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A.M. bAIMuKhAMeDOVA. KIMEP University, PhD student, MBA, Lecturer CORPORAte DIsCLOsuRe In the FInAnCIAL RePORts OF An eMeRGInG COuntRY: the CAse OF KAzAKhstAn The results of research devoted to the analysis of interrelation between an index of information disclosure and cost of equity of the Kazakhstan companies are presented in article. On the basis of the analysis of the existing empirical researches the index of disclosure of information for 37 Kazakhstan companies was constructed and the regression analysis of influence of an index of disclosure of information on the cost of equity of the company is carried out. The results received by the author show that the index of information disclosure on this selection has negative impact on the cost of equity of the company. The level of disclosure in companies of Kazakhstan was revealed due to the content and analysis of annual reports. Today the level of corporate information disclosure is low, the majority of them show that companies get only the best results and nobody shows their flaws. Results indicate that firms are statistically significant and value of a different market cost of the capital is important in the level of information disclosures. The present research is the first to reveal the connection between discosure and cost of capital for firms which are in bad institutional regimes. The research contributes to already existing researches on defining the theoretical and methodical approaches. Key words: disclosure policy, cost of equity capital, regression analysis. This study explores the extent and levels of corporate disclosures in the annual reports of the listed companies on KASE in Kazakhstan, a growing emerging country. The disclosure of financial information in annual reports is a key area of accounting research and, more specifically, corporate disclosure has received a great attention to the academicians and several research is done both in developed [1] and developing countries, however, a very few attention is done in Central Asia in general and Kazakhstan in particular. The annual report is a significant element in the overall disclosure process, because it is the most widely disseminated source of information on publicly held corporations. Disclosure refers to providing information which enables stakeholders to evaluate future performance of a company. Disclosing information reduces information asymmetry between firms and stakeholders. It plays a role in closing the information gap between the two parties, thus permitting stakeholders to make healthier decisions about companies. The available literature has suggested many ways in which a firm or its management can benefit from enhanced disclosure. Moreover, while information disclosure is socially desirable, the tradeoff between its benefits and costs may lead to partial or no disclosure, and one thereupon should decide whether the disclosure should be voluntary or mandatory. In addition, the economic and accounting literature has asserted that, in the view of informational asymmetry, (costless) disclose of private information brings general gains in economic efficiency. There are several motivations for the present study. Although there is a growing body of research on disclosure practices of firms, many of the studies have been conducted in developed countries. Aljifri and Hussainey (2007) point out the scarcity of studies that have investigated disclosure of corporate information in developing countries, this observation also holds true for Kazakhstan which is an important developing country in CIS region with its rapidly growing economy. In addition, the subject has not been studied as much as other areas of information disclosure, such as social, environmental, and intellectual capital. Furthermore, sufficient knowledge is lacking with respect to the factors that influence disclosure. The firm’s decision to voluntarily disclose information depends on its conjectures about the beliefs held by competitors and investors. The study of Milgrom and Grossman concluded that if the firm can make credible disclosures about its value to uninformed investors, in equilibrium the firm will disclose all of its information regardless of how good or bad are the news. Many recent studies have hypothesized that firms’ voluntary disclosure choices are aimed at controlling the interest conflicts among shareholders, debt holders, and management [2]. It is meant that the extent of these 160 interest conflicts, hence the incentives behind voluntary disclosure choices vary with certain firm characteristics. There is an important strand of the financial accounting literature that investigates the relation between disclosure and cost of equity capital. The basic idea is that higher levels of disclosure contribute to a reduction in information asymmetry between managers and investors and, consequently, cause a reduction in the idiosyncratic component of cost of equity capital. However, results of these investigations have not been conclusive. Some authors argue that the absence of statistical and economically significant associations between disclosure and cost of capital can be the result of measurement problems because both variables are not directly observed and proxies need to be