristics of online reporting. For example, Marston and Polei (2004) concluded in their comparative study for the years 2000 and 2003 that the amount of information disclosed at corporate web sites has significantly increased and that the mode and format of presentation has been improved. There are several motivations for the present study. Corporate web sites are increasingly becoming the most widely used and indispensable information source for the stakeholders, and they are unique media of presenting real time financial and non-financial information. Therefore, the researchers have focused on corporate reporting on the web sites in recent years. The limited scope of such research in developing countries (Abdul Hamid, 2005) renders focusing on developing countries quite important. In particular, lack of a comprehensive study about corporate reporting on the internet in Turkey, an important developing country, is the primary motivator for the study. In other words, determining where the Turkish listed companies stand in terms of corporate reporting on web sites is the main objective. Since Turkey needs external capital to sustain the high growth rate and the biggest 4

5 agency problem centers on asymmetric information and expropriation by majority shareholders, it is very important for firms to be transparent and make full disclosure of information (Aksu and Kosedag, 2006). Furthermore, although there are a few studies that analyze the determinants of internet financial reporting, further studies that examine companies located in other countries are needed to enable analyses of the information divulged through the internet, together with the determining factors (Bonsón and Escobar 2006). Hence, investigating the determinants of corporate reporting on the internet for the Turkish firms is a second motivator. Lastly, examining whether firms listed in the Corporate Governance Index of the ISE are superior to those who are not listed in the same index in terms of information disclosure level on the internet is another important motivator. Moreover, Turkey should not be considered just an ordinary developing country; it rightfully deserves special attention from researchers for the following reasons: institutional reforms undertaken by the government, regulations made for the European Union membership, cross-border acquisitions, aligning national accounting standards with international accounting standards, and revision of the Turkish Commercial Code that has been in effect since 1957 (e.g. according to the new Turkish Commercial Code, having web sites and disclosing certain information on them is becoming mandatory for companies with shares). Obviously, these developments are expected to make positive impacts on the transparency and disclosure practices of the Turkish companies. The primary objective of this study is (1) to investigate the utilization of the internet by the Turkish companies listed on the Istanbul Stock Exchange for corporate reporting, (2) to determine the company characteristics that influence the information disclosure level on the internet, and (3) to investigate whether there is a significant difference between the firms listed in the Corporate Governance Index of the Istanbul Stock Exchange and those that are not in terms of disclosure level on the corporate web sites. The organization of the remainder of this paper is as follows. The next section provides an overview about regulatory environment with relevance to internet reporting in Turkey. Section three summarizes prior literature on the subject. Section four presents the scope and method of the study. The hypothesis will be developed in Section five. Section six analyzes the results, and conclusions are drawn in the final section. 2. Regulatory environment of internet reporting in Turkey The Capital Markets Board of Turkey (CMB) is the regulatory and supervisory authority in charge of the securities markets in Turkey. Empowered by the Capital Markets Law, which was enacted in 1981, the CMB has been making detailed regulations for organizing the 5

6 markets and developing capital market instruments and institutions since its establishment (CMB, 2009). Enhancing investor protection, and promoting transparency and fairness are cited among the main strategic objectives of the CMB (CMB, 2009). In order to ensure investor protection and promote transparency, Corporate Governance Principles of Turkey (CGP) was issued by the CMB in June 2003 for the first time and amended in February 2005 (CMB, 2005). The Principles mainly address publicly held joint stock companies (CMB, 2005). However, the implementation of the Principles is optional (CMB, 2005). Within the framework of the regulations to be enforced by the CMB, the rating institutions conducting rating of corporate governance will determine the implementation status of the Principles (CMB, 2005). The Principles consist of four main sections; namely, shareholders, public disclosure and transparency, stakeholders, and board of directors (CMB, 2005). In the public disclosure and transparency section, it is stated that company s web site should be actively used as a means of public disclosure (CMB, 2005). In the Principles, it is recommended that the company s web site should be accessed easily. Furthermore, significant information to be published on the company s web site is explained in detail. Among the items to be published on web sites are the following (CMB, 2005): English version for foreign investors; trade register information; detailed information about the shareholder and management structure; detailed information about preferred shares; the final version of the company s articles of association together with date and numbers of the trade register gazettes in which amendments are published; publicly disclosed material information; annual reports; periodical financial statements; prospectuses and circulars; agendas of the general shareholders meetings and list of participants and minutes of the general shareholders meeting; form for proxy voting at the general shareholders meeting and mandatory information forms prepared for proxy solicitation or tender offers and similar forms; minutes of the important board of directors meetings; 6

