Management and Administrative Sciences Review
ISSN: 2308-1368
Volume: 2, Issue: 2, Pages: 181-195
© 2013 Academy of Business & Scientific Research

 Research Paper
Determinants of Voluntary Disclosure in Annual Report: A Case
Study of Pakistan
Najm-Ul-Sehar1, Bilal2*, and Sumaira Tufail3
1, 2, & 3. Hailey College of Commerce, University of the Punjab Lahore, Pakistan.

This study investigates the factors affecting voluntary disclosures in the annual reports of
listed companies in Karachi stock exchange (KSE) of Pakistan. The degree of voluntary
disclosure is calculated by an index which is based on financial, non-financial and
strategic information. For exploring determinants of voluntary information latest data of
372 manufacturing companies of Pakistan in 2012 is collected. Most recommended cross
sectional data analysis techniques multiple regression analysis was used in this study. In
order to obtained robust results of regression analysis, diagnostic tests were applied.
These tests check the assumptions of multi-collinearty and heteroskdasticity in regression
analysis. The finding of this study shows that firm characteristics; profitability, firm size,
age and auditor size have positive and significant relationship with voluntary disclosure
while leverage has negative and significant relationship with voluntary disclosure.
According to author’s knowledge, this study is conducted first time in Pakistan to explore
the determinants of voluntary disclosure. This study can be very helpful for the
shareholders, financial management and creditors in making decisions about giving
voluntary disclosure in annual reports as it provides adequate information for decision
making.
Keywords: voluntary disclosure; Pakistan; annual reports; firm characteristics;
manufacturing firms;
INTRODUCTION
Increasingly, researchers are taking interest in

voluntary disclose of financial, non-financial and
strategic information in annual reports of a
company. Several studies have been conducted in
this respect in developing (Ferguson, Lam, & Lee,
2002; Mohammed Hossain, 2008; Mohammed
Hossain & Reaz, 2007) as well as in advance
countries (Bradbury, 1992; Mahmud Hossain,
Perera, & Rahman, 2007; Raffournier, 1995).
However, very little work has been done on
voluntary disclosure of firm’s in Asian countries

(Chau & Gray, 2002; Eng & Mak, 2003; Haniffa &
Cooke, 2002; Ho & Shun Wong, 2001; Ibrahim &
Haron, 2000). Voluntary disclosure in annual
reports depicts free choices for firm management
to provide information about its financial, nonfinancial and strategic operations, to satisfy the
investors to regarding investment decisions. The
published annual report is the most important
medium for a listed company to disclose
information voluntarily because it is widely
circulated and attract the more investors to take

*Corresponding author: Bilal,
Hailey College of Commerce, University of the Punjab,
Lahore, Pakistan
E-Mail:

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Voluntary Disclosure in Annual Report

investment decisions. Annual report is less rigid in
format and provide adequate information to
reader to approach the management's reporting
philosophy (Stanga, 1976). There are various
objectives due to which mostly firms are interested
in the voluntary disclosure of the information. It is
essential for the accountants and users of the
financial statements to understand that why firms
voluntary disclose information about their
operations (Buzby, 1975; Meek, Roberts, & Gray,
1995). Financials managers in business firms want
to have a sound disclosure policy to access the
paybacks for running of business operations e-g
adequate disclosure results in better relationship
between business firm and audited firms. Stanga
(1976) claimed that analysts have incredible effect
in investment market, which build the investors’
confidence to make the investment decisions.
The greater extent of disclosure may do well in
escalating the investors' confidence and also
enhancing the efficiency of capital markets
(Caruana, 2003). Datar, Feltham, and Hughes
(1991) rationally exhibited that the selection of an
auditor is the indication to the market that quality
of a firm’s disclosure is adequate. On the other
side, as the information in financial statements
provides access to investors to evaluate risk which
is inherent in investment decision. If the investors