used. Specifically, several studies justify that higher quality financial disclosures are positively associated with general market liquidity, institutional ownership, analyst forecast accuracy and analyst following, and are negatively associated with the ex ante cost of equity capital and agency costs [3]. Other benefit from improving disclosure is that providing better information firms try to reduce potential investors’ estimation risk regarding the parameters of a security’s future return or payoff distribution. It is assumed that investors attribute more systematic risk to an asset with low information than to an asset with high information. Hypothesis Development. Size Size is identified as a significant explanatory variable in explaining variation in the level of voluntary disclosure in previous studies. In literature, a number of theoretical explanations for expecting a positive relationship between company size and level of voluntary disclosure were provided. Agency theory suggested that agency costs are associated with the separation of management from ownership, which is likely to be greater in larger companies. A number of reasons have been advanced in the literature in an attempt to justify this relationship on a priori grounds. Ahmed and Nicholls argued that it is more likely that large firms will have the resources and expertise necessary for the production and publication of more sophisticated financial statements and, therefore, exhibit more disclosure compliance and greater levels of disclosure. Lang and Lundholm and McKinnon and Dalimunthe pointed out that large firms tend to have more analyst followings than small firms and therefore may be subjected to greater demand for information. These lines of reasoning provide strong grounds for predicting that larger companies are more likely to disclose voluntary information than smaller companies. Thus, it is hypothesized that: Hypothesis 1: There is a positive relationship between firm size (as measured by market capitalization) and the level of information disclosure. Leverage It has been proposed that the capital structure of a firm is related to agency cost. Agency costs (e. g., incurred by monitoring costs) are higher in highly leveraged firms (i. e., more debt in the capital structures) because a large proportion of debt allows greater potential wealth transfers from debtholders to shareholders. Thus, agency theory predicts that corporate disclosure is expected to increase with leverage. Also, highly geared firms have a wider obligation to satisfy the needs of their long-term creditors for information compared to lower geared firms. Information disclosure may be used to avoid agency costs and to reduce information asymmetries. Therefore, it is argued that leveraged firms have to disclose more information to satisfy information needs of the creditors. Hence, the following hypothesis 2 was formulated: Hypothesis 2: There is a positive relationship between leverage (as measured by the ratio of total liabilities to total assets) and the level of information disclosure. Cost of equity capital Disclosure also creates shareholder value by allowing a firm to reduce the cost of its capital. The majority of the studies show this positive impact [4]. By revealing private information firms try to solve the reluctance of potential investors for holding shares in illiquid markets, and thus, reduce the cost of capital. In this line, Diamond and Verrecchia show that companies reduce the cost of equity financing by improving disclosures, which implies higher liquidity of firms securities and increase the demand from large investors. Other benefit from improving disclosure is that providing better information firms try to reduce potential investors’ estimation risk regarding the parameters of a security’s future return or payoff distribution. It is assumed that investors attribute more systematic risk to an asset with low information than to an asset with high information. 161 Thus, whether disclosure is useful in reducing the cost of equity capital becomes an empirical issue, which can be tested by using the following hypothesis: Hypothesis 3: There is a negative association between disclosure and the company’s cost of equity capital. Sample Construction and Data Description The main objective of this study is to investigate whether firms that publish greater disclosure benefit in terms of a lower cost of equity capital. Disclosure of financial information is measured using a disclosure index developed from a content analysis of annual reports. The approach implemented in this study involves the use of a dichotomous procedure, where a particular information item is awarded one (for yes) and zero (for no) if it is disclosed or not disclosed, respectively. The level of disclosure for each firm is then calculated as the total number of items scored (total count of all the ones and zeros). In using the disclosure index approach, it is first necessary to develop a checklist of items of information that firms disclose or may disclose [5]. In this research, a checklist comprising 79 financial disclosure items was developed. The present research attempts to measure directly the cost of equity capital through Capital Asset Pricing Model. The analysis is based on companies’ annual reports based on a sample extracted