EMPIRICAL INVESTIGATION OF THE FINANCIAL DISCLOSURE
PRACTICES OF THE UK AND GERMAN COMPANIES.
A Dissertation Submitted in Partial Fulfilment of the Requirements of
Glasgow Caledonian University for the Degree of
Masters of Research
Abidemi Maria Akinrinde
(B.Sc., MBA)
Research School
Glasgow Caledonian University
Glasgow
Scotland
UK
January 17, 2024
1
i. Abstract
This study aims to empirically investigate the extent of mandatory corporate disclosure practices in the UK and Germany, and to examine the relationship between specific corporate characteristics and these practices. The study also seeks
to assess whether variations in disclosure practices can be explained by selected
corporate characteristics, and to compare the results between the UK and Germany. The study uses company size, age, profitability, industry type, liquidity, auditor type and, listing status. The study collects 2022 corporate annual financial
statements from 5 UK and 5 German companies and measures the quantity and
quality of mandatory information disclosed.
The study finds that the UK and German corporate mandatory disclosure practices
are extensive overall, and that certain corporate characteristics are associated with
more extensive disclosure practices. The study concludes that improvements can
be made to mandatory disclosure practices in both countries, and that stakeholders
should be cautious of companies with certain characteristics that disclose less extensive mandatory information.
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ii. Acknowledgement
The acknowledgment of assistance and support is a crucial stage in any research project. This thesis owes a debt of gratitude to several individuals who willingly gave
their time and resources to aid its production.
I express deep appreciation to the new Programme Director, Professor Bonnie Steves;
my former Director of Programme, Research Department Dr. Margaret-Anne Houston
for all your support, lecturing, mentorship, contributions, and understanding over
throughout the studies; my Supervisor, Dr. Alison Lehane, thank you for your time,
guidance, patience, direction, prompt feedback, and constructive criticisms.
The contributions of all lecturers, colleagues, and professionals are also recognised.
Finally, I owe huge gratitude to my children Enoch, Elijah, and Charissa-Faith; my
husband Olukunmi Akinrinde; my parents Late Moses Adebola Awodipe and Mrs.
Florence Awodipe and sister Bimbo for their financial, moral support and patience
throughout my studies.
Abidemi Maria Awodipe Akinrinde
January 2024
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iii. Declaration
I declare that this dissertation is my own work and that it was composed by myself. Following academic and/or other relevant conventions, I have made due acknowledgment of
the work of others.
Signed: ABIDEMI MARIA AKINRINDE
Date
17 January, 2024
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5
Table of Contents
Pages
i
Abstract
3
ii
Acknowledgment
4
iii
Author's Declaration
5
iv
Plagiarism Checklist form
6
v
Table of Contents
7
vi
List of Figures
vi
vii
List of Tables
vii
viii
List of Appendices
viii
ix
Abbreviations
ix
Chapter One: Introduction
1. Introduction, Objective and Organisation of the Study
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1.1. Introduction
1.2. Background and Motivation of the Study of Financial Disclosure Practices
12
13
1.4. Rationale of the Study
14
1.5. Research Questions and Objectives
14
1.8. Summary
15
Chapter Two: Literature Review
2.0. Accounting Environments and Legal Framework of Reporting of the
UK and Germany
16
2.1. Introduction
16
2.2. Accounting and Its Environment
16
2.3. The Major Environment Influences On Accounting and
Disclosure Practices
17
2.4. The Accounting Environment of the UK
19
2.4.1. International Accounting Standards
19
2.4.2. International Accounting Firms
19
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2
2.4.3. Company Law
20
2.4.4. Capital Market
20
2.4.5. General
20
2.5. The German Accounting Environment
21
2.5.1. General
21
2.5.2. German Capital Markets
21
2.6. Review of Previous Corporate Disclosure Studies
22
2.6.1. Single Country Disclosure Studies
22
2.6.1.1. Developed Countries
22
2.6.2. Cross-National Comparative Disclosure Studies
24
2.13. Gap In the Literature
27
2.14. Summary
28
Chapter Three: Research Methodology
3.1. Introduction
29
3.2. Research Philosophy
29
3.3. Research Approach
29
3.3.1. Research Hypotheses
30
3.3.1.1 Company Size
30
3.3.1.2 Company Age
30
3.3.1.3. Company Profitability
30
3.3.1.4 Company Liquidity
30
3.3.1.5 Industry Type
31
3.3.1.6. Listing Status
31
3.3.1.7. Auditor Type
31
3.4. Research Design
31
3.5. Methods of Data Collection
31
3.6. Sample Size
32
3.7. Data Analysis Technique
33
3.8. Ethical Consideration
34
3.9. Research Limitations
34
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Chapter Four: Analysis of Data and Discussion of Finding
4.0. Financial Disclosure Practices of the UK Companies: Statistical Analyses
35
and Results
4.1. Descriptive Statistics
35
4.1.1. Descriptive Presentation of Relative Disclosure Scores and
35
the Selected Corporate Characteristics
4.1.1. Table 1. GERMANY: Descriptive Statistics for the Relative Disclosure
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Scores and the Selected Corporate Characteristics (Untransformed Data)
i. Disclosure
36
ii. Total Sales
36
iii. Total Assets
37
iv. Company Age
37
v. Profit Margin
37
vi. Rate of Return
37
A. LIQUIDITY
4.1.1. Table 2. GERMANY: Descriptive Statistics for the Relative Disclosure
Scores and the Selected Corporate Characteristics (Transformed DataLog).
38
4.1.1. Table 3. UK: Descriptive Statistics for the Relative Disclosure Scores
39
38
and the Selected Corporate Characteristics (Untransformed Data)
i. Disclosure
39
ii. Total Sales
39
iii. Total Assets
40
iv. Company Age
40
v. Profit Margin
40
vi. Rate of Return
41
B. LIQUIDITY
41
4.1.1. Table 4. UK: Descriptive Statistics for the Relative Disclosure Scores
41
and the Selected Corporate Characteristics (Transformed Data- Log).
4.2. HYPOTHESES TESTING
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i. Hypothesis One (H1)
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Table 5. Association between Company Size and Disclosure Practices
42
both UK and Germany
4.2a. Comparative Analysis
42
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ii. Hypothesis Two (H2)
43
Table 6. Association between Company Age and Disclosure Practices
43
in the UK and Germany
4.2b. Comparative Analysis
44
iii. Hypothesis Three (H3)
44
Table 7. Association between Profitability and Disclosure Practices
44
in the UK and Germany
4.2c. Comparative Analysis
45
iv. Hypothesis Four (H4)
45
Table 7. Association between Liquidity and Disclosure Practices
45
in the UK and Germany
4.2d. Comparative Analysis
46
v. Hypothesis Five (H5)
46
4.2e. Regression Analysis Results
46
Table 7a: Model Summary
46
Table 7b: ANOVA
46
Table 7c: Coefficients
48
via. Hypothesis 6A
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Table 8. Summary of T-Test Showing Mean Difference on Disclosure
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Practices based on Country
vib. Hypothesis 6B
49
4.2f. Regression Analysis Results
49
Table 9a: Model Summary
49
Table 9b: ANOVA
50
Table 9c: Coefficients
50
4.3. Discussion of Findings
51
Chapter Five: Conclusions, Recommendation and Implication of Findings
5.1. Conclusions
57
5.2. Recommendations
58
5.3. Contribution to Knowledge
59
5.4. Contribution to Academic and Business Societies
59
5.5. Suggestions for Further Research
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i. REFERENCES
61
ii. Appendices
A. Measuring Instrument for Corporate Disclosure for the UK
B. Measuring Instrument for Corporate Disclosure for Germany
C. Student Meeting Records
D. Completed Ethical Approval Form
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Page 79
Page 89
Page 101
Page 105
CHAPTER 1
INTRODUCTION, OBJECTIVE AND ORGANISATION OF THE
STUDY
1.1 Introduction
What is accounting? Accounting is the process of systematically recording, summarising,
analysing, and interpreting financial transactions and information of a business or
organisation to help stakeholders make informed decisions (Berger et al, 2023).
Osma et al (2023) describes accounting as a method for disseminating economic data,
outlining four procedural steps in this process: perceiving an organization's key activities,
symbolising these activities to understand their interrelationships, analysing the activities to
summarise and clarify their interrelationship, and communicating the analysis to various
interested parties. The steps of perception and symbolisation constitute the accounting
measurement process, while the analysis and communication form the accounting disclosure
process. Financial reporting's content is influenced by these two processes (Merkl-Davies &
Brennan, 2015). Companies, as a type of commercial organisation, provide economic
information to interested parties using various formal and informal formats such as ad hoc
statements, interim statements, prospectuses, and news releases.
However, it is generally acknowledged that the set of corporate annual financial statements
(CAFSs) [Kimmel et al, 2020; IFRS, 2017] is the most appropriate way in which information
can be presented to satisfy the aim of corporate financial reporting. These statements
typically consist of a balance sheet, an income statement, a statement of changes in financial
position, and various explanatory notes and statements. The directors' and chairman's reports,
as well as other management material, are typically included in a company's annual report
(CAR) (Kimmel et al, 2020; IFRS, 2017). The quality of the information given in CAFSs is
typically left to the discretion the company directors who are legally responsible for their
production, depending on the level of statutory control in each nation. Therefore, it is crucial
for the efficient and effective operation of every business that the data given in CAFSs be
assessed to see if it complies with specific standards and has the qualitative traits that make it
helpful to decision-makers. Because the foundation of corporate financial accounting (if not
11
the entire economic system) becomes shaky and unstable if the information given in the
primary communication channel is not thought to be relevant (United Nations, 2017).
1.2. Background and Motivation of the Study of Financial Disclosure Practices
Previous research on 'financial scandals' has demonstrated consistently observable patterns of
company failures in the UK (Toms, 2019), based on the researcher's knowledge of the
financial disclosure of the UK and the German accounting environments. One in five UK
firms, are under financial stress, with more enterprises experiencing acute hardship (KPMG,
2023; IMF, 2023). Over 500,000 UK enterprises are in financial trouble, according to Tully
(2023). The largest accounting companies in the UK, PwC, Deloitte, EY, and KPMG, have
also lately come under fire for the quality of their work after a third of their audits failed to
meet expectations (Kinder, 2020; IMF, 2023), with "poorly executed company audits"
(Makortoff, 2020; IMF, 2023), which can be connected to how the 2008–2009 financial crisis
began owing to a similar audit failure that impacted companies like "Thomas Cook...," etc.
The worst recession in over 300 years, since the financial crisis of 1706 and the Great Frost
of 1709, has also been forecasted by the Bank of England (BOE). Because the UK Corporate
failure can significantly impact the global economy, as it is considered a significant market
(Bunyaminu & Issah, 2012, 6-7), hence, the UK was chosen as the research country.
Since the GDP is predicted in the UK to continue to decline throughout 2023, and also the
half of the 2024 to experience a shallow recession and economic stagnancy. Credit costs is
higher and will be a key driver to increasing bankruptcies, that is near to what was seen in
2008, with low productivity growth (Nabarro, 2023; Redwood, 2023; BMI, 2023; Partington,
2023; Gregory, 2024). Consumer spending will likely be significantly lower because of rising
living expenses, which would probably contribute to a recession in 2024 and after.
The fact that Germany is still a member of the European Union while the UK has left serves
as evidence of the countries' growing economic importance. Germany's economy is highly
developed, ranked third by nominal GDP worldwide with 4,430 (USD billion), and 52.82
(USD thousand) per capita in 2023, making it the largest and strongest in Europe. Compared
to the UK with 3,332 (USD billion), and 48.91 (USD thousand) per capita (Forbes, 2024;
Wikipedia, 2023). Germany's debt as a percentage of GDP is 59.80%, compared to the UK's
85.40%; Germany's debt per capita is 27,636 euros, compared to the UK's 37,139 (World
12
Economics, 2023); and Germany's corruption index is 80, compared to the UK's 80 as well
(countryeconomy.com, 2023). 'Wikipedia (Wikipedia, 2023; The Balance, 2019) and IMF
both claim that Germany made up 28% of the economy of the euro area. This helped to
explain why the UK and Germany were compared. As indicated by certain big corporations
recently facing the worst disasters worldwide, the disclosure policies of developed countries
are frequently non-compliant, suggesting there is still more to be done in corporate reporting
(Modugu, 2018).