found that they will get some adequate return on
their investment then it built confidence in
investors for making investment decisions. These
decisions bring huge amount of capital for
enterprise for running of the business operations
and increase the market price of firm’s stock which
carries profit for both its owners and management.
Management’s decision about whether to disclose
information or not is also based on weighing
expected costs and benefits of making the
information public (Frolov, 2007). Information
disclosure is wanted in a social context (Diamond,
2012; Frolov, 2007). The cost benefits analysis may
direct to limited or no disclosure, therefore one
must inquire about the disclosure should be
voluntary or mandatory (Mohammed Hossain,
2008). In addition, this study also taking into
account the three types of information for the
voluntary disclosure i-e financial, non-financial
and strategic information. Literature provides the
evidence that financial and strategic type of

Research Paper

information of enterprises is helpful for the
investors for making investment decisions
(Tonkin, 1989). Investors may get the base to
evaluate return on investment and forecast risk
associated with their investment fund. While third
type non-financial information in annual report is

providing the disclosure regarding social
responsibility. It is intended for a broader group of
stakeholders other than the owners or investors
(Meek et al., 1995).
Pakistan’s society is not a democratic society.
However, in democratic society, there exists a
more demand to voluntary disclose firm private
information because all the people which have
direct or indirect relation with that firm are more
interested to quantify their risk. So the companies
in Pakistan do not disclose according to the users
requirements
due
to
the
ineffective
implementation of the disclosure laws and the lack
of business ethics. Now awareness to disclose
relevant information about company operations is
rapidly increasing in Pakistan because disclosure
has proven that it improves the image of the firm
and also results in the long term success of firm. To
fulfill the market information needs i-e to know
about the corporate private activities and to
enhance transparency, now more people are
interested in the expansion of traditional financial
reporting requirements (Beattie, 1999; Lev &
Zarowin, 1999; Upton, 2001).
In this respect, generally accepted accounting
principles (GAAP) are the international financial

reporting standards that help accountants to
disclose relevant private information about
activities of company. It also increase the
usefulness and understandability of the financial
statements by providing uniform practices. A
regulatory authority for disclosure, which is
Corporate Law Authority (CLA) in case of
Pakistan, gives guidelines for disclosure of
company information which are listed in stock
exchange.
The firm-specific characteristics are most
important which are taken into account in this
research. Several researchers provided the
evidence that in various national studies that
variety of firm-specific characteristics have a
significant relationship with the level of voluntary

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Manag. Adm. Sci. Rev.
ISSN: 2308-1368
Volume: 2, Issue: 2, Pages: 181-195

disclosure in advance and emerging markets
(Buzby, 1975; Chow & Wong-Boren, 1987; Terence
E Cooke, 1989; Terry E Cooke, 1991; Ho & Shun
Wong, 2001; Raffournier, 1995).The rationale of
this research is to investigate the relationship
between firm-specific characteristics (firm size,

audit size, firm age, leverage, profitability and
sector type) and voluntary disclosure of companies
listed in KSE of Pakistan. This study shows a
significant contribution to literature in the context
of Pakistan. According to the best knowledge of
researchers, there is no single study present in
Pakistan which explored this area. So, for the first
time, researchers explore the determinants of
voluntary disclosure in annual reports of listed
manufacturing companies in Pakistan.
Rest of the study comprises of four portions. In
first portion, review of literature is given. In
second portion, Research methodology of this
study is discussed. In third section, Empirical
finding and discussion is explained. Last portion
concludes the study.
REVIEW OF LITERATURE
In literature several researchers have investigated
determinants of voluntary disclosure all over the
globe (F. D. Choi, 1973; Chow & Wong-Boren,
1987; Depoers, 2000; Healy & Palepu, 2001;
Leftwich, Watts, & Zimmerman, 1981; Smith &
Warner, 1979). Existing literature shows that there
is a close relationship between Jensen and
Meckling (1976) ―Agency theory‖ and the
determinants of voluntary disclosure. Agency
theory claimed that goals of the owner and agent
should not be in contradiction which bears agency
cost; also the owner and agent must tolerate for
risk together. Fama and Jensen (1983) state that