from the KASE. The selection procedures yield 37 Kazakhstan companies. The focus on KASE firms will ensure that the sample includes some multiple listed companies and that all companies are subject to approximately equivalent levels of disclosure pressures arising from various regulatory and capital market regimes. Sample selection Initially we considered all the companies for which we have disclosure data for years 2006 and 2012. Then we have to exclude all companies for which some of the data needed in order to calculate the cost of equity capital measure were missing. Then we eliminated companies with incomplete or missing financial data. We ended with a final sample of 37 Kazakhstan firms that are listed on the stock exchanges. In order to be included in the study, a firm must have a full set of financial information covering the entire fiscal year. Disclosure data Several items are graded in order to produce a score that measures the quality of the information provided in the annual report. Among them we find: historical data, analytical account of results, composition of shareholding, shares percentage held by the board of directors, order and clarity of the report, design, number of branches, directors’ remuneration, returns on shares, review of operations, on-line information. Each question is evaluated on a binary basis to ensure objectivity, and rankings for the three broad categories and an overall ranking is developed from the answers to individual questions. These categories broadly correspond to the analytical criteria employed in Standard and Poor’s corporate governance scoring process. They address disclosure patterns along a broad spectrum of factors that affect corporate governance practices. This presentation format provides analysts and investors the flexibility to focus on specific investment analysis needs. One point is awarded for each attribute that is found to be present. Using the content analysis method, the extent of compliance of listed financial and non-financial Kazakhstan companies with the required disclosures is measured by using disclosure index. Disclosure indices are extensive lists of selected items, which may be disclosed in company report. Financial data, used to construct control variables as well as measures of return, are taken from Bloomberg and S&P Capital IQ and analytical reports, published by Halyk Finance for Kazakhstan firms. Corporate disclosure variables (e.g., board composition and ownership concentration) are constructed using manually collected data gathered from annual reports and government sources. Research Design and Methodology The Model The statistical analyses performed in the present research, includes the use of multiple linear regression models to examine the relationship between annual report disclosure level and the influencing factors. 162 We test our hypothesis by regressing expected cost of equity capital (COE) on market beta (BETA), the natural log of market value (LMVAL), financial leverage (LEV), book to market value of equity (BM) and total disclosure score (DISCL). That is, COE = α + β 1 BETA + β 2 LMVAL + β 2 LEV + β 3 BM + β 4 DISCL + ε (1) In the present research, there are four independent variables indicating the financial characteristics of the firm whereas there are three independent variables indicating corporate disclosure characteristics of the firm. These include firm size, leverage and beta. These factors are the most commonly used independent variables in the accounting disclosure literature [6] and will be used here for testing with disclosure. Control Variables The literature has revealed several risk factors that affect the cost of equity. These factors must be controlled for so that a correct inference can be obtained. In this study, we control for cross-firm differences in beta, firm size, book-to-market equity and leverage. The inclusion of firm size and book-to-market equity as our control variables is motivated by Fama and French. Fama and French and Baginski and Wahlen find a negative relation between Size and cost of capital. The log of the common equity of the firm scaled by the market value of equity, BM, is included because Fama and French, Gebhardt et al, and Baginski and Wahlen find a positive relation between BM and the cost of equity capital. LEV, measured as long-term debt plus any debt in current liabilities divided by total assets, is included to proxy for the amount of debt in the firm’s capital structure. Botosan and Plumlee find LEV to be positively associated with cost of equity capital. However, as our estimated cost of equity is derived from BM, it is debatable whether BM should be included as a control variable. BETA is included in the models to control for systematic risk. BETA is estimated by the market model using a minimum of thirty monthly return observations over the five-year period with a value weighted S&P 500 market index return. Financial leverage (LEV) defined as the ratio of total debt to market value of outstanding equity is used as proxy for a firm’s riskiness. The higher a company’s relative debt position, the more likely it will face financial distress from defaulting on interest and principal payments. BETA and LEV are included in the analysis to account for a company’s systematic and financial risk. LMVAL is included