7 frequently asked questions including requests for information, queries and notifications and responses thereof; planned general shareholders meeting, agenda items and informative documents thereof, other information, documents and reports on the agenda items and information on methods of participation in the general shareholders meeting. 3. Literature review As academic researchers recognized the internet as an emerging communication medium, the number of studies focusing on the use of the internet for corporate reporting in both developed and developing countries has increased consistently since late 1990s. Initially, resarchers have investigated whether companies have a web site or not, and information contents of the web sites (Abdul Hamid, 2005; Khadaroo, 2005b; Oyelere and Mohamed, 2007; Ettredge, Richardson, and Scholz, 2001; Hurtt, Kreuze, and Langsam, 2001; Deller, Stubenrath, and Weber, 1999; Gowthorpe and Amat 1999). Furthermore, they have investigated the association of information disclosed on corporate web sites with some firm characteristics (Marston and Polei, 2004; Marston, 2003; Ashbaugh, 1999; Sriram, and Laksmana, 2006; Oyelere, Laswad, and Fisher, 2003; Bonsón and Escobar 2006; Xiao, Yang, and Chow, 2004; Abdelsalam, Bryant, and Street, 2007; Pirchegger and Wagenhofer 1999; Gutierrez-Nieto, Fuertes-Callén, and Serrano Cinca, 2008). Some studies have discussed audit-related issues of internet reporting (Fisher, Oyelere, and Laswad, 2004; Khadaroo, 2005a; Lymer and Debreceny 2003; Debreceny and Gray, 1999). Abdul Hamid (2005) examined 100 stock market index-linked firms listed on the Kuala Lumpur Stock Exchange and showed that 74 companies (74 per cent) had web sites. Out of these 74 firms 70 (95 per cent) disclosed investor-related materials on firm web sites. Among those 70 firms, 23 (33 per cent) had a specific section on investor relations. Deller et al. (1999) found in their study that 95 per cent of the US corporations had a homepage compared to 85 per cent of the UK corporations and 76 per cent of the German corporations. In the USA, substantially more corporations used the internet for investor relations activities (91 per cent) compared to the UK (72 per cent) and Germany (71 per cent) Hurtt et al. (2001) showed that 99 out of the Fortune 100 companies studied had web sites and 93 presented some form of investor relations/financial information. Gowthorpe and Amat (1999) found that out of a total of 379 quoted companies on the Madrid Stock Exchange, 70 (18.5 per cent) are listed as having web sites. After examining their web sites, they proved that certain company sectors are far more likely to use web sites for communication than others; e.g. electricity and gas (83 per cent), insurance companies (80 7

8 per cent), and services (71 per cent). Another significant finding of their studies was that larger companies are far more likely to have a web site: twenty-six of the IBEX-35 companies (74.2 per cent) have sites. The authors concluded that Spanish companies still lag behind those in some other advanced economies in communicating with stakeholders via electronic means. Oyelere and Mohamed (2007) analyzed 142 companies listed on the stock market in Oman, and found that only 84 of these companies maintain web sites, and only 31 of them provide financial information. Hence, they concluded that the findings reveal a seemingly limited use of the internet for financial reporting purpose in Oman. Moreover, the majority of these companies use the PDF format to publish financial information. Ettredge et al. (2001) compared the disclosure levels of U.S. companies in 17 industries. Out of 490 U.S. companies, 402 (82 per cent) had a web site in The most commonly disclosed items were quarterly reports (54 per cent) and news releases (80 per cent). Their comparative study also revealed that larger, more established firms tended to provide more information than smaller, newly emerging technology firms. Marston (2003) conducted a study on the top 99 Japanese firms. She found that 91 companies (92 per cent) had a web site and 78 companies (79 per cent) had a web site with English version. 4. Scope and method This study investigates the corporate reporting practices of the Turkish companies listed on the Istanbul Stock Exchange (ISE). The ISE, which was established in early 1986, is the only securities exchange in Turkey (ISE, 2009). The ISE Corporate Governance Index (hereafter, XCORP), which includes 14 companies as of the first quarter of 2009 is one of the ISE Stock Market Indices. The Index is composed to measure the price and return performances of the companies traded on the ISE markets having corporate governance rating grades determined according to the "Corporate Governance Principles" (obtainable from issued by the Capital Markets Board (ISE, 2009). The sample of this study consisted of 44 companies comprising the 14 included in the XCORP and 30 randomly chosen non-xcorp (hereafter, N-XCORP) companies for comparative purposes. The web site of one company out of the 30 randomly chosen was under construction at the time of the study conducted, and therefore, the analyses were conducted on only 43 companies. The search engine Google and the web site of the CMB were used to find the companies web addresses. The web sites of the companies were analyzed in the month of February Content analysis method was used on the sample in order to collect data, and then the 8