there will be the greater agency cost if
shareholders are separated from the decisionmaking function in the company. In the same way,
if firm shares are widely held by management then
there is more separation exists between owner and
agent and raises the issue of greater agency costs
and information asymmetry.
Information asymmetry is a situation in which one
party possesses more information than other. All
the market participants do not have access of
information they require for their investment

decision. This will cause inefficient decision
making e-g management is more aware about the
company activities and decisions than the
shareholders. It is the main hurdle to allocate the
resources effectively in a capital market economy.
Healy and Palepu (2001) describe that
entrepreneurs
typically
have
enhanced
information than investors about the value of
business and investment opportunities. Therefore,
investors bears information asymmetry problem
when they want to take an investment decision.
On the other hand, if the investor took the decision
of investment in business ventures, management
have an incentive to confiscate their savings which
resulting in agency problem.
Voluntary disclosure can be used to reduce the

problem of information asymmetry for investors
(Grossman, 1981; Spence, 1973). Researchers
claimed that disclosure of relevant information
about firm helps to decrease the level of
information asymmetry which gives them signal
of increased quality of its operations as compared
to rivals (Akerlof, 1970; Jensen & Meckling, 1976).
Providing voluntary disclosure also helps to
reduce agency problem and makes the economy
more efficient. Disclosure means to disclose
important information of firm operations by
annual reports, news releases, and conference calls
with auditors to the general public to raise firm
capital.
Disclosure increase access of information to gain
the investors savings and make the effective
capital markets operations which result in greater
involvement of borrowers and investors (F. D.
Choi, 1973). Lang and Lundholm (1993) argued
that there are various ways by which improved
disclosure brings benefit for the firm. These
benefits are mainly; minimize agency cost,
compensation and debt agreements between firm
owners and management. These agreements
mostly require management to disclose private
information regarding the firm ongoing strategic,
financial and non-financial operations. As well as
for future forecast which make investors to keep a
careful check that contractual terms are fulfilled
both by owner and management. This will

facilitates the investors to evaluate that
management is working in the best interests of
investors. One most preferable way to reduce

Najm-Ul-Sehar et al.


Voluntary Disclosure in Annual Report

agency cost is hiring of information intermediaries
like financial auditors that are involves in the
production of information for investors to show
that how firm resources are managed for investor’s
best interest (Healy & Palepu, 2001).
Empirical evidence provides that corporate
disclosure is of two types’ mandatory disclosure
and voluntary disclosure. Financial reporting
standards (FRS) are required to disclose relevant
information which is mandatory. Combination of
GAAP and International Financial Reporting
Standards (IFRS) comes corporate transparency to
disclosed information relevant to the financial
operations of firm, to help investors for taking
decisions regarding investments (Jacob & Madu,
2004). Corporate transparency provides the view
of accessibility to external investors and
stakeholders
regarding
company
specific

information which further helps them for making
decisions of resource allocation (Bushman,
Piotroski, & Smith, 2004).
Literature provides fewer evidences about
determinants of voluntary disclosure regarding
why firms are more interested to providing
additional information about firm operations by
their own will instead of providing information
mandatorily in emerging markets. Healy and
Palepu (2001) claimed that today accounting
researchers are taking more interest in voluntary
disclosures of firm’s information in annual reports
in developing countries. Decisions about
additional reporting requirements depends upon
the extent of disclosure practices (Meek & Gray,
1989). Voluntary disclosures means to disclose
additional relevant information other than
requirements, depicts more ways for company
management to disclose accounting and strategic
information in firm’s annual reports which is
helpful for employees, investors, auditors and
customers (Meek et al., 1995).
Companies disclose private information after cost
benefit analysis when they expect that benefits of
voluntary disclosure (reduction in the agency cost
and information asymmetry) are more than direct
and indirect costs related to the disclosure
(Ferguson et al., 2002). Disadvantages of voluntary
disclosure are in the form of cost e-g there is a risk
of disclosing information because it can be access