to account for the richness of a firm’s information environment as well as the significant association between cost of capital and market value. Empirical Results. The firm characteristics used to describe the sample are market capitalization (firm size), beta (market risk), leverage (financial risk), and book-to-market values. The data for these characteristics are drawn from the analytical reports and the S&P. The statistics are presented in Table 1. Table 1 – Descriptive Statistics Variable Mean Median Std. Dev. MVAL 210417 1621,5 981885,12 BM 0,6773 0,9363 6,7084 LEV 0,1878 0,1415 0,1851 BETA 0,9592 0,9400 0,3778 COE 13,5318 13,6000 0,7100 DI 33,0695 32,0000 6,1072 Table 1 shows that the average firm size, measured in terms of the market capitalization, is about $210 million. The median market capitalization is smaller than the mean at $1,62 million. This suggests that the sample of firms also includes medium-sized firms. The table also reveals that BETA, 163 a measure of risk for the sample of firms in the study, is 0,9592. The median of 0,94 is slightly lower than the mean suggesting that the sample includes some high and low risk firms. The mean leverage of the firms is about 18,78% consistent with the notion that Kazakhstan firms generally do not rely heavily on debt financing. The median is 14,15%. The fact that the median is lower than the mean indicates that the sample includes low and medium-geared firms. Overall, firms in the sample are lowly geared consistent with the notion that Kazakhstan firms rely more on equity capital than on debt. In terms of the book-to-market ratio, the mean is 0,6773 and the median of 0,9363. Relationship between transparency and cost of equity. We perform a cross-sectional time series analysis of the relationship between information disclosed in company quarterly reports and cost of equity and control variables. At the first stage of data analysis cost of equity is dependent, company attributes including transparency score are independent variables. The summary of data analysis regarding relationship between cost of equity and disclosure score is as follows. Table 2 – Regression Analysis, Cost of Equity is Dependent Variable Dependent Variable: COE Method: Least Squares Date: 07/02/14 Time: 15:12 Sample: 2006:1 2012:4 Included observations: 28 Variable Coefficient Std. Error t-Statistic Prob. C 40,02124 10,75945 3,719636 0,0012 LNMC –4,949132 0,582987 –8,489260 0,0000 BTOMV –2,142998 10,41864 –0,205689 0,8389 BETA 21,31420 3,523528 6,049109 0,0000 DI –0,630791 0,191992 –3,285501 0,0034 LEV 18,75409 2,593060 7,232414 0,0000 R-squared 0,852900 Mean dependent var 5,537372 Adjusted R-squared 0,819468 S.D. dependent var 2,078033 S.E. of regression 0,882937 Akaike info criterion 2,776284 Sum squared resid 17,15072 Schwarz criterion 3,061756 Log likelihood –32,86797 F-statistic 25,51157 Durbin-Watson stat 2,262634 Prob(F-statistic) 0,000000 Table 2 shows summary of findings regarding relationship between cost of equity and company attributes, which is proxied by BM (Book to Market Value), LMVAL (the natural log of market value), BETA (market beta), LEV (financial leverage) and DISCL (total disclosure score) between 2006 and 2012 for the 37 sample companies from the KASE. According to the results of the research, independent variables are statically significant at the 1% level except BM variable. The results of the OLS regression show that F-ratio is 25,5 (p value less than 0,05). Hence, the model is statistically significant, with adjusted R-square equal to 81,94%. Regression coefficient for firm size is negative and significant at the one percent level. The conclusion is that, large firms tend to have lower cost of equity. Looking next at the variables, book to market value of equity (BM) is not statistically significant. The coefficient for measuring company’s systematic risk (BETA) is positive and statistically significant. On the other hand, the coefficient for transparency and disclosure is negative and statistically significant that justifies the hypothesis about inverse relationship between cost of equity and disclosure. In other words, the higher level of disclosure decreases the cost of equity of the firm. The coefficient for financial risk (LEV) of the firm is positive and statistically significant. 164 Table 3 – Regression Analysis, Disclosure Score is Dependent Variable Dependent Variable: DI Method: Least Squares Date: 07/02/14 Time: 15:24 Sample: 2006:1 2012:4 Included observations: 28 Variable Coefficient Std, Error t–Statistic Prob, C 48,05709 7,142556 6,728277 0,0000 COE –0,521815 0,158824 –3,285501 0,0034 LNMC –3,370215 0,828180 –4,069421 0,0005 BTOMV –1,161652 9,481905 –0,122513 0,9036 BETA 9,109799 4,855974 1,875998 0,0740 LEV 10,29396 3,737759 2,754046 0,0116 R-squared 0,536525 Mean dependent var 28,86959 Adjusted R–squared 0,431190 S,D, dependent var 1,064784 S,E, of regression 0,803055 Akaike info criterion 2,586622 Sum squared resid 14,18774 Schwarz criterion 2,872094 Loglikelihood –30,21271 F–statistic 5,093503 Durbin–Watson stat 2,445554 Prob(F–statistic) 0,002985 Table 3 shows summary of findings regarding relationship between disclosure score and company attributes, which is proxied by MB (Market Value to Book Value), LMVAL (the natural log of market value), BETA (market beta), LEV (financial leverage) and COE (cost of equity) between 2006 and 2012 for the 37 sample companies from the KASE. The results show that independent variables are statistically significant at 1% and 10% level except BM variable. The explanatory power of the model (adjusted R-square value) equals to 43,11%. The regression coefficient for the firm size is negative and statistically significant that does not coincide to the previous study results that the degree of corporate disclosure and transparency is an increasing function of firm size. Although most previous studies support a positive relationship, there is an unclear theoretical basis for such a relationship. The direction of association may be either positive or negative. The coefficient for BETA is positive and statistically significant, showing that the degree of corporate disclosure and transparency are positively related to a measure of systematic risk of the firm. The coefficient for COE is negative and statistically significant, thus supporting the research hypothesis 1. The coefficient for measure of debt level (LEV) is positive and significant, showing that firm with a greater amount of debt tend to have high degrees of corporate disclosure and transparency. The results of the correlations between the financial disclosure and firm characteristics are given in Table 4 Pearson correlation (s. 165). A correlation is a measure of the strength and direction of the relationship and ranges between –1 and +1. The negative and positive signs reflect the direction of the relation whilst the strength of the relation is reflected in the absolute value, called the correlation coefficient. A higher correlation coefficient indicates a stronger relationship. Examining the Pearson correlation coefficients (shown above the diagonal), we find that DI is negatively correlated with lnMC, Correlation coefficient = –0,522. We find that lnMC is highly positively correlated with Lev (0,840). In contrast, the correlation between DI and BtoMV is slightly lower with the coefficient of 0,409. A strong negative relationship exists between BtoMV and Lev with the coefficient of –0,910. A negative relationship exists between Lev and Beta, the correlation coefficient is equal to –0,485. 165 Table 4 – Pearson Correlation Contribution and significance of the research The significance of corporate disclosure practices has been of growing interest both in theory and in practice. Today informational transparency of the company is an integral part of good corporate governance that reduces the information asymmetry between agents and principals. Therefore, it is interesting to measure the quality and quantity of transparency in Kazakhstan companies through voluntary and mandatory disclosure of information on the corporate website and corporate reports. The relevance of this approach is evidenced by the presence of a large number of empirical studies on the issues of disclosure and transparency effects on the cost of equity capital. Most research on disclosure quality and cost of equity capital relations has been conducted in developed countries whereas empirical studies from Kazakhstan are very scarce. This research is the first to perform a comprehensive investigation of the relation between disclosure and cost of capital for firms immersed in poor governance and institutional regimes. The study contributes to the existing research by justifying the choice of theoretical and methodological approaches, construction of the disclosure index and the selection of factors for the models based on the specifics of Kazakhstan. Study of the relationship between corporate information disclosure and cost of equity, on the one hand, is a very relevant issue and there has been significant interest in the foreign researchers that is confirmed by the existence of a sufficiently large number of empirical studies in this area. We should be cautious regarding the quality of information disclosed by the companies because the information provided in financial reports may not be that quality like it seems so. For this reason, it is the job of auditors to detect the mistakes, carefully check the quality of information disclosure and make sure that it is reliable. Small firms provide less information than large ones, which supply more information about their independence standards, audit committees, their management supervision systems and whistle-blowing procedures. However, compared to small firms, large ones do not appear to give superior information about their environment. These results obviously raise questions that lie at the heart of most financial scandals as, in the end, firms’ size matters less than respecting good governance, the latter being probably the main criterion to improve financial stability. Much work should be done to improve the quality of financial information. In order to make financial evaluations reliable, valid and comparable, the uniform internationally accepted standards must be utilized. Although disclosure requirements have increased over the years, prescriptive disclosure has not eliminated the differences in the quality and extent of disclosure offered by companies; significant variation across companies is still observed. жүктеу/скачать 4,12 Mb. Достарыңызбен бөлісу:
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