UK recession is likely within five years, worsening 2007-2008 financial crisis. Study
covering both nations can contribute to corporate disclosure knowledge (Bank of England,
2023; IMF, 2023)
1.3. Rationale of the Study
This study chose UK and Germany-listed companies for different reasons. Firstly, the existing literature on corporate disclosure has shown gaps between the theory and practice of financial reporting and corporate disclosure procedures. Future empirical research could be
done to identify the gaps. The study provides valuable insights into UK and German accounting environments, applicable to other industrialised nations with similar socioeconomic conditions, making it a valuable research tool.
Secondly, research has only been conducted on banks and financial institutions, but not on
other economic sectors in the UK and Germany that should be susceptible to cross-national
comparative disclosure studies (Beretta & Bozzolan, 2008).
1.4. Research Questions and Objectives
To effectively convert the primary research problem into distinct research objectives and
inquiries, and to determine the most suitable approaches to tackle them, the following
objectives will be achieved:
•
To empirically examine the extensiveness of company mandated disclosure practices
in the UK and Germany.
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•
To investigate the relationship between the mandatory disclosure practices of UK and
Germany and several specific corporate characteristics.
•
To determine whether the various levels of the extensiveness (quality) of company
mandated disclosure practices in the UK and Germany can be accounted for by the
chosen corporate characteristics taken as a whole.
•
To properly compare how corporate characteristics affect corporate mandated disclosure procedures in Germany and the UK.
1.5.
Summary
Chapter 1 specified the purposes of the study and the underlying research problem. It also
presented the research problem and outlined the research objectives and the associated
research questions to be investigated. It explained briefly the different methods used to
address the research questions and gave an overview of the research procedure followed.
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CHAPTER 2
ACCOUNTING ENVIRONMENTS OF THE UK AND GERMANY
2.1 INTRODUCTION
This chapter aims to examine the significant factors impacting the accounting environments
of the UK and Germany. Firstly, it outlines the key features of the financial accounting and
disclosure frameworks, providing valuable insights into the respective environments.
Secondly, it identifies main variables that may affect corporate disclosure in each country.
Lastly, it contributes to the development of research hypotheses and facilitates the
interpretation of empirical findings.
2.2 ACCOUNTING AND ITS ENVIRONMENT
Accounting is a dynamic language of business that adapts to reflect changes in the
environment, technology, and socio-cultural factors. This evolution results in redefined
objectives, altered concepts, techniques, and priorities to meet the changing demands and
influences of the operating environment. Accounting is not only a product of its environment
but also a force for changing it. By providing feedback, accounting enables individuals and
societies to undergo critical self-analysis and re-evaluate their socio-political objectives and
alternative means of achieving them. The relationship between accounting and its
environment has been hypothesized and empirically demonstrated by many researchers
(Nassreddine, 2022). However, there is controversy over which factors are the most
influential, with economic variables, political systems, and culture being reported as the most
influential in different cases. The environmental influences on accounting have been selected
as the basis for analysing and comparing the UK and German accounting environments. This
framework includes all the main factors that are considered the most influential in the context
of the UK and Germany and are usually referred to as key that influences accounting
environment and disclosure practices (Nassreddine, 2022; Katarzyna, 2013).
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2.3 THE MAJOR ENVIRONMENTAL INFLUENCES ON ACCOUNTING AND
DISCLOSURE PRACTICES
The development of corporate accounting and disclosure practices in a country is influenced
by various environmental factors. The legal system of a country, for instance, can have a
persuasive force on these practices. Common law countries, such as the U.K. and the U.S.,
have a limited amount of statute law that is interpreted by courts. In contrast, codified law
countries, such as Germany and France, have legal systems based on the Roman jus civile,
where rules are linked to ideas of justice and morality and become doctrine. Accounting and
financial reporting are a branch of company or commercial law and have detailed and
comprehensive regulations covering the recording and communication of economic
information. The political system of a country also influences accounting practice and
disclosure practices.
The degree of political stability and the nature of the political system determines the extent to
which the political environment influences accounting practice. In countries with minimum
state ownership of business entities, there is a need to communicate information to all capital
providers to enable them to assess management's stewardship. In contrast, in those countries
where there is political unrest, civil or national wars or a lack of a strong and stable
government, the people (and possibly the government itself) will not be too concerned about
accounting development. The nature of a country's economy and the extent of economic
growth and development can also shape national accounting and disclosure practices. For
example, in economies dominated by service industries, the problems of accounting for
intangibles are usually significant.
As agricultural economies industrialised, new accounting problems are posed, such as leasing
and deferred tax. These developments usually call for a reliable accounting system with high
levels of disclosure, to attract outside sources of finance. Culture also plays a significant role
in shaping accounting practices. Hofstede's societal value dimensions, such as individualism
versus collectivism, large versus small power distance, strong versus weak uncertainty
avoidance, and masculinity versus femininity, have been identified as the main elements of a
common structure in cultural systems. Gray identified four accounting values at the
subcultural level of the accountant and accounting practice, as significantly related to
Hofstede's societal values. These values include professionalism versus statutory control,
uniformity versus flexibility, conservatism versus optimism, and secrecy versus transparency.
16
A country's history, multinational corporations, international trade, regional economic
communities, international accounting standards, and international accounting firms also
influence accounting practice and disclosure practices. The structure, strength, competence,
size, and independence of a country's accountancy profession, the structure of a country's
capital market, and the tax system of a country also play a significant role in shaping
accounting practices (Frost et al, 2003).
Researchers explore the link between corporate characteristics and financial disclosure
practices, considering factors like listing status, liquidity, size, profitability, industry type,
management ethnicity, and security price fluctuations (Christensen et al, 2021; Omar and
Rahman, 2019). Embong et al (2012) opines that the agency cost theory suggests that larger
businesses are more likely to share information to reduce agency costs, due to their sensitivity
to political costs (Florakis & Ozhan, 2004).
Sdiq & Abdullah (2022) and Besley & Ghatak (2014) indicate that large corporations are
more likely to comply with disclosure requirements to gain public support and counter
political actions, as supported by Florakis and Ozhan, (2004); Hughes (2017) and Christensen
et al, (2021). However, some researchers suggest that politically sensitive companies may
withhold information to avoid increased attention (Milnet, 2002; Zimmerman, 1983; Kallias
et al, 2022, Nasution et al, 2020). The relationship between company size and corporate
disclosure remains inconclusive.
Academic literature explores the correlation between a company's profitability and its
willingness to disclose information (Connelly, 2010). With agency theory suggesting high
return motivates disclosure, while Signalling and political cost theories suggest a negative
relationship (Kaihula, 2022 & Pradana et al, 2022).
Lorenzo et al. (2018) suggests a negative correlation between a company's corporate
disclosure and liquidity, while capital/need theory suggests a positive relationship, though
empirical research is mixed (Elfeky, 2017; Ajina et al, 2015). Berglund (2020) found a
negative correlation in some companies, while Saeedi et al. (2020) did not find a significant
correlation in Tehran enterprises.
Domestically listed companies disclose more in annual reports due to agency problems,
extensive information for share estimates, and minimizing capital costs, which can predict
increased disclosure (Gogineni et al, 2022). Capital market companies disclose information
17
to improve share mean returns and market return covariance, reducing capital costs. Domestic
listing status positively influences UK and German-listed companies' disclosure practices
(Khanna et al, 2004), the hypothesis suggests that listed companies in both countries will
have positive impacts on disclosure practices (Boateng et al, 2022).
Corporate management creates CAFSs, but auditors influence disclosure practices. Large
audit companies are known for sensitivity, reputation, and information disclosure, while
small firms are responsive, financially reliant, and minimize agency costs (Chen, 2016).
Elfeky (2017) suggests that industry-specific factors influence disclosure in Corporate
Annual Financial Statements, with diversified corporations have more financial data and
effective management systems, potentially influencing other companies.
2.4. THE ACCOUNTING ENVIRONMENT OF THE UK
In the United Kingdom, accounting has evolved into a distinct discipline. According to Sikka
& Stittle (2017) and Elliot & Elliott (2009), private investors are the primary capital
providers in the UK, and the financial reporting system is geared towards investors,
consistent with the Anglo-Saxon reporting model. Accounting is predominantly perceived as
a service function, with practitioners maintaining that its framework reflects the demands,
requirements, priorities, and idiosyncrasies of the business environment in which it operates.
This is attributable to the prevalence of the Anglo-Saxon accounting system in the UK.
2.4.1. International Accounting Standards
In 2021, the UK was mandated to transition from utilising IFRS as adopted by the EU to UKadopted IFRS, which mandates that its members ensure that audited accounts comply with
IASs and report non-compliance instances in audit reports. While the appropriateness of these
standards is not within the purview of this study, their adoption is a significant milestone.
However, it has been reported that the issued Standards are not yet fully effective or applied
in accounts (icaew.com, 2023; IFRS, 2017).
2.4.2. International Accounting Firms
The Big 5 firms have expanded their integrated tier in and out of the UK. Universities and
colleges in the UK have received technical updates, internal training programs, and in-house
seminars from these firms. They also encouraged local study for British accounting
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qualifications. The international accounting firms have significantly contributed to the
development of accountancy education in the UK.
2.4.3 Company Law
The Companies Act of 1951 (the Act) controls UK activities, with only one amendment
substituting Governor for Board of Trade. The Act mandates public companies to prepare
audited financial statements, including a profit and loss account and balance sheet. While the
Act does not specify a format for these statements, Schedule Eight outlines the required items
to be shown on the face of the statements or as a note. Financial institutions, such as banks,
discount houses, and insurance companies, are granted specific disclosure exemptions under
the Eighth Schedule. The primary requirement of the Act is that the financial statements must
provide a true and fair view of the company's profit/loss and state of affairs at the end of the
financial period (companies register activities, 2022).
2.4.4. Capital Market
The UK has had an embryonic capital market since 1952, with the Dutch Republic creating
the first market for trading and selling stocks. However, lack of oversight in the 18th century
led to fraudulent behaviour, resulting in the outlawing of new stock issuance by the British
and American governments. An Over-the-Counter (OTC) market was established, but
concerns over market manipulation and misinformation led to the recognition of the need for
an official market. The London Stock Exchange (LSE) was established in 1807, with listed
companies required to prepare financial statements in accordance with the Companies Act
1951 and the IASs. Continuing obligations include the preparation and publication of semiannual and annual reports, with the latter being audited by a qualified auditor and published
within six months of the company's financial year end (London Stock Exchange, 2023).
2.4.5. General
The regulatory framework governing financial accounting and reporting encompasses
legislative and institutional frameworks, including company, accounting, and tax laws, as
well as stock exchange rules and professional pronouncements. In the UK, the most common
commercial enterprise is the company, which can be private or public (KPMG, 2023). Private
limited companies have no limit on members and do not restrict share transferability, but
cannot invite public subscription for securities (legislation.gov.uk, 2023). Public limited
companies require a minimum of two members and can invite public subscription for
19
securities (www.gov.uk, 2023). Financial accounting and reporting obligations for UK public
limited companies depend on their listing status, with listed companies subject to company
and tax laws, IASs rules, and regulations, while unlisted companies have more flexibility
regarding IFRS regulations.