Research Paper

by rivals resulting in financially deterioration of
the company (Depoers, 2000).
Voluntary disclosure decisions are quite difficult
and inclined by various national and commercial
factors. F. D. S. Choi, Frost, and Meek (2002)
argued that country's fundamental characteristics,
such as its macroeconomic, socio-historical,
cultural, and legal environment has an impact on
corporate financial reporting in both accounting
measures and disclosure perspectives. This will
provide the information regarding determinants of
voluntary disclosure across various markets in
which firm operate.
There are various variables that may explain
voluntary disclosure but here researcher has
explored the impact of most important companyspecific characteristics (firm size, audit size, firm
age, leverage, profitability and sector type) on the
extent of voluntary disclosure in case of Pakistan.
This section explores the relationship of each
variable with level of voluntary disclosure.
Firm Size
In literature Jensen and Meckling (1976) claimed
that agency costs for big firms are greater than
small because there is extensive network of
management operations and decisions. These firms
are more capable to afford cost incurred in the
preparation of annual reports to reduce agency

cost. Big firms have more subsidiaries and
operations thus managers possess extensive
information about companies operations which
result in information asymmetry. Due to the
regular interaction of larger firms with financial
society, so they are more aware about the needs of
outside owners (Stanga, 1976).
Watts and Zimmerman (1986) explored the
relationship between firm size and firm’s political
cost. They found positive relationship; if firm size
is increase then political cost will also increase.
Skinner (1994) argued that larger firms have many
reasons of more disclosure due to potential
litigation costs and net disclosure-related costs.
Managers in larger firms are encouraged by the
owners to disclose bad news to avoid legal actions
for inadequate disclosure. Big size firms
voluntarily disclose more private information to

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Manag. Adm. Sci. Rev.
ISSN: 2308-1368
Volume: 2, Issue: 2, Pages: 181-195

increase the firm value because investors see nondisclosure as bad news or risk for making
investment. (Lang & Lundholm, 1993; McKinnon
& Dalimunthe, 1993)


firm then there is more transparency of
information. Firm’s strategies are improved due to
this which results in reducing the conflict of
interest between firm owner and management.

There is more disclosure of information by big
firms to avoid these costs. There is a large number
of Individual and institutional shareholders in
larger firms which may cause information
asymmetry problem. So, providing more
voluntary disclosure by larger firms overcome
these problems. Raffournier (1995) found a direct
relationship between company size and extent of
voluntary disclosure, because public take more
interest in bigger firms for investment decisions
than in smaller firms. While Archambault and
Archambault (2003) found an inverse association
between firm size and information disclosed score.
Few studies found inconsistent relationship
between firm size and information disclosure
index. There is a greater demand providing more
disclosure on large firms for analysts and the
public (Mahmud Hossain et al., 2007).

Auditing of a firm by one of the big audit firm will
increase tendency of greater expected cash flow
expectations and effective performance of the firm.
Well performing firms take more interest in
disclosing
the

relevant
information
for
advertisement of their performances (Bar-Yosef &
Livnat, 1984). Large audit firms have possessed
more number of analysts than small audit firms
that’s why there is more demand of information to
disclose by auditors. Several researches found a
significant relationship between extent of
voluntary disclosure and audit size, if the firm is
audited by one of the biggest audit company
(Depoers, 2000; Raffournier, 1995).

H1: There is a relationship between firm size and
voluntary disclosure in annual reports of Pakistani
listed companies.