9 collected data was transferred onto Excel sheet. A list of criteria has been developed to evaluate the web sites of the companies in the sample. These criteria are based on a literature review (Pirchegger and Wagenhofer, 1999; Marston and Polei, 2004; Marton, 2003; Khadaroo, 2005b) and the Public Disclosure and Transparency section of the CGP (CMB, 2005). Based on these criteria, a checklist was prepared consisting of six sections and 61 items that were measured on a yes/no bases, encoded as 1 and 0, respectively (see Table II). The web site attributes were analyzed under the following six headings: general web page attributes, financial reports, general assembly, corporate governance, presentation of investor relations information, and social responsibility. 5. Hypotheses Based on the literature, the following four hypotheses are developed. The hypotheses are about the association between some company characteristics and the total score of disclosed items on corporate web sites The ISE corporate governance index (XCORP) XCORP is composed to measure the price and return performances of the companies traded on the ISE markets having corporate governance rating grades determined according to the "Corporate Governance Principles" issued by the Capital Markets Board (ISE, 2009). The companies listed in this index is said to have best practices of corporate governance principles including public disclosure and transparency. As shown in Table II, since the companies listed in the XCORP are superior to N-XCORP companies in disclosing information on corporate web sites, the first hypothesis was formulated as: H1. There is a positive association between XCORP listing and the total score of disclosed items on corporate web sites (TOTAL) Industry type The association between industry type and corporate reporting on the internet was investigated by various authors (Craven and Marston, 1999; Marston, 2003; Bonsón and Escobar, 2006). There may be some differences in the level of information disclosed on the corporate web sites based on the industry in which the company operates. Marston (2003) argues that technological awareness of some industries, such as high tech industry, may impact the level of disclosure. Bonsón and Escobar (2006) also argue that different sectors could have particular information practices (e.g. due to the need to present a particular corporate image) and these practices could have a decisive influence on the information that companies in that sector provide voluntarily. Hence, the following second hypothesis was set up: 9

10 H2. There is a positive association between industry type and the total score of disclosed items on corporate web sites (TOTAL). For this study, the industry type was classified into four categories in order to carry out the hypothesis test: namely, Financials, Industrials, Services, Technology. The classification is based on the ISE indices. However, this hypothesis was tested only for two industries; i.e. Financials and Industrials, due to the small sample sizes of Services (4 firms) and Technology (3 firms) industries Company size According to Oyelere et al. (2003), one of the most frequently identified determinants of financial report disclosure is corporate size. Researchers suggest that there may be a positive relationship between size and disclosure due to agency theory (Marston and Polei, 2004; Marston, 2003; Oyelere et al. 2003). Increased disclosures are expected to decrease agency cost, which can arise from the conflicting interests of shareholders, managers and debt holders (Marston, 2003). Furthermore, voluntary disclosures are likely to decrease political costs that are higher for larger companies compared to smaller companies (Marston and Polei, 2004; Marston, 2003). Hence, based on this background, the third hypothesis is stated as follows: H3. There is a positive association between company size and the total score of disclosed items on corporate web sites (TOTAL). In testing this hypothesis, logarithm of total assets was used as a measure of firm size Profitability Profitability is another factor which has been investigated in terms of its association with corporate reporting on the internet (Marston and Polei, 2004; Marston, 2003; Oyelere et al. 2003; Ashbaugh, 1999). Marston (2003) argues that the more profitable the companies, the more likely it is for them to disclose financial information. And also, good news firms are encouraged to screen themselves out from other firms (Marston and Polei, 2004). This provides the basis for the following hypothesis: H4. There is a positive association between profitability and the total score of disclosed items on corporate web sites (TOTAL). In testing this hypothesis, return on assets was used as a measure of profitability. 6. Discussion and analysis of the results 6.1. Descriptive statistics The sample initially included 44 companies as explained in the scope and method section. All 44 companies had web sites, but the web site of one company was under construction at the time of this study was conducted. Hence, all analyses were conducted on the basis of 43 10