2.5 THE GERMAN ACCOUNTING ENVIRONMENT
2.5.1 General
The financial accounting and reporting obligations of Germany are determined by the type
and extent of its enterprise. The most prevalent form of commercial enterprise in Germany is
the company, which can be either an Eteria Periorismenis Efthynis (EPE) or an Anonymos
Eteria (AE) (KPMG, 2023). An EPE is a limited liability company, while an AE is a public
company with limited shareholder liability. The German Commercial Code (HGB) is the
primary accounting standard for financial statements of all German business entities and
many medium-sized groups of companies, although listed AEs are mainly regulated by
commercial, company, and tax laws (KPMG, 2023).
2.5.2 German Capital Markets
The Frankfurt Stock Exchange serves as Germany's primary capital market, comprising both
regulated and unregulated markets. The regulated market is bifurcated into the Prime
Standard and the General Standard, while the unregulated market is represented by the Scale.
The stock market encompasses the main and parallel markets. Listed companies are obligated
to furnish their investors and the public with the most recent financial statements and
directors' report. Additionally, semi-annual financial statements must be prepared and
released within four months of the relevant period and published in at least one national
newspaper.
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2.6.
REVIEW OF PREVIOUS CORPORATE DISCLOSURE STUDIES
2.6.1. SINGLE COUNTRY DISCLOSURE STUDIES
2.6.1.1 Developed Countries
Cerf (1961) is credited with pioneering the scientific measurement of corporate disclosure
quality. He introduced the index methodology to capture the extent of corporate disclosure in
a random sample of 527 U.S. CARs, scoring them based on a list of 31 information items
weighted by their relative importance to financial analysts. Statistical tests using mean
disclosure scores showed that NYSE-listed companies disclosed significantly more
information than non-NYSE-listed companies. A least-squares regression analysis revealed a
positive association between disclosure scores and asset size, ownership distribution, and rate
of return, with asset size being the main explanatory variable.
However, Singhvi and Desai (1971) criticised Cerf's analysis for using tests of difference on
mean classes, which they argued were influenced by extreme values due to unequal
observations in each class. They used Cerf's data and added two explanatory variables
(auditor type and earnings margin) to examine the relationship between corporate disclosure
and corporate characteristics using the chi-squared test. In contrast to Cerf, they found that
only listing status was a significant explanatory variable. Moore and Buzby (1972) criticised
Singhvi and Desai's methodology for using an absolute scoring system and not testing for
multicollinearity among independent variables. They argued for using a more direct measure
of correlation, such as Kendall's tau. Moore and Buzby (1972) improved Singhvi and Desai's
methodology by matching 44 U.S. listed companies with 44 unlisted counterparts and
calculating the disclosure index on a relative basis. The Wilcoxon matched-pairs signed-ranks
test and Kendall's tau provided evidence consistent with Cerf's findings.
Cooke (1989) criticised Buzby's matching procedure and questioned the representativeness of
unlisted companies on the OTC. Stagna (1976) examined the association between disclosure
practices and industry type and net sales of 80 U.S. listed companies, finding that only
industry type was a significant explanatory variable. Belkaoui and Kahl (1978) found that the
extent of disclosure by 200 Canadian non-financial companies varied between industries and
was positively associated with size. Amernic and Maiocco (1981) carried out a longitudinal
study of 60 Canadian companies from 1967 to 1977, reporting a dramatic increase in
21
disclosure levels and significantly higher levels of disclosure for cross-listed companies on
U.S. exchanges using the Mann-Whitney test.
Firth (1980) provided interesting evidence regarding the impact of raising finance on a
company's disclosure. Firth hypothesised that a company's need for new capital influences its
corporate disclosure practices. To investigate this, Firth (1980) analysed changes in the extent
and quality of voluntary financial disclosure when raising finance in the stock market for six
samples of U.K. manufacturing companies selected based on the frequency with which they
issued new shares. The results showed that smaller sized companies significantly increased
their voluntary disclosure levels when raising new stock market finance (Firth, 1980). Cooke
(1989) extended the field of corporate disclosure research to Sweden by classifying 90
Swedish companies into three categories based on their listing status (unlisted, single-listed,
and multiple-listed) and exploring their aggregate, voluntary, and social responsibility
disclosure levels. One Way Analysis of Variance (ANOVA) revealed that unlisted, singlelisted, and multiple-listed firms were significantly different from each other for all types of
disclosure. A multiple regression analysis demonstrated that the most important explanatory
variable was quotation status followed by firm size. Cooke (1991) used the same
classification principle as in the case of Swedish companies to examine the voluntary
disclosure practices of 48 Japanese companies. Multiple linear regression showed that
company size was the main explanatory variable, followed by listing status.
In contrast to Cooke (1989), who found that Swedish trading companies disclosed less
information than other industry types, Japanese manufacturing companies disclosed more
information than others. Wallace et al. (1994) assessed the comprehensiveness of disclosure
by 50 Spanish companies using a list of 16 mandatory items and giving credit to the fullness
of information disclosed. The researchers used OLS regression on the ranked variables
(ranked OLS regression) to cope with data sets with non-linear and monotonic relations
between the disclosure scores and the selected corporate characteristics. The results showed
that comprehensiveness of disclosure increased with firm size and listing status. Liquidity
had a significant negative coefficient, which was contrary to prior research (e.g. Belkaoui and
Kahl, 1978).
Raffournier (1995) defined voluntary disclosure in Switzerland as the items required to be
disclosed by the EU Fourth and Seventh Directives (which were not mandatory in
Switzerland). Multiple linear regression indicated that size and internationality level were
22
significant explanatory variables for Swiss voluntary corporate disclosure. Owusu-Ansah
(1997) criticised Raffournier's (1995) method of selecting the voluntary items for inclusion in
his index, casting doubt on the reliability and validity of his measuring instrument. OwusuAnsah (1997) challenged Raffournier's (1995) definition of Swiss voluntary disclosure and
suggested an alternative approach. The argument put forth by Raffournier (1995) regarding
the political sensitivity of large firms and their tendency to disclose more information to
mitigate public criticism or government intervention was also subject to questioning. OwusuAnsah (1997) posited that politically-sensitive firms may be inclined to disclose less
information voluntarily. This perspective aligns with the argument of Wallace et al. (1994)
that such firms may opt for limited disclosure to evade the heightened scrutiny that
comprehensive disclosure could attract. Depoers (2000) conducted the first voluntary
disclosure study for French companies and examined the impact of labour pressure on the
extent of voluntary corporate disclosure. Based on agency theory and information costs, the
researcher discovered a significant correlation between French corporate disclosure and
company size, a proxy for proprietary costs and foreign activity.
2.6.2 Cross-National Comparative Disclosure Studies
Singhvi (1967) conducted the first empirical cross-national comparative disclosure study
using mean, range, and standard deviation to evaluate disclosure scores of Indian and U.S.
companies using a single index. However, due to different minimum disclosure requirements
and economic development stages, the study may be biased towards stricter disclosure
countries. Barrett (1976) compared disclosure in annual reports of 103 companies from
France, U.S, Japan, U.K, Sweden, Netherlands, and Germany from 1963 to 1972. The study
found a link between national equity market efficiency and disclosure quality, but was biased
towards countries with stricter mandatory disclosure requirements (plan Comptable General,
2023).
Cairns, Lafferty, and Mantle (1984) utilised an International Accounting Standards (IASs)
based scoring system to evaluate the quality of disclosure of the 250 largest companies from
17 countries worldwide. The study revealed that between 1978 and 1983, there were
significant improvements in corporate reporting in terms of disclosure of regulatory
frameworks, with the control of the IASs. In contrast to Barrett's (1977) findings, which
23
confirmed the US's superiority in disclosure to other countries, Cairns et al. (1984) exposed a
methodological weakness in comparing multiple countries. The study did not include any
Swedish companies among the top or bottom 25, unlike Stilling, et al (1984) results, which
evaluated 175 companies' Corporate Annual Reports (CARs) from 19 countries, different
from the IASs requirements between 1 to 13, with Volvo ranking first. Cooke and Wallace
(1989) criticised the contradiction between the two studies' results (Stilling et al., 1984 and
Cairns et al., 1984), as it does not seem right (Cooke and Wallace, 1989). In cross-national
comparative disclosure studies, two major methodological approaches were used. The first
approach had some samples of companies as representatives to compare their disclosure
practices from a few countries, while the second approach adopted a multi-country approach,
where a few companies from many countries were correlated. Although the second approach
can be potentially deceitful, the first approach allows conclusions generalisation for the
national disclosure practices. The multi-country approach allows researchers to arrive at some
conclusions on the different countries' extent of disclosure. Therefore, researchers using a
common index in comparing cross-national comparisons must ensure that countries under
comparison must have relatively similar disclosure minima. If not, the index will be biased in
support more for the country the disclosure requirements are stricter (Owusu-Ansah, 1998).
Leuz and Wysocki (2016) provide methods for measuring annual report narratives using
binary indicators and frequency of disclosure. Thomas Kim's (2013) study of 5200 companies
in OECD member countries found that cultural and regulatory frameworks, among other
factors, impact companies' disclosure practices. Using optimal scaling technique and
multivariate logistic regression, Kim's research suggests that companies in countries with low
Power Distance and strong regulatory frameworks are more likely to have high levels of
disclosure. Additionally, companies in promotion-focused countries tend to disclose more
than those in prevention-focused countries, according to the regulatory focus theory.
Guillamon-Saorin and Martinez-Lopez (2014) conducted a review of corporate disclosure
practices and identified potentially misleading subtle techniques employed by opportunistic
managers. These practices have implications for all stakeholders and parties involved in
corporate disclosures. The authors focused on press releases announcing annual earnings,
which have become increasingly complex over time, providing detailed information to users.
24
However, the authors also noted that press releases are unregulated and can be presented in a
biased manner, potentially leading to inefficient allocation of economic resources.
Madhani's (2008) empirical investigation examined accounting standards and disclosure
practices, voluntary disclosure factors, corporate disclosure, firm characteristics, and
environmental accounting disclosure. The study analysed 10 sectors of the economy,
including IT, capital goods, FMCG, metal products, power, oil, pharmaceuticals,
telecommunications, automobile, and software industries, as well as non-mandatory
disclosure practices of banking companies in India. The findings revealed low levels of
reporting for non-mandatory items and similarities in reporting practices among banking
companies. The study also demonstrated the relationship between disclosure index and age,
RONW, and sales, and highlighted the significant differences in disclosure practices across
sectors. These results underscore the importance of robust disclosure practices in the current
era of competition and globalisation.
This systematic review by Mustafa & Ali (2023) examines the potential benefits of nonfinancial disclosure laws in enhancing corporate transparency. A keyword search of the Web
of Science Core Collection and SCOPUS databases yielded 369 documents, of which 62 were
reviewed and analysed thematically using ATLAS.ti version 9. The review paper presents the
quantitative and qualitative findings obtained from the use of ATLAS.ti version 9 in
conducting a thematic review. The study identified eight themes or patterns relating to nonfinancial disclosure regulations: fiduciary duties of directors, corporate accountability,
disclosure approaches, stakeholder engagement, the effectiveness of regulatory interventions,
the impact of regulations, Directive 2014/95/EU, and the role of different actors. The authors
found a lack of research on corporate disclosure laws in Southeast Asia countries,
emphasising the need for further studies beyond European countries, given the adoption of
the 2030 Agenda for sustainable development by all United Nations member states. Future
research should address this gap and consider conducting studies on corporate disclosure laws
in these countries. The study also suggests that more research should focus on integrated
reporting and the disclosure approaches of companies. However, the study has limitations,
such as the use of limited databases and a short sample period. DeBoskey and Luo (2018)
reported on the increasing demand for transparent disclosure of political activities by
professional organisations and governments and conducted a trended descriptive and
comparative analysis of corporate political disclosure (CPD) practices for a sample of S&P
25
500 firms in the United States from 2011 to 2016. The study found that firms' CPD increased
year over year, with more regulated and politically sensitive industries being more
transparent in their CPD than other industries.