Firm Age

Audit Size
There is a strong relationship exist between audit
institution size and voluntary disclosure of firms.
Auditors give more assurance to investors that the
firm’s financial statements are according to GAAP.
Firth (1979) claimed that largest auditing firms can
force firms to disclose comprehensive relevant
information, about firms decisions to maintain
their reputations. Auditing firms ask for adequate
disclosure to management to highlight the hidden
activities of managers. DeAngelo (1981) found that

big audit firms can charge more client-specific fees
that depict the reputation of audit firm. But this
reputation may suffer if auditing firms issue
negligent reports that are not properly disclosing
the relevant information.
External auditors are hired by the companies to
tumbling the contradiction of interest between
owner and management by disclosing activities in
front of owner and general public (Schipper, 1981).
If more disclosure is recommended by auditing

H2: There is a relationship between audit size and
voluntary disclosure in annual reports of Pakistani
listed companies.

Majority of studies found an indirect relationship
between company age and voluntary disclosure
(Akhtaruddin, 2005; Glaum & Street, 2003; Haniffa
& Cooke, 2002; Mohammed Hossain, 2008).
Owusu-Ansah (1998) claimed that newly born
firms can gain competitive disadvantage if they
disclose information of research and development.
Young companies have to bear more cost than old
companies for voluntary disclosure of relevant
information due to limited investment funds. Due
to insufficient records of firm operations these
companies may disclose less information.
Mohammed Hossain and Hammami (2009) found
that old companies tend to disclose more
information than young companies. They argued

that there is significant indirect influence of firm
age on the extent of voluntary disclosure on Qatari
companies.
H3: There is a relationship between firm age and
voluntary disclose information in the annual reports of
Pakistani listed companies.
Leverage

Najm-Ul-Sehar et al.


Voluntary Disclosure in Annual Report

Empirical evidence depicts the direct relationship
between financial leverage and level of disclosure
(Mahmud Hossain, Adams, & Tan, 1994; Jaggi &
Low, 2000; Khanna, Palepu, & Srinivasan, 2004).
Agency theory explains that companies with
greater level of debt in their capital structures
bears the more agency cost (Jensen & Meckling,
1976). They argued that more level of leverage
result in more agency cost. To minimize the level
of such cost require more disclosure of relevant
information for investors. With the raise in level of
leverage there is more transfer of wealth. Increase
in level of leverage results in the increase in agency
cost which cause a great demand of monitoring by
investors (Meyers, 1977).
Firms of high financial leverage require more
transparency in their operations because investors

demand them to disclose more financial
information (Khanna et al., 2004). In addition,
companies which have leverage in their capital
structure are more encourage by auditors to
voluntary disclose information to satisfy the needs
of their creditors and other stakeholders.
H4: There is a relationship between leverage and
voluntary disclose information in annual reports of
Pakistani listed companies.
Profitability
Inchausti (1997) stated that in relation with agency
theory, managers of big companies, which are
more profitable, are in the favor of more voluntary
disclosure to attain the personal advantages such
as to retain the better management position and
compensation. Also the more profitable companies
are not protected by the regulatory intervention.
So they disclose more information about their
operations in their annual reports for the
justification of their performance efficiency and to
reduce political costs (Inchausti, 1997; R. Wallace &
Naser, 1996). Mostly researchers found a positive
relationship between profitability and the extent of
disclosure (M Hossain, 2001; Mohammed Hossain
& Hammami, 2009; R. O. Wallace, Naser, & Mora,
1994).
H5: There is a relationship between profitability and
voluntary information in the annual reports of
Pakistani listed companies.