11 companies. Descriptive statistics about independent variables used in the study are given in Table I. At the time the content analysis of the web sites was conducted, the financial statements for the year 2008 had not been published for all companies in the sample. The latest published financial statements were for the year Therefore, the descriptive statistics given in Table I are based on the financial statements for the year Table I. Descriptive statistics for the independent variables used in the study Panel A: Descriptive statistics for the independent variables of the total sample N Minimum Maximum Mean Std. Deviation Total assets (TL) 43 9,177,322 68,204,750,000 4,138,331,630 12,695,998, Net income (TL) 43-41,970,128 1,994,294, ,656, ,023, Return on assets (%) Log of total assets Panel B: Descriptive statistics for the independent variables of the companies listed in the N-XCORP N Minimum Maximum Mean Std. Deviation Total assets (TL) 29 9,177,322 68,204,750,000 3,030,091,171 12,652,043, Net income (TL) 29-41,970,128 1,994,294, ,995, ,080, Return on assets (%) Log of total assets Panel C: Descriptive statistics for the independent variables of the companies listed in the XCORP N Minimum Maximum Mean Std. Deviation Total assets (TL) 14 14,258,963 50,352,909,000 6,433,972,581 12,944,963, Net income (TL) 14-1,440,154 1,298,039, ,168, ,942, Return on assets (%) Log of total assets Disclosure of items The findings with respect to the existence of disclosure items on corporate web sites are presented in Table II. The results are given separately for XCORP and N-XCORP companies so as to make comparison easier. In addition, the percentages and ranking of items are also given for the whole sample under TOTAL and Ranking columns, respectively. With respect to the existence of general web site attributes, some items have high appearance on web sites, some have low. For example, graphic images, animated graphics, company profile, advertisement of own products/services, homepage button, English version of web site, and site map are among the items that have high appearance, whereas video files, search box are among the items that have low appearance. Moreover, sound files, quick reach, security information, and last update date are the least included items on web sites. Second section includes the items about investor relations. It is observed that per cent of companies have direct link to investor relations page from home page, per cent 11

12 of companies have special condition disclosures, and per cent of the companies have press release rooms. These findings show that the majority of the companies attribute high importance to investor relations. Most frequently preferred communication means with investors are telephone and . Investor calendar is not published at all on web sites. In general, financial reports section has higher incidence relative to other sections on web sites. While compulsory financial statements and their footnotes are the most frequently disclosed items, analysts reports, dividend distribution table, and audit committee report are the least frequently disclosed items in this section. The items about general assembly also exhibit high disclosure on web sites. This means that the companies make announcements for the invitation of investors to the general assembly. They disclose participants names, provide form for proxy voting and minutes of meetings in this section. Under corporate governance section, most frequently disclosed items are board members, ownership structure, articles of association, trade registry information, and corporate governance compliance report. However, some items need to be disclosed more, such as chairman s message, preferred shares information, dividend distribution policy, disclosure policy, disclosure of insiders, and corporate governance rating report. The low disclosure rate of social responsibility items compared to other items may stem from two reasons; first, companies, which engage in social responsibility activities, may refrain from disclosing them on web sites; second, they may not engage in social responsibility activities at all. In both cases, nevertheless, companies are recommended to make improvements about social responsibility disclosures. Furthermore, Table II provides information for comparison of disclosed items on corporate web sites with respect to XCORP and N-XCORP companies. Superiority of XCORP companies over N-XCORP companies in all items except for one (i.e. sound files) is quite apparent in the table. The differences in the case of certain items such as responsible person's name for investor relations, code of ethics, disclosure policy, and disclosure of insiders, corporate governance rating report, number of clicks to get to corporate governance information, and number of clicks to get to social responsibility information are especially noteworthy. In the following section, the statistical analysis of the differences between XCORP and N-XCORP companies in relation to the disclosure scores of the items on the corporate web sites is presented. 12