Abdullah and Minhat (2013) reviewed the reports published by the Malaysian Institute of
Accountants from 2006 to 2012 on the common findings documented by the Financial
Statements Review Committee (FSRC). The study found that there were common
deficiencies in firms' annual reports or non-compliance with accounting standards among
firms as reported by the FSRC. The study suggests that compliance with accounting standards
does not necessarily lead to full compliance by preparers, and the adoption of high-quality
accounting standards does not automatically lead to high-quality financial reporting or
increased transparency. Tonkin (1989) appraised the reporting practices of 200 of the world's
leading companies based on the information disclosed in financial and non-financial
statements and the timeliness in the release of the CAR. The study developed an index of
disclosure and found that U.K. companies had superior disclosure practices. However, Cooke
and Wallace (1989) criticised the study's small sample size and questioned the
representativeness of national disclosure levels by transnational corporations. Hussein (1996)
compared financial disclosure and measurement practices in the U.S. and the Netherlands and
found no significant difference between the measurement methods used in the two countries.
However, large Dutch companies provided significantly more disclosure than their U.S.
counterparts. Craig and Diga (1998) analysed the mandatory disclosure practices in
Singapore, the Philippines, Thailand, Indonesia and Malaysia and found that banks and
utilities, which were assumed to have a high political cost exposure, had the lowest levels of
disclosure. This result contradicts the common prediction derived from political cost theory
and suggests that politically sensitive companies may disclose less extensively to avoid
increased attacks.
2.7.
THE GAP IN THE LITERATURE
Empirical research on corporate disclosure policies in German and UK context is scarce. This
allows for qualitative and quantitative analysis to be included in future research on mandatory
disclosure. There is a lack of research on the effects of specific characteristics of UK and
German companies.
26
The literature review identified a dearth of cross-national comparative disclosure studies on
developed countries, particularly in Germany. UK companies have been extensively studied
in English-language international accounting journals.
2.8.
SUMMARY
This chapter provides an in-depth analysis of accounting environments in the UK and
Germany, highlighting the influence of historical, political, and economic factors on model
adoption, guiding research hypotheses, interpreting statistical analyses, and selecting
appropriate methodologies.
27
CHAPTER 3
RESEARCH DESIGN AND METHODOLOGY
3.1.
Introduction
This chapter presents the methods and study approaches. This chapter discusses the study's
methodology involved in examining the disclosure. It covers research philosophy, approach,
design, sampling, data collection, data analysis techniques, limitations, and ethical
considerations. (Tomaszewski, et al, 2020).
3.2. Research Philosophy
The four types of research philosophies that are typically employed to conduct any study are
positivism, interpretivism, pragmatism, and realism (Edson et al, 2016). These research
philosophies have been studied extensively. The study utilised positivism as the applied
philosophy to analyse mandatory corporate disclosure practices in the UK and Germany,
examining the correlation between specific corporate characteristics and comparing
outcomes.
3.3. Research Approach
Deductive research approach and the inductive research approach are the two types of
research approach (Woiceshyn & Daellenbach, 2017). Before choosing a research approach,
it is crucial to determine whether or not a topic similar to the one under study has ever been
investigated before (Tuffour, 2017). The deductive research approach is used in this situation,
where a study similar to this has already been carried out, or vice versa.
This study utilised the hypothetico-deductive approach due to its widespread use and
suitability in studying national disclosure practices, as previous research has demonstrated.
Furthermore, the deductive research approach requires the researcher to formulate a
hypothesis and test it using the data from their investigation (Bhattacherjee, 2012). As a
28
result, the researcher tested the earlier hypothesis in this study using actual data gathered
from the financial statements of the companies.
3.3.1 Research Hypotheses
3.3.1.1 Company Size
Chen et al (2018) suggest that the relationship of the economic theory and direction between
company size and corporate disclosure remains inconclusive, despite the positive association
(Khlif & Souissi, 2010; Chen et al, 2018). The study therefore examines the non-directional
hypothesis:
Hl: An association exists between the size of a firm and the degree of its disclosure
practices (transparency measures).
3.3.1.2 Company Age
Previous empirical research has not thoroughly examined the variable of company age, as
older companies often disclose more information due to established competitors (Kaihula,
2016; 2022). This non-directional hypothesis is investigated thus:
H2: An association exists between a company's age and the level (extent) of its disclosure
practice (transparency measures).
3.3.1.3 Company Profitability
The study explores a non-directional hypothesis due to the unclear nature of economic theory
on the subject, thus:
H3: An association exists between a company's profitability and the level (extent) of its disclosure
practice (transparency measure).
3.3.1.4 Company Liquidity
The study explores a non-directional hypothesis due to the unclear nature of economic theory
on the subject, thus:
29
H4: An association exists between a company's liquidity and the level (extent) of its disclosure
practice (transparency measures).
3.3.1.5 Industry Type
H5: The level (extent) of disclosure by a company varies based on its industry classification
(e.g. conglomerate, manufacturing or other).
3.3.1.6 Listing Status
H6(A): The level (extent) of disclosure of the UK Big 5 audited listed companies is greater than that
of a German—Big 5 audited listed ones.
3.3.1.7 Auditor Type
H6(B): There is an association between a UK company's auditor—type and the level (extent) of its
disclosure practice.
3.4. Research Design
A research design is a process that is employed in the collection, processing, interpretation,
and distribution of data. There are three types of research designs: quantitative, qualitative,
and mixed method (qualitative and quantitative) (Leavy, 2017). Since quantitative design is
objective and typically entails obtaining numerical data, statistical techniques can be applied
to test hypotheses (Ary et al, 2002).
The applied research design used in this study is primary quantitative, meaning that
quantitative data are being gathered from primary sources.
3.5. Methods of Data Collection
According to Schönbrodt and Perugini (2017, 2018), fair representation of target population
in sample size choices must be ensured (Malterud et al, 2016). This study uses quantitative
30
methods like annual reports and company websites for financial information, along with
secondary qualitative methods.
The total assets, net sales, and market capitalisation are used to determine the size of UK and
German companies (Vlanchos 2001; Hashmi et al, 2020). Net sales, market capitalisation,
and total assets were chosen due to their simplicity and extensive use in previous research
(Hashmi et al, 2020).
Companies' age is determined using metrics like years since incorporation, operational start
dates, or listing, with start dates in the UK and Germany available online through Company
House.
The study aimed to measure a company's profitability relative to other companies using profit
margin and Return on Capital Employed (ROCE) to compare profit to sales and operational
efficiency (Szymanski et al, 1993; Perisa et al, 2017). The rate of return is primarily based on
total capital, and earnings before interest and tax (EBIT) is used to relate profit to all capital
providers (Lee, 2023; Jayathilaka et al, 2020).
One can operationalise a company's liquidity position using information from its cash flow
statement or balance sheet, The current ratio was preferred over the quick ratio for short-term
liquidity and to ensure stock valuations are lower in both countries (Mills and Yamamura,
1998; Datarails, 2023; Sy and Soler, 2021; Tin et al, 2017; Mheiri, et al, 2021; Almenhali et
al. 2021).
The FTSE classified UK listed non-financial companies into categories. Manufacturing and
conglomerate groups were chosen to reduce industries, as these groups impact corporate
disclosure in other nations, and the remaining single—sector companies were classified as
"others". Exclusion criteria was used on Financial Institutions were excluded from the
sampling in both countries because they are regarded to have standard regulator and
governance.
The study focuses on determining the size of a UK audit firm, a widely accepted proxy for
audit size and quality in the UK and Germany (Raffournier, 2009). If a UK or Germany
company was audited by a Big 5 audit firm, it received a one, otherwise it received a zero.
3.6. Sample Size
31
The study selects 5 listed FTSE UK and 5 listed Germany companies to represent the target
population appropriately (Schönbrodt, and Perugini, 2018). Data was collected from the
annual reports of companies in the sample, and the primary source of data was used to test the
hypotheses (Alfraih & Almutawa, 2014), using purposive sampling (Agyei-Mensah, 2011;
Mahboub, 2017). The companies are from different sizes and sectors in both countries.
The UK companies include:- Adidas Ag, Volkswagen, Phoenix, Puma, Krones;
and for German companies:- AstraZeneca, British American Tobacco, IWG Plc, Harfords,
and Greggs.
3.7. Data Analysis Technique
This study examines the relationship between disclosure scores and corporate characteristics
in UK and German companies using correlation and regression tests (Perisa et al, 2017;
Vlanchos, 2001; Al-Htaybat, 2005). The hypotheses were tested using Pearson correlation
measures the linear relationship between each pair of variables. A test of difference was
required for the hypotheses. Multivariate methods were chosen due to concerns about the
suitability of bivariate analysis for corporate disclosure and the relationship between
independent variables. The study tested hypotheses 1,2,3,4,5 using parametric and nonparametric correlations, while hypotheses 6 and 7 were tested using ANOVA test.
For UK Companies:
Yi = a + β1assets + β2salesi + β3 capitalisation + β4 age + β5 profit margini + β6 ROCEi +
β7 current ratioi + β8 conglomeratei+ β9 manufacturingi + β10 otheri + β11 listingsi + β12
audit, + gi
(perhaps following a logarithmic or other transformation of a few variables)
where:
Yi= The disclosure score of the ith sample company
a = The intercept of the equation that needs to be determined
32
β1, β2, β3, β4, β4, β5, β6, β7, β8, β9, β10, β11, β12 = The explanatory variables' coefficients
(which may be zero, are a crucial factor to consider).
gi = unplanned disruption for jth sample business
For German Companies:
Yi = a + β1assets + β2salesi + β3 capitalisation + β4 age + β5 profit margini + β6 ROCEi +
β7 current ratioi + β8 conglomeratei+ β9 manufacturingi + β10 otheri + β11 listingsi + β12
audit, + gi
(perhaps following a logarithmic or other transformation of a few variables)
where:
Yi= The disclosure score of the ith sample company
a = The intercept of the equation that needs to be determined
β1, β2, β3, β4, β4, β5, β6, β7, β8, β9, β10, β11, β12 = The explanatory variables' coefficients
(which may be zero, are a crucial factor to consider).
gi = unplanned disruption for jth sample business
The dependent variable is the relative disclosure score for each sample company, while the
independent variables are potential explanatory variables. The disturbance term represents the
net influence of unmeasured variables, such as socio-cultural factors.
3.8. Ethical Consideration
Researchers must adhere to ethical considerations, including credited information from other
sources (Suri, 2019). Research should avoid incorporating researcher's perception or other
aspects that cannot be justified by previous research findings, as this may increase the
likelihood of bias in the study.
3.9. Research Limitations
Like other studies, the study's two primary limitations were time and budget because the
researcher had to finish it in a limited time and within a budget. Additionally, given the
33
limitations of the study's sample size, it is possible that the researcher's conclusions would
change if the study's sample size or other variables were larger.
CHAPTER FOUR
ANALYSIS OF DATA AND DISCUSSION OF FINDINGS
4.0. Financial Disclosure Practices of the UK Companies: Statistical Analyses and
Results.
4.1 Descriptive Statistics
The remainder of this chapter presents and analyses the findings from the statistical
techniques used to investigate the first research question, which looks at how comprehensive
the mandatory information disclosure in UK companies’ CAFs is. A disclosure measuring
tool whose contents, development, validity, and reliability have all been covered is used to
determine the extent of disclosure. Additionally, in light of other disclosure studies that have
been published in the literature, it also makes an attempt to evaluate the level of corporate
disclosure in the UK. The disclosure ratings of UK companies are compared to those of other
companies in mandatory disclosure studies, rather than using a threshold level. However,
these comparisons are based on studies from different countries, eras, and sample sizes.
Careful comparisons are necessary to understand how German and UK companies disclose
information, as these findings are often found in literature or condensed earlier research (e.g.