Research Paper

DATA AND METHODOLOGY
This portion of study gives enlightenment on
sample selection, data collection procedure and
methodology. The most data for this study is
collected from listed companies of Karachi Stock
Exchange (KSE) on 31st December 2012. Random
sampling technique is used in this study to select
the sample and data includes annual reports of
companies. Authors aim to cover all listed
companies in the sample but unfortunately data of
all companies is not available. Due to this authors
collect the data of 372 out of 638 listed companies
of Pakistan on the basis of data availability. The
data sources are annual report from official
website of company and publications of Sate Bank
of Pakistan and Karachi Stock exchange. All the
process of data entering and processing to
generate results is done through Stata 11 software.
Cross-sectional regression analysis was employed
to test the relationship between voluntary
disclosure and firm’s characteristics.
DIi = β 0 + β 1DRi + β 2AFi + β3ASi+ β4PROi +
β5LIQi + β6FSi + I
Where;
DIi = Disclosure index of the firm
DRi = Debt ratio of the firm
AFi = Age of the firm
ASi = Auditor Size of the firm

PROi = Profitability of the firm
LIQi = Liquidity of the firm
FSi = Size of the firm
In this model, disclosure index DI is dependent
variable which is measured by taking ratio of
scores obtained by firm to total scores. The
disclosure items are adopted from (Mohammed
Hossain & Hammami, 2009) and provided in
appendix 2. The firm characteristics which include
auditor size, age of the firm, firm size, leverage
and profitability are act as independent variables.
The first independent variable auditor size is
measured through a dummy variable, author take
1 if audit firm of a firm is one of the top six audit
firm of Pakistan and otherwise take 0. The second
independent variable is firm age and measured by
taking difference from current year 2012 and year

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Manag. Adm. Sci. Rev.
ISSN: 2308-1368
Volume: 2, Issue: 2, Pages: 181-195

of establishment of the company. The third
independent variable is firm size and measured by
taking natural log of total assets of the company.
The fourth independent variable is leverage and
measured by debt ratio which total debt is divided

by total assets. The last independent variable is
profitability and measured by Return on Assets
ratio which is measured by ratio of total sales to
total assets.
Empirical Results
This section provides the results of the model
which includes descriptive statistics, pearson
correlation matrix and multiple regression analysis
results.
TABLE 1 HERE
Tables 1 brief about mean, standard deviation,
minimum and maximum values. Data consist of
continuous variables, which results in broad range
of variation. First of all, has observation from 372
firms with minimum value 0.43182 and maximum
value 0.84091. The average value of disclosure
index is 0.6226 with standard deviation of 0.08255.
Similarly, summary statistics of independent
variables is given. Auditor size has 372
observations, 0 lowest and 1 as largest value. The
average value of this variable is 0.4919 and
standard deviation 0.5006. Age of firm has 05 and
67 as minimum and maximum value respectively,
mean value 34.3145 and standard deviation
16.7858. Firm size has 3.34 and 8.26 as minimum
and maximum value respectively, mean value
6.1681 and standard deviation 0.85946. Leverage
has 0.12 and 382.58 as minimum and maximum
value respectively, mean value 3.842 and standard
deviation 34.200. Last independent variable

profitability has -120.08 and 203.17 as minimum
and maximum value respectively, mean value
18.8056 and standard deviation 46.12466.
TABLE 2 HERE
Before running the model the data is checked
through
correlation
between
independent
variables. Rule of thumb is that correlation
between independent variables not exceeds from
0.7 and if it exceeds from 0.7 then there is a chance
of mutlicolinearity in the model. Highest
correlation between firm size and age of the firm is
0. 2314. As this value is not exceeds from cut point

0.7, so there is no chances of mutlicolinearity in
this model. The further confirmation of
mutlitolinearity assumption is checked by variance
inflation factor (VIF) and tolerance (1/VIF). The
rule of thumb for VIF is that it should not exceed
from 10 while tolerance must be more than 0.1. The
VIF and tolerance of the study is given in appendix
3 and none of the variable has VIF more than 10
and tolerance less than 0.1. So, it is confirmed that
there is no multicolinearity exist in this study.
TABLE 3 HERE
The multiple regression analysis shown in table 3,
this model is good fit as F statistics 20.98 is
significant. The coefficient of determination R2 is

