Explanations, economic consequences and perceptions of internet financial reporting by Chinese listed companies - an empirical study of Chinese stock exchanges
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The aim of this study is to examine Internet financial reporting (IFR) in an emerging capital market. It has three main objectives: first, to examine the provision of financial information on the websites of Chinese listed companies and identify the factors determining the financial information on such websites; second, to examine the economic consequences of IFR on a company’s value in China; and, third, to investigate the perceptions of Chinese participants regarding IFR. Fifteen research questions were designed and twelve hypotheses formulated to accomplish the above aims and objectives. This study applies an empirical approach to investigating IFR practices of Chinese listed companies. The study combines quantitative and qualitative research methods, with an emphasis on quantitative research methods. To answer the research questions and test the twelve hypotheses, data collection comprised an IFR index review and semi-structured interviews. Descriptive analyses showed relative improvement in the disclosures of financial information, corporate governance information, social responsibility, timeliness of disclosure, presentation and usability on the sampled websites. The results of a univariate analysis and a multivariate analysis indicated that company size, industry type, big-4 auditor type, state share ownership, foreign share ownership, CEO duality, and the proportion of independent directors are significant explanatory variables associated with disclosures on corporate websites. Conversely, leverage, profitability, legal person ownership, and board size have no predictive value for determining Internet financial reporting practices among listed companies. Sensitivity analyses were performed and the results were consistent. This finding meets the expectations of agency theory, signalling theory, institutional theory, the cost and benefit approach, and stewardship theory. The finding from the interviews with company participants suggested that factors determining whether companies adopt IFR include: communication tools with investors and other stakeholders, provision of timely information to investors, the extent to which having a website improves a company’s image and reputation, management decisions and likelihood of winning awards. Factors influencing companies not to disclose financial information on their websites included the presence of financial information in other media. Additionally, some companies had no website because there is no legal requirement to do so and so a website is not a management priority. Participants from companies also provided some ideas for IFR improvement from China’s perspective. Univariate and multivariate analyses were performed to discover whether IFR and its components affect a firm’s value. Models for both 2010 and 2011 revealed that IFR total score has a significant negative impact on firm value. Additional regression tests were therefore performed to examine firm value and IFR components, IFR content, timeliness, corporate governance, social factors, presentation and usability all have a negative effect on firm value. A significant negative association between IFR information and firm value suggests proprietary costs are particularly relevant for IFR disclosure. This study contributes to the literature by providing empirical and theoretical evidence about IFR practices of China listed companies. Results from statistical analysis, together with perceptions of participants, as expressed in interviews, provided a better understanding of IFR practices. In light of the research results, regulators and policy makers are expected to benefit from a clearer understanding of the needs of the market, thereby creating a new challenge for regulators when developing future schemes regarding the financial reporting regulatory framework, in order to achieve a higher level of compliance and transparency. These empirical results provide a significant benefit to professional bodies; in particular, furthering understanding of IFR practices and their characteristics, helping to standardise IFR content, to define codes of conduct, and to dictate rules and recommendations for the future. The findings will benefit companies seeking to learn about how to exhibit best practice. The results will be interesting to academics and future researchers in the area of emerging markets, as the Chinese stock market is developing rapidly and offers a unique institutional environment. This research also provides useful insights into the relationship between agency issues, the cost and benefit approach, unique institutional frameworks and IFR.