Wallace and Naser, 1994; Owusu-Ansah, 1998). Therefore, if this comparison is done
carefully, it will offer helpful insight into how German and UK companies disclose
information.
This chapter presents data analysis on the association between firm-specific attributes and
corporate financial disclosures among German and UK companies listed on the DAX index
2022 and the London Stock Exchange, testing seven hypotheses and using clearer
illustrations, charts and tables.
34
The chapter presents the outcomes of data analysed to achieve the objectives of the study
through inferential statistics. However, the results are interpreted based on the study
hypotheses, including the discussion of findings based on literature review. The overall
results are presented in two phase; part one presents the descriptive results, while the later
part present the hypotheses tested and discussion of findings.
4.1.1. Descriptive Presentation of Relative Disclosure Scores and the Selected Corporate
Characteristics
Table 1. GERMANY: Descriptive Statistics for the Relative Disclosure Scores and the
Selected Corporate Characteristics (Untransformed Data)
Code Name
N
Min
max
Mean
SD
Skewness
Kutosis
Disclosure
5
507
509
508.60
.894
-2.236
5.00
Total Sales
5
4209.00
279232.0
70146.62
117561.41 2.173
4.7
5
4171.00
564772.0
247638.36 2.232
4.9
Company_Age
5
28.00
85.00
66.20
22.04
-1.876
3.9
Profit Margin
5
7.89
47.00
24.01
20.55
.602
-3.3
Rate Of Return
5
.00
9.49
2.1976
4.09
2.189
4.8
Liquidity
5
1.15
1.48
1.30
.128
.482
-0.54
Valid N (listwise)
5
Total Assets
121925.3
4
Table 1 presents descriptive statistics for the relative disclosure scores and selected corporate
characteristics in Germany. The results are presented as follow:
i. Disclosure:
The mean disclosure score is 508.60, with a relatively small standard deviation (0.894),
indicating a narrow spread of data around the mean.
The skewness is -2.236, suggesting a negatively skewed distribution, with a longer left tail.
This implies that there are few companies with lower disclosure scores pulling the
distribution to the left.
35
The kurtosis of 5.00 indicates a leptokurtic distribution, suggesting heavy tails and a sharper
peak compared to a normal distribution.
ii. Total Sales:
The mean total sales are 70,146.62 with a high standard deviation of 117,561.41, indicating a
wide spread of data.
The skewness is 2.173, indicating a positively skewed distribution, with a longer right tail.
This suggests that there are few companies with exceptionally high total sales pulling the
distribution to the right.
The kurtosis of 4.7 suggests a leptokurtic distribution, similar to disclosure.
iii. Total Assets:
The mean total assets are 121,925.34 with a substantial standard deviation of 247,638.36,
indicating a wide variation in total assets.
The skewness (2.232) and kurtosis (4.9) also suggest a positively skewed and leptokurtic
distribution, similar to total sales and disclosure.
iv. Company Age:
The mean company age is 66.20 years, with a standard deviation of 22.04, indicating some
variability in the age of companies.
The skewness is -1.876, suggesting a negatively skewed distribution, meaning there are few
companies with younger ages pulling the distribution to the left.
The kurtosis of 3.9 indicates a moderately leptokurtic distribution.
v. Profit Margin:
The mean profit margin is 24.01, with a substantial standard deviation of 20.55, indicating a
wide variation in profit margins among companies.
The skewness (0.602) suggests a slightly positively skewed distribution, and the kurtosis (3.3) indicates a platykurtic distribution with lighter tails compared to a normal distribution.
36
vi. Rate Of Return:
The mean rate of return is 2.1976, with a standard deviation of 4.09, indicating variability in
the rate of return.
The skewness (2.189) suggests a positively skewed distribution, and the kurtosis (4.8)
indicates a leptokurtic distribution.
A. LIQUIDITY:
The mean liquidity score is 1.30, with a standard deviation of 0.128, indicating relatively low
variability in liquidity scores.
The skewness (0.482) suggests a slightly positively skewed distribution, and the kurtosis (0.54) indicates a platykurtic distribution.
In summary, these descriptive results suggest that key corporate traits like total sales, assets,
and age influence mandatory disclosure in Germany, with extreme values exhibiting different
disclosure patterns. Profit margin and liquidity also show variability. Further statistical
analysis, such as regression, can help quantify the relationships between these variables and
disclosure scores. See Table 2 for the transformed data.
37
Table 3. UK: Descriptive Statistics for the Relative Disclosure Scores and the Selected
Corporate Characteristics (Untransformed Data)
Code Name
N
MIN
MAX
MEAN
SD
Skewness
Kurtosis
Disclosure
5
509
509
509.00
.000
.00
.00
sales
5
31.90
3136.14
1654.65
1099.78
-.320
2.041
assets
5
175.09
1313.28
944.40
450.10
-1.771
3.346
Company_Age
5
33.00
130.00
88.50
39.05
-.515
-.729
PRFMargin
5
3.81
82.60
25.79
32.86
1.901
3.613
ROR
5
.00
43.00
20.96
20.98
.010
-2.975
LIQUIDITY
5
.92
3.00
1.76
.81
.845
.518
Valid N (listwise)
5
Table 3 provides descriptive statistics for the relative disclosure scores and selected corporate
characteristics in the UK. The results are presented thus;
i. Disclosure:
All companies have the same disclosure score of 509, indicating no variability in this
variable. The standard deviation is zero (0.000).
ii. Sales:
The mean sales are 1654.65 with a moderate standard deviation of 1099.78, indicating some
variability in sales among the companies.
The skewness is negative (-0.320), suggesting a slightly negatively skewed distribution. This
means there might be a few companies with higher sales pulling the distribution to the left.
38
The kurtosis (2.041) indicates a distribution with moderate tails compared to a normal
distribution.
iii. Assets:
The mean assets are 944.40 with a standard deviation of 450.10, indicating some variability
in total assets.
The skewness is -1.771, indicating a negatively skewed distribution. This suggests a
concentration of companies with higher assets, pulling the distribution to the left.
The kurtosis (3.346) indicates a distribution with heavy tails and a sharper peak compared to
a normal distribution.
iv. Company Age:
The mean company age is 88.50, with a standard deviation of 39.05, indicating some
variability in the age of companies.
The skewness is negative (-0.515), suggesting a slightly negatively skewed distribution. This
means there might be a few companies with younger ages pulling the distribution to the left.
The kurtosis is also negative (-0.729), indicating a distribution with lighter tails compared to
a normal distribution.
v. Profit Margin:
The mean profit margin is 25.79, with a high standard deviation of 32.86, indicating wide
variability in profit margins among companies.
The skewness is positive (1.901), suggesting a positively skewed distribution. This means
there might be a few companies with higher profit margins pulling the distribution to the
right.
39
The kurtosis (3.613) indicates a distribution with heavy tails and a sharper peak compared to
a normal distribution.
vi. Rate Of Return (ROR):
The mean rate of return is 20.96, with a standard deviation of 20.98, indicating variability in
the rate of return.
The skewness is close to zero (0.010), suggesting an almost symmetric distribution. The
kurtosis (-2.975) indicates a distribution with light tails compared to a normal distribution.
B. LIQUIDITY:
The mean liquidity score is 1.76, with a standard deviation of 0.81, indicating moderate
variability in liquidity scores.
The skewness (0.845) suggests a positively skewed distribution. This means there might be a
few companies with higher liquidity scores pulling the distribution to the right.
The kurtosis (0.518) indicates a distribution with lighter tails compared to a normal
distribution.
In summary, the identical disclosure scores for all companies suggest a lack of variability in
this variable among the sample companies in the UK.
Sales, assets, company age, profit margin, and liquidity show variability among the
companies, indicating potential factors influencing disclosure practices. Negative skewness in
assets and company age suggests a concentration of companies with higher values in these
variables. Positive skewness in sales, profit margin, and liquidity suggests a concentration of
companies with higher values in these variables. However, these results suggest that, in the
UK, disclosure scores are uniform among the sample companies. However, other corporate
characteristics such as sales, assets, company age, profit margin, and liquidity show
40
variability, indicating potential factors influencing mandatory corporate disclosure practices.
Further analysis, such as regression, can help explore the relationships between these
variables and disclosure scores. Meanwhile, variability in profit margin and Rate of Return
(ROR) indicates differences in financial performance among the companies.see Table 4
which presents the transformed data.
4.2 HYPOTHESES TESTING
This study tested six hypotheses using inferential statistics, Pearson product moment
correlation, multiple regressions, and T-test. Data was transformed into EUR before natural
logarithms, converting USD and Pound Sterling to avoid errors in currency rates and data
computation.
i. Hypothesis One
Hl: An association exists between the size of a firm and the degree of its disclosure practices
(transparency measures). This hypothesis was tested using correlation analysis and the results
are presented in Table 5.
41
Table 5. Association between Company Size and Disclosure Practices both UK and
Germany
Variables
N
DF
Degree of
Freedom =N-2
Correlation
Coefficient(r)
Correlation
Coefficient(r)
UK
Germany
Company Size
Disclosure
Practices
10
8
0.312*;
P<.05
-0.489*;
p<.05
*Correlation is significant at the 0.05 level (1-tailed).
As presented in Table 5, In the UK, there is a significant positive correlation of 0.312*
between company size and disclosure practices, and this correlation is statistically significant
(p <.05). This suggests a weak positive relationship: as company size increases, disclosure
practices also tend to increase, although the relationship is not very strong.
In Germany, the association between company size and disclosure practices is -0.487*,
indicating a moderate negative relationship. This negative correlation is statistically
significant (p<.05), suggesting that as company size increases in Germany, disclosure
practices tend to decrease.
4.2a. Comparatively Analysis
There are notable differences in the nature of the relationship between company size and
disclosure practices in the UK and Germany. While the UK exhibits a positive correlation,
implying that larger firms are more inclined to have higher disclosure practices, Germany
shows a negative correlation, indicating that larger firms might have lower disclosure
practices. However, these differences may stem from varying regulatory environments,
cultural factors, or industry norms in the two countries. Therefore, the tested hypothesis is
confirmed and accepted in this study.
ii. Hypothesis two
42
H2: An association exists between a company's age and the level (extent) of its disclosure
practice (transparency measures). This hypothesis was tested using correlation analysis and
the results are presented in Table 6.
Table 6. Association between Company Age and Disclosure Practices in the UK and
Germany
Variables
N
DF
Degree of
Freedom =N-2
Correlation
Coefficient(r)
Correlation
Coefficient(r)
UK
Germany
Company Age
Disclosure
Practices
10
8
-0.244;
P>.05ns
0.368;
P>.05
*Correlation is significant at the 0.05 level (1-tailed).
In the UK, the correlation between a company's age and its disclosure practices is -0.244,
indicating a no significant relationship. However, this correlation is not statistically
significant (p>.05), suggesting that there is no clear association between a company's age and
its level of disclosure practices in the UK.
In Germany, the correlation between company age and disclosure practices is 0.368,
indicating a no clear relationship. This is suggesting that there is no significant association
between a company's age and its level of disclosure practices in Germany.
4.2b. Comparative Analysis
The correlation between company age and disclosure practices in the UK and Germany is not
statistically significant. This study rejects the hypothesis that company age significantly
influences disclosure practices in the UK and Germany, indicating that other factors may play
a more influential role.
iii. Hypothesis Three
H3: An association exists between a company's profitability and the level (extent) of its
disclosure practice (transparency measures). This hypothesis was tested using correlation
analysis and the results are presented in Table 7.
43
Table 7. Association between Profitability and Disclosure Practices in the UK and Germany
Variables
N
DF
Degree of
Freedom =N-2
Correlation
Coefficient(r)
Correlation
Coefficient(r)
UK
Germany
Profitability
Disclosure
Practices
10
8
0.711**;
P<.01
0.924*;
P<.05
**Correlation is significant at the 0.01 level (1-tailed).
*Correlation is significant at the 0.05 level (1-tailed).