0.2228 which means firm’s characteristics can
explain 22.28% variations in voluntary disclosure
of
listed companies
of
Pakistan.
Firm
characteristics including auditor size, age of firm,
firm size and profitability have positive and
significant relationship with disclosure index.
While firm characteristic leverage has indirect and
insignificant relationship with disclosure index. As
this data is cross sectional, there may be the
chances of heterosekdasticty in the model due to
the nature of data. In order to control the
heteroscedasticity, researchers used robust option.
The result of regression analysis with robust
command is given in table 4.
This model is again proving good fit as F statistics
improve to 52.34 from 20.98 and significant. The
coefficient of determination R2 is again same
0.2228 which means firm’s characteristics can
explain 22.28% variations in voluntary disclosure
of
listed companies
of
Pakistan.
Firm
characteristics including auditor size, age of firm,
firm size and profitability again have positive and

significant relationship with disclosure index.
While firm characteristic leverage has indirect but
significant relationship with disclosure index.
These findings are same with previous studies in
literature (Depoers, 2000; M Hossain, 2001;
Mohammed Hossain & Hammami, 2009);
Raffournier (1995); (R. O. Wallace et al., 1994).
TABLE 4 HERE
CONCLUSION
The finding of this study shows that firm
characteristics; profitability, firm size, age and

Najm-Ul-Sehar et al.


Voluntary Disclosure in Annual Report

auditor size have positive and significant
relationship with voluntary disclosure while
leverage has negative and significant relationship
with voluntary disclosure. So, profitability, firm
size, age, auditor size and leverage are the major
determinants
of
voluntary
disclosure
of
manufacturing firms of Pakistan. All the
hypothesis of this study are supported and in
accordance with previous literature. These

findings are very useful for management, auditors,
investors, creditors, customers, Government and
other stakeholders of manufacturing companies of
Pakistan. As manufacturing firms of Pakistan are
providing adequate disclosure voluntarily, this
will enhance the information of all stakeholders.
The investors or owners of these firms can get
proper financial, non-financial and strategic
information from annual reports for their decision
making. Likewise other stakeholders including
creditors, tax authorities, customers, financial
institutions and others can get their required
information from the disclosure in annual reports.
Manufacturing companies in Pakistan are
providing adequate voluntary disclosure but there
is great need of consistency and proper reporting
of maximum information for stakeholders. As firm
characteristics have strong relationship with
disclosure level, this study recommends to
management
and
auditors
of
Pakistani
manufacturing companies to improve the quality
and reporting of voluntary disclosure in their
annual reports. This will enhance the confidence of
their investors, satisfying their creditors and
customers, improve their profitability and value of
shares. The major limitation of this study is

availability of annual reports of all listed
companies. This study is conducting only on
manufacturing sector of Pakistan, upcoming
studies must focus on service sector of Pakistan or
upcoming studies can make a panel of South Asian
countries manufacturing firms or services firms as
they have same environment but very different
disclosure level.
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Research Paper

APPENDIX-1

Table 1: Descriptive Statistics
Variable
Disclosure Index
Auditor Size
Age of Firm
Firm Size
Leverage
Profitability

Observations
372
372
372
372
372
372

Mean
0.6226173
0.4919355
34.31452

6.168065
3.841693
18.80556

Std. Dev.
0.082553
0.5006083
16.78581
0.8594586
34.20033
46.12466

Minimum
0.4318182
0
5
3.34
0.12
-120.08

Maximum
0.8409091
1
67
8.26
382.58
203.17

Table 2: Pearson Correlation Matrix
Discloure


Variable

Index

Age of
Auditor

Firm

Firm Size

Leverage

Disclosure Index

1.0000

Auditor Size

0.3820**

1.0000

Age of Firm

0.1920**

0.1634**


1.0000

Firm Size

0.2313**

0.1251*

0.1048*

1.0000

Leverage

-0.0609

0.0893

-0.0461

-0.305*

1.0000

Profitability

0.2509**

0.1035*


0.1173*

0.2314*

-0.0368

Profitability

1.000

Note: Variable is significant at * 1%, ** 5%, and *** 10% level of significance.