13 Table II. Disclosure percentage and ranking of items on corporate web sites DISCLOSURE ITEMS (A score of 1 for present and 0 for XCORP N-XCORP TOTAL Rank absent was assigned to each disclosure item) (N=14) (N=29) (N=43) GENERAL ATTRIBUTES (GEN) Graphic images % % % 1 Animated graphics 92.86% 72.41% 79.07% 20 Sound files 0.00% 10.34% 6.98% 59 Video files 57.14% 20.69% 32.56% 42 Search box (or link to search page) 57.14% 24.14% 34.88% 39 Company profile % 96.55% 97.67% 2 Advertisement of own products/services % 86.21% 90.70% 5 Homepage button 92.86% 93.10% 93.02% 3 English version of web site 85.71% 79.31% 81.40% 17 Quick reach 14.29% 10.34% 11.63% 57 Site map 71.43% 48.28% 55.81% 28 Security information 14.29% 3.45% 6.98% 60 Last update date 7.14% 6.90% 6.98% 61 Average 60.99% 50.13% 57.56% INVESTOR RELATIONS (INV) Link to investor relations from home page 92.86% 82.76% 86.05% 8 English version of investor relations page 85.71% 44.83% 58.14% 26 Special condition disclosures % 75.86% 83.72% 13 Press releases/room 78.57% 44.83% 55.81% 29 Postal address for investor relations 50.00% 17.24% 27.91% 50 address for investor relations 71.43% 34.48% 46.51% 34 Phone number for investor relations 92.86% 34.48% 53.49% 30 Communication form for investor relations 21.43% 6.90% 11.63% 58 Responsible person's name for investor relations 64.29% 17.24% 32.56% 43 Current stock prices 71.43% 37.93% 48.84% 32 Frequently asked questions 64.29% 37.93% 46.51% 35 Investors calendar 42.86% 10.34% 20.93% 52 Average 69.64% 37.07% 47.67% FINANCIAL REPORTS (FIN) Annual report % 89.66% 93.02% 4 Quarterly reports 85.71% 68.97% 74.42% 23 Balance-sheet % 82.76% 88.37% 6 Statement of income % 82.76% 88.37% 7 Statement of cash flow % 75.86% 83.72% 14 Changes in shareholders equity % 72.41% 81.40% 18 Notes to financial statements % 79.31% 86.05% 9 Analysts Reports 42.86% 24.14% 30.23% 45 Dividend distribution table 50.00% 17.24% 27.91% 51 Auditors' reports 92.86% 55.17% 67.44% 25 Audit committee report 21.43% 20.69% 20.93% 53 Average 81.17% 60.82% 67.44% GENERAL ASSEMBLY (ASS) Agenda & invitation % 72.41% 81.40% 19 Meeting minutes of general assembly % 75.86% 83.72% 15 List of participants of general assembly % 62.07% 74.42% 24 Proxy voting form 92.86% 72.41% 79.07% 21 Average 98.21% 70.69% 79.65% Notes: XCORP: Firms listed in the ISE Corporate Governance Index; N- XCORP: Firms that are randomly chosen and not listed in the ISE Corporate Governance Index; TOTAL: Total firms included in 13

14 the sample; Rank: Ranking of disclosure items on the corporate web sites. 14

15 Table II. Disclosure percentage and ranking of items on corporate web sites (Continued) DISCLOSURE ITEMS (A score of 1 for present and 0 for XCORP N-XCORP TOTAL Rank absent was assigned to each disclosure item) (N=14) (N=29) (N=43) CORPORATE GOVERNANCE (CORP) Number of clicks to get to corporate governance information* % 27.59% 51.16% 31 Chairman message 57.14% 17.24% 30.23% 46 Board members % 79.31% 86.05% 10 Audit committee 85.71% 44.83% 58.14% 27 Ownership structure % 75.86% 83.72% 16 Preferred shares information 42.86% 24.14% 30.23% 47 Articles of Association 92.86% 82.76% 86.05% 11 Prospectus & Circulars 57.14% 44.83% 48.84% 33 Trade registry information 92.86% 72.41% 79.07% 22 Dividend distribution policy 42.86% 24.14% 30.23% 48 Code of ethics % 17.24% 44.19% 36 Disclosure policy 92.86% 6.90% 34.88% 40 Disclosure of insiders 57.14% 3.45% 20.93% 54 Corporate governance rating report 92.86% 0.00% 30.23% 49 Corporate governance compliance report 92.86% 82.76% 86.05% 12 Average 78.81% 39.54% 51.32% SOCIAL RESPONSIBILITY (SOC) Number of clicks to get to social responsibility information* 64.29% 17.24% 32.56% 44 Education 57.14% 31.03% 39.53% 38 Culture and art 50.00% 27.59% 34.88% 41 Environment 57.14% 34.48% 41.86% 37 Sport 35.71% 10.34% 18.60% 55 Foundation 21.43% 10.34% 13.95% 56 Average 45.83% 20.98% 27.91% Notes: XCORP: Firms listed in the ISE Corporate Governance Index; N- XCORP: Firms that are randomly chosen and not listed in the ISE Corporate Governance Index; TOTAL: Total firms included in the sample; Rank: Ranking of disclosure items on the corporate web sites; *1 click or 2 clicks from home page Statistical analysis In order to test first hypothesis, which was about the association between XCORP listing and the disclosure status, the Mann-Whitney U test was conducted. The Mann-Whitney U test is a widely used nonparametric test for two independent samples. Some previous disclosure studies have used this test for comparison of two subgroups (Marston and Polei, 2004; Camfferman and Cooke, 2002; Branco and Rodrigues, 2006; Hughes et al., 2009). Hughes et al. (2009) state that the Mann-Whitney U test is more appropriate when two subgroups have unequal sample sizes. The results of this test are shown in Table III. The findings indicated that there is a positive significant (p<0.001) association between XCORP listing and voluntary disclosure on corporate web sites (TOTAL). Hence, H1 is accepted. Moreover, further investigation was conducted to examine the relationship between XCORP listing and the disclosure scores of sub-sections, namely GEN, INV, FIN, ASS, CORP, and SOC. The 15