As shown in Table7, for the UK companies, the correlation between a company's profitability
and its disclosure practices is 0.711, indicating a strong positive significant relationship. This
correlation is statistically significant (p<.01), suggesting that there is a meaningful
association between a company's profitability and its level of disclosure practices in the UK.
In Germany, the correlation between profitability and disclosure practices is 0.924, indicating
a very strong positive relationship. This correlation is also statistically significant (p <.05),
suggesting that there is a significant association between a company's profitability and its
level of disclosure practices in Germany.
4.2c. Comparative Analysis
The results indicate that there is a positive and significant association between a company's
profitability and its level of disclosure practices in both the UK and Germany. This suggests
that companies with higher profitability are more likely to engage in transparent disclosure
practices. However, companies in Germany reported higher association coefficient more than
the UK in this study. Further exploration of the specific factors driving this association could
provide valuable insights into the dynamics of corporate disclosure practices in these
countries. Hence, the results support the tested hypothesis and it is accepted.
iv. Hypothesis Four
H4: An association exists between a company's liquidity and the level (extent) of its
disclosure practice (transparency measures). This hypothesis was tested using correlation
analysis and the results are presented in Table 7.
44
Table 7. Association between Liquidity and Disclosure Practices in the UK and Germany
Variables
N
DF
Degree of
Freedom =N-2
Correlation
Coefficient(r)
Correlation
Coefficient(r)
UK
Germany
Liquidity
10
Disclosure
Practices
8
0.836; P>.05
-0.54;
P>.05
*Correlation is significant at the 0.05 level (1-tailed).
In the UK, the correlation between a company's liquidity and its disclosure practices is not
statistically significant (p>.05ns), suggesting that there may not be a significant association
between a company's liquidity and its level of disclosure practices in the UK.
In Germany, the correlation between liquidity and disclosure practices is also not statistically
significant (p>.05ns), suggesting that there may not be a significant association between a
company's liquidity and its level of disclosure practices in Germany.
4.2d. Comparative Analysis
The results indicate that the lack of significance suggests that liquidity may not be a key
factor influencing disclosure practices in these countries. Therefore, the hypothesis is
rejected.
v. Hypothesis Five
H5: The level (extent) of disclosure by a company varies based on its industry classification
(e.g. conglomerate, manufacturing or other). this hypothesis was analysed using linear
regression and the results are presented in Table 7a,b & c.
4.2e. Regression Analysis Results
7a: Model Summary
R
Model R
Adjusted
Square Square
R Std. Error of the
Estimate
45
R
Model R
1
Adjusted
R Std. Error of the
Square Square
0.483 0.233
Estimate
-0.150
550.01
7b:ANOVA
Model Sum of Squares df
1
Mean Square F
Sig.
Regression
552.16 3
184.05 0.608
Residual
1815.08 6
302.51
Total
2367.13 9
7c:Coefficients
Unstandardized
Standardized
Model Coefficients
Coefficients
t
B
Std. Error
Beta
(Constant)
1510.446
1.49
1.014
MANUFACTURING
-374.579
.53
-
1
Sig.
0.750
CONGLOMERATE
-1167.464
1221.049 0.929
As presented in Tables above: The R Square value is 0.233, indicating that the model
explains 23.3% of the variance in the dependent variable (Disclosure Practices).
The Adjusted R Square is -0.150, suggesting that the addition of the predictor variables does
not improve the model fit.
46
ANOVA: The ANOVA results indicate that the regression model is not statistically
significant (F = 0.608, p = 0.634). This suggests that the industry classification (e.g.
conglomerate, manufacturing or other) does not significantly contribute to explaining the
variance in Disclosure Practices.
Coefficients:
None of the predictor variables (MANUFACTURING, CONGLOMERATE, Others) have a
statistically significant effect on Disclosure Practices. The p-values for all three variables are
greater than the significance level of 0.05. Based on the results, there is no significant
association between a company's industry classification and the level of its disclosure
practices. The model does not provide strong evidence to support the hypothesis that the
extent of disclosure vari4.2es based on industry classification. Therefore, the tested
hypothesis is rejected.
Via. Hypothesis 6A
H6(A): The level (extent) of disclosure of the UK Big 5 audited companies is greater than
that of a German—Big 5 audited one. This hypothesis was analysed with a T-test for
independent samples and the results are presented in Tables below.
Table 8. Summary of T-Test Showing Mean Difference on Disclosure Practices based on
Country
Independent
variable
Std.
Dependent factor Region
N
Mean
Disclosure
5
782.19 595.22
UK-Big-5
Practices
47
Deviation
TDF
value Sig
Independent
variable
Dependent factor Region
GER-Big-5
Std.
N
Mean
Deviation
5
1219.00 247.62
TDF
value Sig
8
-1.094 >.05
Table 8 shows that the t-test conducted to compare the mean levels of disclosure practices
between UK Big-5 audited companies and German Big-5 audited companies.
The p-value of 0.335 is greater than the significance level of 0.05, suggesting that there is no
significant difference in the mean levels of disclosure practices between UK Big-5 and
German Big-5 audited companies at (t=-1.094, df=8, p>.05). The confidence interval includes
zero, further supporting the lack of significance.
Based on the results, we do not have sufficient evidence not to reject the alternate hypothesis
(H6(A). The level of disclosure of UK Big-5 audited companies is not significantly different
from that of German Big-5 audited companies in this study.
Vib. Hypothesis 6B
H6(B): There is an association between a UK company's auditor—type and the level (extent)
of its disclosure practices. This hypothesis was analysed using linear regression simply
because the independent variable categorical (auditor type; Big-5 or Not Big-5). the results
are presented in Tables 9a,b & c.
4.2f. Regression Analysis Results
Table 9a: Model Summary
Model R
R Square Adjusted R Square
Std. Error of the Estimate
48
Model R
1
R Square Adjusted R Square
0.316 0.100
Std. Error of the Estimate
-0.013
516.05834
Table 9b: ANOVA
Model
Sum of Squares
df Mean Square
F
Sig.
1
Regression
1
236715.397
0.889
0.373
Residual
8
266316.214
Total
9
2367245.113
Sig.
Table 9c: Coefficients
Unstandardized
Standardized
Model Coefficients
Coefficients
t
B
Std. Error
Beta
(Constant)
141.116
494.088 0.286
Auditor_Type
314.056
333.114 0.316
1
Results indicate that the R Square value is 0.100, indicating that the model explains 10% of
the variance in the dependent variable (Disclosure Practices).
The Adjusted R Square is -0.013, suggesting that the addition of the Auditor_Type variable
does not improve the model fit.
The ANOVA results indicate that the regression model is not statistically significant (F =
0.889, p = 0.373). This suggests that the addition of the Auditor_Type variable does not
significantly contribute to explaining the variance in Disclosure Practices.
Coefficients:
49
The coefficient for the Auditor_Type variable is 314.06 with a standard error of 333.11.
However, the t-value is 0.316, and the p-value is 0.943, indicating that Auditor_Type is not a
significant predictor of Disclosure Practices. Therefore, based on the results, there is no
significant association between a UK company's auditor type and the level of its disclosure
practices. The p-value of 0.943 is greater than the significance level of 0.05, suggesting that
the Auditor_Type variable is not a significant predictor in this context. Hence, the hypothesis
is rejected.
4.3 Discussion Of Findings
Findings of the study are discussed in tandem with the existing related studies for further
clarifications of the study. The contrasting nature of the correlation in the two countries
suggests that there are notable differences in the relationship between company size and
disclosure practices.for instance, in the UK, larger firms are more inclined to have higher
disclosure practices, aligning with the expectations from agency cost theory and political cost
theory. Whereas in Germany, larger firms tend to exhibit lower disclosure practices,
challenging the conventional association between company size and disclosure.
The current trend is contrary to the report of Embong et al (2012): Embong et al suggest that
the relationship between a firm's size and its disclosure extent is unclear. The findings in this
study contribute to the ongoing discussion, indicating that the relationship may vary across
different contexts. Similarly, when looking at the agency cost theory: Support is found for
agency cost theory, suggesting that larger companies are more likely to provide more
information to reduce agency costs. This aligns with research by Sdiq & Abdullah (2022) and
Besley & Ghatak (2014).
In the same vein, the concept of political cost theory: the positive correlation in the UK
supports the political cost theory, indicating that larger companies, more sensitive to public
scrutiny, are likely to comply with disclosure requirements. However, the negative
50
correlation in Germany challenges this theory. Further, the inconclusive nature of economic
theory regarding the direction of the relationship is acknowledged. The study aligns with the
positive association between company size and disclosure found in some studies (e.g., Khlif
& Souissi, 2010; Ahmed & Courtis, 1999).
Hypothesis Two aimed to explore the relationship between a company's age and its level of
disclosure practices, utilizing correlation analysis. The results indicated that, both in the UK
and Germany, there is no significant association between a company's age and its extent of
disclosure practices.
This finding aligns with theoretical perspectives suggesting that older companies are
generally more inclined to disclose extensive information compared to their younger
counterparts. The rationale behind this is that younger companies may strategically withhold
sensitive information to protect their competitive position, given the potential risks associated
with disclosure. In contrast, older companies, benefiting from established competitive
advantages, are less motivated to withhold information.
Furthermore, the limited operating history of younger companies may constrain their capacity
for extensive disclosure, contributing to the observed lack of a significant relationship. Older
companies, often viewed as benchmarks for disclosure practices, may set a standard that
newcomers may not immediately match, considering their shorter disclosure history. This
aligns with the insights from Kaihula (2016; 2022), emphasizing the impact of company age
on disclosure practices. The absence of a significant association in both the UK and Germany
suggests that other factors or contextual elements may play a more influential role in shaping
companies' disclosure practices in these countries.
In the hypothesis three, associations between profitability and disclosure practices were
explored; these findings align with prior research emphasizing the pivotal role of a company's
profitability in influencing its disclosure behavior. According to agency theory, profitable
companies are inclined to disclose extensive information to demonstrate their commitment to
shareholder interests and justify executive compensation packages. Scholars such as Kaihula
(2022) and Pradana et al. (2022) argue that during periods of high profitability, managers are
motivated to provide detailed information, whereas in times of low profitability, they may
disclose less to mitigate the impact of poor performance.
51
Additionally, signalling theory suggests that profitable companies are incentivized to disclose
more information to prevent adverse selection issues and undervaluation of their shares.
Political cost theory posits that profitable companies may disclose additional information to
justify their profits and counteract potential government intervention. However, it's
noteworthy that some researchers propose a negative relationship between a company's
disclosure practices and its profitability.
Hu et al (2019) suggests that information disclosure, as a means to convey negative news,
may be inversely related to profitability. Parsa (2001) argues that companies with lower profit
margins might disclose more detailed information as part of their accountability. Moreover,
some researchers propose that companies with large declared profits may be more politically
sensitive, fearing increased government or public scrutiny, leading to reluctance to disclose
more information (Maher & Anderson, 1999).
Empirical evidence on the association between profitability and corporate disclosure has
yielded mixed results. While Hossain (2008) found a positive link between profitability and
aggregate disclosure, Aikaeli & Rashid (2015) reported a positive association between
profitability and voluntary disclosure. In contrast, Xue et al. (2023) discovered a negative
association between profitability and mandatory disclosure. Consequently, providing a
definitive specification of the relationship between profitability and the extent of corporate
disclosure in the UK and Germany is challenging, necessitating further research to fully
comprehend this intricate dynamic.
Hypothesis four sought to explore the association between a company's liquidity and the
extent of its disclosure practices, utilizing correlation analysis. The results indicate that in
both the UK and Germany, the correlation between a company's liquidity and its disclosure
practices is not statistically significant. This suggests that there might not be a significant
association between a company's liquidity and its level of disclosure practices in both
countries.
This finding aligns with theoretical discussions surrounding the relationship between a
company's liquidity and its corporate disclosure practices. Theoretical perspectives, such as
signalling theory, propose a potential negative relationship, suggesting that companies with
lower liquidity might need to provide more detailed information to explain perceived weak
52
performance compared to those with higher liquidity. This is posited as a strategic signal to
reassure capital providers about the company's ability to continue operations during financial
difficulties (Berglund , 2020).
Conversely, the capital/need theory suggests a positive correlation between liquidity and
corporate disclosure, as liquidity measures business risk, influencing investors' uncertainty
and cost of capital, and reducing required return. In this context, Companies with financial
stability may prioritise promoting their stability to the market to mitigate investor uncertainty
and lower their required return rate (Farvaque et al, 2011).
Empirical evidence on the relationship between liquidity and corporate disclosure remains
mixed. While Saeedi et al. (2020) found no significant relationship in Tehran companies,
Berglund (2020) reported a negative relationship in some companies. These divergent
findings highlight the complexity of the relationship between liquidity and corporate
disclosure, suggesting that contextual factors may influence the nature and direction of this
association.
Hypothesis five aimed to investigate whether the extent of a company's disclosure practices
varies based on its industry classification, employing linear regression analysis. The results
indicate that the industry classification, such as conglomerate, manufacturing, or other
categories, do not significantly contribute to explaining the variance in Disclosure Practices.
This outcome resonates with existing literature, which highlights that the extent of
information disclosure in Corporate Annual Financial Statements (CAFSs) exhibits variations
across industries.
These variations are attributed to industry-specific factors, including the complexity and
nature of operations within each sector (Elfeky, 2017). Diversified companies, operating in
multiple business segments or geographical locations, are likely to report a greater volume of
financial information compared to their undiversified counterparts. This is often linked to the
presence of a more efficient management information system for managerial control.
The dominant firm argument further posits that a company exhibiting a high level of
disclosure within a specific industry may influence other companies in the same sector to
follow suit, leading to a bandwagon effect on disclosure practices. This industry effect has
found support in various studies exploring aggregate, mandatory, and voluntary disclosure
53
(Elfeky, 2017). This study reveals that industry classification does not significantly influence
disclosure practices, suggesting that other factors or contextual dynamics may have a more
significant impact.
Hypothesis 6A posited that the level of disclosure of the UK Big 5 audited companies is
greater than that of German Big 5 audited companies. The analysis, conducted through a Ttest for independent samples, yielded results indicating no significant difference in the mean
levels of disclosure practices between UK Big-5 and German Big-5 audited companies.
Consequently, the level of disclosure observed in UK Big-5 audited companies is not
significantly distinct from that of German Big-5 audited companies in this study.
Previous research supports the notion that domestically listed companies are more inclined to
offer comprehensive disclosure in their annual reports compared to their unlisted
counterparts. Several valid arguments support this proposition. Firstly, agency problems may
vary with quotation status, as unlisted companies with a small shareholder base might be
more effective in managing agency issues than listed companies with numerous shareholders
(Gogineni et al., 2022). Secondly, companies listed on capital markets are expected to
disclose extensive information to enhance estimates of their share's mean return and
covariance with the market return. The capital-need theory suggests that listed companies are
more likely to engage in extensive disclosure to minimize their cost of capital compared to
unlisted companies. Thirdly, the presence of disclosure costs can also drive increased
disclosure by listed companies.
Empirical evidence generally upholds the proposition that domestic listing status influences
the disclosure practices of UK and German-listed companies in a favorable manner (Boateng
et al., 2022). These arguments support the hypothesis that listed companies in both countries
exhibit positive effects on disclosure practices.
Hypothesis 6(B) posited that there is an association between a UK company's auditor type
and the level of its disclosure practices. The analysis, conducted using linear regression,
revealed that Auditor_Type is not a significant predictor of Disclosure Practices. Therefore,
the results indicate that there is no significant association between a UK company's auditor
type and the extent of its disclosure practices.
54
Corporate managers prepare CAFSs, but auditors may influence disclosure policies, with
well-known firms potentially encouraging more information disclosure in client companies
(Chen, 2016). This influence is attributed to the substantial investment by large audit firms in
maintaining their reputation as providers of quality audits, in contrast to smaller firms.
Moreover, smaller audit firms might be more sensitive to client demands due to economic
dependency. Auditors also play a role in constraining opportunistic behavior by agents,
thereby reducing agency costs (Chen, 2016). Empirical evidence supports the positive
influence of large audit firms on corporate disclosure practices. Given this evidence, it is
reasonable to hypothesize a relationship between the type of auditor and the quality of
disclosure (Chen, 2016).
Turning to German companies, the relationship between Big 5/non-Big 5 firms and the
disclosure quality of their clients in the German market remains unclear due to the unique
nature of the German market for audit services. However, a plausible hypothesis is that
companies audited by internationally affiliated firms are more likely to provide more detailed
disclosure than those audited by indigenous auditors. This is because internationally affiliated
firms are associated with a worldwide brand name that guarantees a standard quality of
service and is more sensitive to quality and reputation issues (Broberg et al., 2010).
55
CHAPTER FIVE
CONCLUSIONS, RECOMMENDATION, AND IMPLICATION OF FINDINGS
5.1 Conclusions
Based on the analyses and findings presented for each hypothesis, we can draw critical
conclusions and link them to the hypotheses:
The association between the size of a firm and the extent of its disclosure practices varies
significantly between the UK and Germany. While the UK exhibits a positive correlation,
indicating that larger firms tend to have higher disclosure practices, Germany shows a
negative correlation, suggesting that larger firms might have lower disclosure practices.
These differences may be influenced by regulatory environments, cultural factors, or industry
norms in the two countries.
There is no significant association between a company's age and the level of its disclosure
practices in both the UK and Germany. This implies that the age of a company may not be a
significant factor in determining the extent of its disclosure practices in these countries.
A positive and significant association exists between a company's profitability and its level of
disclosure practices in both the UK and Germany. However, the association is stronger in
56
Germany. This suggests that companies with higher profitability are more likely to engage in
transparent disclosure practices, but the impact might be more pronounced in Germany.
There is no significant association between a company's liquidity and the extent of its
disclosure practices in both the UK and Germany. The findings do not support a clear
relationship between liquidity and corporate disclosure, aligning with mixed empirical
evidence from previous studies.
The industry classification of a company does not significantly contribute to explaining the
variance in disclosure practices. The extent of information disclosure in Corporate Annual
Financial Statements (CAFSs) does not show significant variation based on industry
classification in this study.
There is no significant difference in the mean levels of disclosure practices between UK Big5 and German Big-5 audited companies. The nationality of the audited company does not
lead to a substantial difference in disclosure practices.
There is no significant association between a UK company's auditor type and the level of its
disclosure practices. The type of auditor does not emerge as a significant predictor of
disclosure practices in the UK.
In summary, the study provides nuanced insights into the factors influencing corporate
disclosure practices in the UK and Germany. The results highlight the importance of
considering country-specific contexts and the interplay of various factors in understanding
disclosure behaviour. Additionally, the findings suggest that certain financial indicators, such
as profitability, might have more consistent impacts on disclosure practices across different
national settings.
5.2 Recommendations:
Cross-Country Comparative Studies: Future research should continue to explore crosscountry variations in corporate disclosure practices, considering factors such as regulatory
environments, cultural influences, and industry norms. This can contribute to a deeper
understanding of the dynamics shaping disclosure practices on a global scale.
Longitudinal Studies: Conducting longitudinal studies to track changes in disclosure practices
over time can provide valuable insights into evolving trends and the impact of changing
57
regulatory frameworks. This longitudinal perspective can enhance our understanding of the
factors influencing disclosure practices.
In-Depth Industry Analysis: Given the limited impact of industry classification on disclosure
practices in this study, further research can delve into specific industries to identify industryspecific drivers of disclosure. This could involve examining the unique challenges and
opportunities faced by different sectors.
Auditor Influence: Investigate the role of auditors in shaping disclosure practices further.
Understanding how auditor characteristics and behaviours influence the disclosure decisions
of client companies can provide practical insights for improving the quality and transparency
of financial reporting.
Policy Implications: Policy-makers can benefit from the findings related to the impact of
company size, profitability, and other financial indicators on disclosure practices. This
information can inform the design and refinement of disclosure regulations to better suit the
needs of companies in different contexts.
5.3 Contribution to Knowledge:
Nuanced Country-Specific Insights: The study provides valuable insights into the correlation
between firm characteristics and disclosure practices in the UK and Germany, highlighting
the various factors influencing corporate transparency.
Empirical Validation of Theories: The study validates theories like agency, signalling, and
political cost theory, enhancing their robustness in explaining disclosure behaviours through
empirical testing.
Identifying Varied Influences: The identification of varying influences on disclosure
practices, such as the differing impact of profitability in the UK and Germany, contributes to
a more refined understanding of the factors shaping financial disclosure.
5.4 Contribution to Academic and Business Societies:
58
The study's findings can be integrated into academic curricula to improve comprehension of
corporate disclosure practices, offering practical insights into financial reporting
complexities.
The study's findings can be utilised by business societies and professional bodies to create
training programs for finance professionals and auditors, advocating for evidence-based
policy changes and aligning disclosure regulations with practical realities.
Presenting the findings at academic conferences, industry forums, and business society events
can foster knowledge-sharing and stimulate discussions on improving transparency and
disclosure practices globally.
In conclusion, the recommendations and contributions outlined above aim to guide future
research endeavours, inform policymakers, and enrich educational and professional practices
in the realms of accounting, finance, and corporate governance.
5.5 Suggestions For Further Research
The chapter is divided into three sections: the study's main results, policy implications, and
UK and German accounting issues for lawmakers. Section two discusses the study's
shortcomings, while Section three recommends further research.
It is advised that industry-specific analysis be carried out in order to improve the study's
comprehensiveness. This will make it possible to comprehend how variables like the type of
industry affect the correlations that are shown more clearly. A more sophisticated view of the
general correlations will result from investigating the industry-specific issues that may
influence disclosure practices differently across different businesses.
59
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A.
APPPENDIX
A
MEASURING INSTRUMENT FOR CORPORATE DISCLOSURE
FOR THE UK
MARK ALLOCATION- SUMMARY
1. GENERAL DISCLOSURES
1.1 General Presentations
1.2 Accounting Policies
1.3 Changes in Accounting Policies
1.4 Fundamental Errors
1.5 Other items
1.6 Business Combinations During the Period
1.7 Acquisitions
1.8 Uniting of Interests
1.9 Consolidated Financial Statements
78
MARKS
1.1 Foreign Currency
2 BALANCE SHEET
2.1
2.2
2.3
2.4
2.5
2.6
Current Assets
Long-term Assets
Current Liabilities
Long-term Liabilities
Shareholders' Equity
Surplus and Reserves
3 INCOME STATEMENT
3.1 Revenue
3.2 Cost of Sales
3.3 Other Items
4 CASH FLOW STATEMENT
5 OTHER DISCLOSURES
5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8
5.9
5.1
5.11
5.12
5.13
Contigencies
Commitments
Government Assistance
Income Taxes
Interest Capitalised
Leases
Retirement Benefits
Related Party Transactions
Segmental Information
Subsequent Events
Discntinued Operations
Goodwill
Hyperinflationary Economics
6 ADDITIONAL DISCLOSURES REQUIRED BY
THE UK COMPANIES ACT 2013, IFRS 4, 8, 11, 12,
13, 15, 16 & 17
6.1
6.2
6.3
6.4
Signatures
Income Statement
Balance Statement
Group Financial Statements
79
APPENDIX B - UK
CORPORATE DEMOGRAPHIC DATA- Company 1
COMPANY NAME: British American Tobacco
RESEARCH CODE:
STRUCTURE RELATED VARIABLES
80
1 COMPANY SIZE:
i.