16 results demonstrated significant positive association between XCORP listing and all subsections of disclosures (Table III). This finding showed that XCORP companies are far better than N-XCORP companies in relation to voluntary disclosure on the corporate web sites. However, there is still room for improvement for both group of companies, but N-XCORP companies have to improve themselves more in this area compared to XCORP companies. Table III. The results of the Mann-Whitney U test This table shows that there is statistically significant difference between XCORP and N-XCORP firms for the total disclosure level and for all categories of disclosures. The XCORP firms present more information than the N-XCORP firms on corporate web sites in all categories. GEN INV FIN ASS CORP SOC TOTAL Mean rank: XCORP N-XCORP Test Statistics: Mann-Whitney U Wilcoxon W Z Asymp. Sig. (2-tailed) Notes: XCORP: Firms listed in the ISE Corporate Governance Index; N- XCORP: Firms that are randomly chosen and not listed in the ISE Corporate Governance Index; GEN: General Attributes; INV: Investor Relations; FIN: Financial Reports; ASS: General Assembly; CORP: Corporate Governance Index; SOC: Social Responsibility; TOTAL: Total disclosure level To test the second hypothesis by the Mann-Whitney U test, the industry variable was classified into two sub-sectors based on the ISE classification: Financials (XFIN), Industrials (XIND). According to the test, there was no significant association between industry type and voluntary disclosure on corporate web sites (TOTAL). Therefore, the second hypothesis was rejected (see Table IV). Prior studies provide mixed results for industry and voluntary disclosure association. For example, Craven and Marston (1999) found no relationship between industry type and the extent of financial disclosure on the internet based on a sample of 206 large companies in the UK. Marston (2003) also could not find a significant association between industry type and the extent of financial disclosure on the internet. On the other hand, Bonsón and Escobar (2006) proved that being in the financial sector has a significant influence on the quantity of information that the companies of Eastern Europe currently provide on the internet. These findings show that prior literature provides mixed results. 16

17 Table IV. The results of the Mann-Whitney U test for financial and industrial sectors This table shows that there is no statistically significant difference between Financials and Industrials for the total disclosure level on corporate web sites. The results are tested for TOTAL sample and for the subsamples; XCORP and N-XCORP. For TOTAL For XCORP For N-XCORP XFIN (N=13) XIND (N=23) XFIN (N=6) XIND (N=8) XFIN (N=7) XIND (N=15) Mean rank Test Statistics: Mann-Whitney U Wilcoxon W Z Asymp. Sig. (2-tailed) Notes: XFIN: Firms listed in the Financials index ; XIND: Firms listed in the Industrials index; XCORP: Firms listed in the ISE Corporate Governance Index; N- XCORP: Firms that are randomly chosen and not listed in the ISE Corporate Governance Index; TOTAL: Total firms included in the sample. Before testing the hypotheses H3 and H4, the Pearson correlation analysis was conducted to test the association between independent variables (XCORP, log of total assets, and return on assets) and dependent variable TOTAL. Table V shows the following significant results: between TOTAL and XCORP (significant at the 0.01 level); between TOTAL and log of total assets (significant at the 0.01 level); between XCORP and log of total assets (significant at the 0.05 level). The Spearman's rho test also yielded the same significant associations among variables for the same significance levels. According to the results of the correlation analysis, the larger the company, the more likely it is to disclose information on the corporate web sites. In addition, the larger the company, the more likely it is to be included in the XCORP listing. Lastly, the XCORP companies are more likely to disclose information on the internet. Table V. The Pearson correlation analysis test results TOTAL XCORP Log of total assets Return on assets TOTAL Pearson Correlation ** 0.535** Sig. (2-tailed) N XCORP Pearson Correlation 0.662** * Sig. (2-tailed) N Log of total assets Pearson Correlation 0.535** 0.360* Sig. (2-tailed) N Return on assets Pearson Correlation Sig. (2-tailed) N Notes: * Correlation is significant at the 0.05 level (2-tailed); ** Correlation is significant at the 0.01 level (2-tailed). 17