Total Sales: $34.6bn
ii.
Total Assets: $189.921bn
2 COMPANY AGE:
Number of Years Since Date of Incorporation:
Year of Incorporation: 1902
120 Years
PERFORMANCE RELATED VARIABLES:
1 PROFITABILITY:
i
Profit Margin: 82.6%
ii
Rate of Return: 40.9%
2 LIQUIDITY:
Current Ratios: 1.97
MARKET RELATED VARIABLES
1 INDUSTRY TYPE
i
Manufacturing:….
ii
Conglomerate:…...
2 LISTING STATUS
i
Listed:
3 AUDITOR TYPE:
I
Big 5:
KPMG LLP
81
ii
Non-Big 5:…....
APPENDIX B Continued- UK
CORPORATE DEMOGRAPHIC DATA- Company 2
COMPANY NAME: Halfords Group Plc (HFD)
RESEARCH CODE:….......
STRUCTURE RELATED VARIABLES
82
1 COMPANY SIZE:
i.
Total Sales: $1,871m.
ii.
Total Assets: $1,278.10
2 COMPANY AGE:
Number of Years Since Date of Incorporation:
Incorporated in 1892
130 years
PERFORMANCE RELATED VARIABLES:
1 PROFITABILITY:
i
Profit Margin: 6.98%
ii
Rate of Return: 43%
2 LIQUIDITY:
Current Ratios: 0.92
MARKET RELATED VARIABLES
1 INDUSTRY TYPE
i
Manufacturing:
ii
Conglomerate:
iii.
Others
2 LISTING STATUS
i
Listed:…..
3 AUDITOR TYPE:
83
I
Big 5:….........
ii
Non-Big 5:
BDO LLP
APPENDIX B Continued- UK
CORPORATE DEMOGRAPHIC DATA- Company 3
COMPANY NAME: International Workplace Group PLC (IWG Plc)
RESEARCH CODE:…..
STRUCTURE RELATED VARIABLES
1 COMPANY SIZE:
84
i.
Total Sales: £2,751m
ii.
Total Assets: £1,152m
2 COMPANY AGE:
Number of Years Since Date of Incorporation: 33 Years
Incorporated in 1989
PERFORMANCE RELATED VARIABLES:
1 PROFITABILITY:
i
Profit Margin: (3.81%)
ii
Rate of Return… None
2 LIQUIDITY:
Current Ratios: 3.0
MARKET RELATED VARIABLES
1 INDUSTRY TYPE
i
Manufacturing:
ii
Conglomerate:.
iii.
Others
.
2 LISTING STATUS
i
Listed:
3 AUDITOR TYPE:
I
Big 5:…....
KPMG
85
ii
Non-Big 5:….
APPENDIX B Continued-UK
CORPORATE DEMOGRAPHIC DATA- Company 4
COMPANY NAME: GREGGS PLC
RESEARCH CODE:
STRUCTURE RELATED VARIABLES
86
1 COMPANY SIZE:
i.
Total Sales: £1,512.80M
ii.
Total Assets: £974.40M
2 COMPANY AGE:
Number of Years Since Date of Incorporation: 71 Years
Founded in 1951
PERFORMANCE RELATED VARIABLES:
1 PROFITABILITY:
i
Profit Margin: 9.8%
ii
Rate of Return: None
2 LIQUIDITY:
Current Ratios: 1.16
MARKET RELATED VARIABLES
1 INDUSTRY TYPE
i
Manufacturing:
ii
Conglomerate:
iii.
Others:
2 LISTING STATUS
i
Listed:
3 AUDITOR TYPE:
I
Big 5:….
ii
Non-Big 5:
RSM UK Audit LLP
87
APPPENDIX
A
MEASURING INSTRUMENT FOR
CORPORATE DISCLOSURE
FOR
GERMANY
MARK ALLOCATION- SUMMARY
1. GENERAL DISCLOSURES
1.1 General Presentations
1.2 Accounting Policies
1.3 Changes in Accounting Policies
1.4 Fundamental Errors
1.5 Other items
1.6 Business Combinations During the Period
1.7 Acquisitions
88
MARKS
1.8 Uniting of Interests
1.9 Consolidated Financial Statements
1.1 Foreign Currency
2 BALANCE SHEET
2.1
2.2
2.3
2.4
2.5
2.6
Current Assets
Long-term Assets
Current Liabilities
Long-term Liabilities
Shareholders' Equity
Surplus and Reserves
INCOME
3 STATEMENT
3.1 Revenue
3.2 Cost of Sales
3.3 Other Items
4 CASH FLOW STATEMENT
OTHER
5 DISCLOSURES
5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8
5.9
5.1
Contingencies
Commitments
Government Assistance
Income Taxes
Interest Capitalised
Leases
Retirement Benefits
Related Party Transactions
Segmental Information
Subsequent Events
Discontinued
5.11 Operations
5.12 Goodwill
5.13 Hyperinflationary Economics
6 ADDITIONAL DISCLOSURES REQUIRED BY
THE GERMAN COMPANIES ACT 2013, IFRS 4, 8,
11, 12,
13, 15, 16 & 17
89
6.1
6.2
6.3
6.4
Signatures
Income Statement
Balance Statement
Group Financial Statements
APPENDIX B German
Companies
CORPORATE DEMOGRAPHIC DATACompany 1
COMPANY NAME: PUMA SE (PUM)
RESEARCH CODE:
STRUCTURE RELATED VARIABLES
90
1 COMPANY SIZE:
i.
Total Sales: Euro 8,465.10M
ii.
Total Assets: Euro 6,772.70M
2 COMPANY AGE:
Number of Years Since Date of Incorporation: 74 Years
Founded 1948
PERFORMANCE RELATED
VARIABLES:
1 PROFITABILITY:
i
Profit Margin: 46%
ii
Rate of Return:
2 LIQUIDITY:
Current Ratios: 1.48
MARKET RELATED VARIABLES
1 INDUSTRY TYPE
i
Manufacturing:
ii
Conglomerate:
iii.
Others
2 LISTING STATUS
i
Listed:
3 AUDITOR TYPE:
I
Big 5:
91
KPMG AG
ii
Non-Big 5:
APPENDIX B Continued Germany
CORPORATE DEMOGRAPHIC DATA: Company 2
COMPANY NAME: KRONES AG (KRN)
RESEARCH CODE:
STRUCTURE RELATED VARIABLES
92
1 COMPANY SIZE:
i.
Total Sales: Euro 4,209M
ii.
Total Assets: Euro 4,171M
2 COMPANY AGE:
Number of Years Since Date of Incorporation: 71 years
Founded in 1951
PERFORMANCE RELATED VARIABLES:
1 PROFITABILITY:
i
Profit Margin: 8.86
ii
Rate of Return: 9.49%
2 LIQUIDITY:
Current Ratios: 1.37
MARKET RELATED VARIABLES
1 INDUSTRY TYPE
i
Manufacturing:….
ii
Conglomerate:…
2 LISTING STATUS
i
Listed:…
3 AUDITOR TYPE:
I
Big 5:….
KPMG
93
ii
Non-Big 5:
APPENDIX B ContinuedGermany
CORPORATE DEMOGRAPHIC DATA- Company 3
COMPANY NAME: ADIDAS AG NO.O.N
RESEARCH CODE:
94
STRUCTURE RELATED VARIABLES
1 COMPANY SIZE:
i.
Total Sales: Euro 22,511M
ii.
Total Assets: Euro 20,296M
2 COMPANY AGE:
Number of Years Since Date of Incorporation: 73 Years
Founded in 1949
PERFORMANCE RELATED VARIABLES:
1 PROFITABILITY:
i
Profit Margin: 47%
ii
Rate of Return: (0.97)
2 LIQUIDITY:
Current Ratios: 1.27
MARKET RELATED VARIABLES
1 INDUSTRY TYPE
i
Manufacturing:
ii
Conglomerate:
iii.
Others:
2 LISTING STATUS
i
Listed:
3 AUDITOR TYPE:
I
95
Big 5:….
KPMG AG
Wirtschaftsprüfungsgesellschaft, Berlin
ii
Non-Big 5:…...
APPENDIX B Continued.
Germany
CORPORATE DEMOGRAPHIC DATA- Company 4
COMPANY NAME: VOLKSWAGEN AG. WEFSBURG
RESEARCH CODE:
96
STRUCTURE RELATED VARIABLES
1 COMPANY SIZE:
i.
Total Sales: euro 279,232M
ii.
Total Assets: euro 564,772M
2 COMPANY AGE:
Number of Years Since Date of Incorporation: 85 Years
Founded in 1937
PERFORMANCE RELATED VARIABLES:
1 PROFITABILITY:
i
Profit Margin: 7.89%
ii
Rate of Return: 0.43
2 LIQUIDITY:
Current Ratios: 1.23
MARKET RELATED VARIABLES
1 INDUSTRY TYPE
i
Manufacturing:
ii
Conglomerate:
iii.
Others:
2 LISTING STATUS
i
Listed:
3 AUDITOR TYPE:
97
I
Big 5: .
Ernst & Young GmbH
Wirtschaftsprüfungsgesellschaft (EY).
ii
Non-Big 5:….
APPENDIX B ContinuedGermany
CORPORATE DEMOGRAPHIC DATA. Company 5
COMPANY NAME: PHOENIX PHARMA SE
RESEARCH CODE:…...
98
STRUCTURE RELATED VARIABLES
1 COMPANY SIZE:
i.
Total Sales: euro 36,316M
ii.
Total Assets: euro 13,615M
2 COMPANY AGE:
Number of Years Since Date of Incorporation: 28 Years
Incorporated in 1994
PERFORMANCE RELATED VARIABLES:
1 PROFITABILITY:
i
Profit Margin: 10.30%
ii
Rate of Return: 0.098
2 LIQUIDITY:
Current Ratios: 1.15
MARKET RELATED VARIABLES
1 INDUSTRY TYPE
i
Manufacturing:
ii
Conglomerate:
iii.
Others:
2 LISTING STATUS
i
Listed:
3 AUDITOR TYPE:
99
Big 5:
I
Ernst & Young GmbH, Stuttgart, Germany
ii
Non-Big 5:.
source: companies websites, financial analyst reports.
C. Student Project/Dissertation Record
100
101
102
103
104
D. Completed Ethical Approval Form
EC5/2020
Glasgow Caledonian University
Your Details
Name of Student: Abidemi Maria Akinrinde
Department: Research
Programme: Masters of Research- MRes
Academic Session: 2022/2023
Supervisor: Alison Lehane BACC (Hons), MSc, SFHEA, FCCA
The Project
Project Title: EMPIRICAL INVESTIGATION OF THE FINANCIAL DISCLOSURE
PRACTICES OF UK AND GERMANY COMPANIES
Main Aim of Study: To provide empirical evidence of the association between
'firm-specific characteristics and corporate financial disclosures among the UK
and German companies listed on the FTSE and DAX index 2022 respectively,
examining the mandatory requirement by 'the International Financial
Reporting Standards (IFRS)
105
G
Contact with Others
l Will your project bring you into direct or indirect (e.g. via internet surveys)
a
contact with other people?
s
g Yes O
o Ifyou have clicked "No" sign the section below and submit this page only
w to your supervisor for countersigning, otherwise complete the remainder of
the form.
S
Abidemi Maria Akinrinde
c
h
Your
o
Signature
o
Signature•
Date submitted:
l
f
Ethical Approval
o
(To be completed by supervisor)
r
B
usiness and Society
GCU
Undergraduaterraught Postgraduate Research ProjectGlasgow Caledonian
Ethical Consideration
University
I have checked the above for accuracy and I am satisfied that the information
provided is an accurate reflection of the intended study.
There are no ethical issues causing me concern:
Si nature:
Date: 03 Au
106
2023