18 TOTAL: Total disclosure level; XCORP: Firms listed in the ISE Corporate Governance Index; Log of total assets: Logarithm of total assets; Return on assets: Net income divided by total assets Finally, a multivariate linear regression analysis was conducted to test hypotheses H3 and H4. The regression equation was set up as follows: TOTAL = α + β 1 (XCORP) + β 2 (SIZE) + β 3 (PROFITABILITY) + ε The dependent and independent variables, which are included in the equation, are explained below: TOTAL = Total score for the information disclosed on the corporate web sites XCORP = 1 for XCORP; 0 for N-XCORP (dummy variable) SIZE = log of total assets PROFITABILITY = return on assets α = the constant of the equation β i ε = coefficients of the independent variables = the error term Table VI shows the results of the regression analyses. First, the regression analysis was conducted for the total disclosure score. As hypothesized in H3, a positive significant association between the total disclosure and firm size was found (significant at 0.01 level). In addition, the regression analysis verified the previous test conducted for the association between the total disclosure score and XCORP listing (significant at level). However, no significant association was found between the total disclosure score and profitability. Hence, H4 was rejected. Furthermore, sensitivity analysis was conducted to determine whether other measures of size and profitability have significant effect on the total information disclosure level. Instead of return on assets, return on equity was used, and the model gave a similarly significant result, but adjusted R-squared dropped from to Moreover, when net sales and return on equity were used for firm size and retun on assets, respectively, the result was significant for both variables again; however, adjusted R-squared dropped to Hence the model given in Table VI is the best-fitting model. Some prior studies have tested the hypothesis about the association between firm size and voluntary disclosure on the internet, and they proved that disclosure on the internet was significantly positively associated with firm size. Marston and Polei (2004) proved that firm size is a significant explanatory variable for the amount of financial and other investor-related information presented at companies web sites. Another study conducted by Ashbaugh (1999) 18

19 showed that firms with web sites are larger, as defined by total assets, than firms without web sites. One of the conclusions of the study conducted by Sriram and Laksmana (2006) was that larger firms, on the average, report more financial and non-financial data on the corporate web sites than reported by smaller firms. Pirchegger and Wagenhofer (1999) proved that financial information disclosed on the internet increases as the size of the company increases. Lastly, Oyelere et al. (2003) also showed that firm size has a significant and positive impact on internet financial reporting practice, and therefore, larger firms are more likely to engage in internet financial reporting. However, the hypothesis about the association between profitability and voluntary disclosure on the internet has been tested by Oyelere et al. (2003), Ashbaugh (1999), and Marston and Polei (2004), but was not supported. Furthermore, the regression models were also run for the association between disclosure levels of sub-categories (i.e. GEN, INV, FIN, ASS, CORP, SOC) and the independent variables. As shown in Table VI, the results indicate that firm size is a significant explanatory variable for the scores of the general attributes (GEN), investor relations (INV), and social responsibility (SOC). Secondly, being listed in the XCORP is another significant factor for the scores of the investor relations (INV), financial reports (FIN), general assembly (ASS), and corporate governance (CORP) information. Surprisingly, return on assets appears to be a significant variable only for the score of general assembly (ASS). The negative t-value shows that the more profitable the companies, the less general assembly information they disclose on corporate web sites. Yet, it must be kept in mind that this association is marginally significant (significant at the 0.1 level). Moreover, if one outlier in the data set is excluded from the analysis, the profitability variable loses its significance. Besides, several earlier studies have found negative association between disclosure level and profitability (Marston and Polei, 2004; Inchausti, 1997). While Marston and Polei (2004) do not make any comments on the situation, Inchausti (1997) explains it with the hypothesis that firms use accounting information to explain bad news. 19

20 Table VI. The Results of the regression analyses TOTAL (Constant) -8,35-0,65 Coefficients t-value R 2 (adj.) F-value XCORP 13,26 4,70*** 0,526 16,545*** Log of total assets 4,47 2,99** Return on assets -19,76-1,33 GEN (Constant) -6,174-3,199** XCORP 0,561 1,319 0,581 20,376*** Log of total assets 1,513 6,702*** Return on assets -0,704-0,315 INV (Constant) -5,512-1,404 XCORP 3,041 3,515** 0,409 10,677*** Log of total assets 1,229 2,676* Return on assets -5,301-1,165 FIN (Constant) 2,496 0,653 XCORP 1,813 2,151* 0,180 4,064* Log of total assets 0,562 1,256 Return on assets -6,962-1,571 ASS (Constant) 2,446 1,197 XCORP 1,013 2,250* 0,153 3,520* Log of total assets 0,087 0,364 Return on assets -4,458-1,883* CORP (Constant) 5,490 1,349 XCORP 5,906 6,585*** 0,550 18,091*** Log of total assets 0,129 0,270 Return on assets -6,819-1,446 SOC (Constant) -7,099-2,560* XCORP 0,930 1,521 0,262 5,963** Log of total assets 0,953 2,939** Return on assets 4,483 1,395 Notes: * Significant at the 0.1 level; ** Significant at the 0.01 level; *** Significant at the level. XCORP: Firms listed in the ISE Corporate Governance Index; GEN: General Attributes; INV: Investor Relations; FIN: Financial Reports; ASS: General Assembly; CORP: Corporate Governance Index; SOC: Social Responsibility; TOTAL: Total disclosure level; Log of total assets: Logarithm of total assets; Return on assets: Net income divided by total assets After all these results, generalization of the findings may not be appropriate for firms operating in other countries. Moreover, since the study was conducted on a sample of listed 20

21 companies on the ISE, the findings are not necessarily representative of non-listed companies. Additionally, since the study was conducted in Turkey, which is a developing country, the results may not be generalized for the firms in developed countries. Furthermore, the analyses are based on only one year s data, and thus, it lacks longitudinal generalisability. 7. Conclusion This study was conducted with the aim of investigating the extent of voluntary disclosure on the corporate web sites of the Turkish listed companies, and to find out the determinants of internet reporting. The findings revealed that web page existence for the sampled companies is 100 per cent. It can be said that having the corporate web site is a common practice for the Turkish listed companies. The author of this study thinks that encouraging steps taken by governing bodies in Turkey, such as the ISE and the CMB, play an important role in promoting corporate web sites as a communication tool for investors. For example, issuing guidelines for corporate governance including information disclosure on web sites is considered a motivator for internet reporting. Secondly, the amount of information presented at corporate web sites showed that companies utilize the internet actively as a communication tool for investor relations by disclosing financial and non-financial information. However, the findings demonstrate that some items are not disclosed as much as the others; therefore, the former need to be disclosed more frequently to increase the transparency of the companies. Particularly, the total disclosure scores for N-XCORP companies are significantly lower compared to those for XCORP companies (see Table III). The detailed comparison for the scores of six sub-sections revealed significant differences between XCORP and N-XCORP companies. In order to test the predictive power of firm-specific characters (i.e. XCORP listing, firm size, industry, profitability), four hypotheses were proposed. The results of univariate and multivariate analyses indicated that firm size and XCORP listing are significant explanatory variables for the total disclosure score on the corporate web sites. However, industry and profitability proved to be insignificant predictors for the internet reporting practices of the sample companies. In short, the results indicate that there is ample room for improvement of internet reporting level among the Turkish firms. Particularly, firms, which are not listed in the Corporate Governance Index of the ISE, should increase the level of information disclosure in the subcategories of investor relations, corporate governance, and social responsibility. This 21

22 result supports the finding of Aksu and Kosedag (2006), which concluded that the annual reports and web sites are weak in terms of voluntary disclosure. The study offers certain implications for corporations, regulators, and market participants. Firstly, corporations need to take investor relations more seriously. They can do this by setting up separate investor relations departments, lest they already have one. In addition, they can use corporate web sites for investor relations more effectively by disclosing relevant information on a timely basis. The findings indicate that the information level disclosed on corporate web sites varies among firms. While some firms disclose comprehensive information that stakeholders may benefit from, others disclose very little information. The gap in information disclosure level between XCORP and N-XCORP firms shows this succinctly. XCORP firms are superior to N-XCORP firms in disclosing information on web sites in every respect. Furthermore, there are differences among subcategories of disclosure items or among items. While the disclosure percentage of some items or some categories is high, others are quite low. This does not mean, naturally, that every item deserves equal disclosure. Nevertheless, attention ought to be paid to the percentage of items or categories. For example, social responsibility disclosure is the least among subcategories, and hence needs improvement. In addition, disclosure percentages of communication means for investor relations are low, especially for XCORP firms. This means that stakeholders may have difficulty in reaching the investor relations department. Secondly, the study has some implications for regulators as well. Current comply or explain approach within corporate governance principles (CMB, 2005) seems to be insufficient in motivating companies to disclose information. There is a need to enforce disclosure of at least some minimal level of information. Policies incorporating rewards and sanctions may be helpful in improving the situation. Finally, some responsibilities fall on the shoulders of stakeholders as well. They can get in touch with investor relations department of firms, and demand more information disclosure. Present or potential investors may send messages to the management. Shareholders may express the hardships they face in finding investor-related information in general assemblies as well. Especially, foreign shareholders insistence on the availability of investor relations pages in English may prove to be one important impetus for improvement. In order to gain more insight, the author is planning to replicate this study on a larger sample, such as ISE-100 index or full ISE index, and by incorporating more variables in the study. 22