192


Manag. Adm. Sci. Rev.
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Volume: 2, Issue: 2, Pages: 181-195
Table 3: Multiple Regression Analysis
Variables
Auditor Size
Age of Firm
Firm Size
Leverage
Profitability
Constant

Coefficient

S. Error


T statistic

P-value

0.0552938

0.0078391

7.05

0.000**

0.0005003

0.0002316

2.16

0.031*

0.0120957

0.0048319

2.50

0.013*

-0.0000996


0.000118

-0.84

0.399

0.0003107

0.0000854

3.64

0.000**

0.4981815

0.0300915

16.56

0.000

Note: R2 = 0.2228, F-Stat = 20.98, and Prob. > F = 0.000**. Variable is significant at **1%, * 5%, and *** 10% level of
significance.

Table 4: Multiple Regression Analysis (Robust)

Variables
Auditor Size

Age of Firm
Firm Size
Leverage
Profitability
Constant

Coefficient

Robust S. Error

statistic

P-value

0.0552938

0.0082721

6.68

0.000**

0.0005003

0.0002414

2.07

0.039*


0.0120957

0.0050366

2.40

0.017*

-0.0000996

0.0000443

-2.25

0.025*

0.0003107

0.0000835

3.72

0.000**

0.4981815

0.0305601

16.30


0.000

Note: R2 = 0.2228, F-Stat = 52.34, and Prob. > F = 0.000**. Variable is significant at **1%, * 5%, and *** 10% level of
significance

Najm-Ul-Sehar et al.


Voluntary Disclosure in Annual Report

Research Paper

Appendix 2: Voluntary Disclosure Items
A Background about the bank/general corporate information (6):
1 Brief narrative history of the bank
2 Basic organization structure/chart/description of corporate structure
3 General description of business activities
4 Date of establishment of the company
5 Official address/registered address/address for correspondence
6 Web address of the bank/email address
B Corporate strategy (2):
7 Management's objectives and strategies/corporate vision/motto/statement of corporate goals or objectives
8 Future strategy—information of future expansion (capital expenditures)/
general development of business
C Corporate governance (9):
9 Detail about the chairman (other than name/title) background of the chairman/academic/professional/business
experiences
10 Details about directors (other than name/title) background of the directors/ academic/professional/business
experiences
11 Number of shares held by directors

12 List of senior managers (not on the board of directors)/senior management structure
13 Directors' engagement/directorship of other companies
14 Picture of all directors/board of directors
15 Picture of chairperson
16 Composition of Board of Directors
17 Number of BOD meetings held and date
D Financial performance (6):
18 Brief discussion and analysis of afinancial position
19 Return on equity
20 Net interest margin
21 Earnings per share
22 Debt-to-equity ratio
23 Dividend per share
E General risk management (8):
24 Discussion of overall risk management philosophy and policy/framework
25 Narrative discussions on risk assets, risk measurement and monitoring
26 Information on risk management committee
27 Information on assets–liability management committee
28 Information on risk management and reporting system
29 Disclosure of credit rating system/process
30 General descriptions of market risk segments
31 Disclosure of interest rate risk
F Accounting policy review (2):
32 Discussion on accounting policy
33 Disclosure of accounting standards uses for accounts
G Corporate social disclosure (3):
34 Sponsoring public health, sponsoring of recreational projects
35 Information on donations to charitable organizations
H Others (8):
37 Age of key employees

38 Chairman's/MD's report/directors report
39 Information on ISO 9001: 2000 certification
40 Graphical presentation of performance indicators
41 Performance at a glance—3 years

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Volume: 2, Issue: 2, Pages: 181-195
42 Related party disclosure
43 Details of non-compliance, penalties imposed by SE or SEBI
44 Year of listing at DSM
Source: Adopted from (Mohammed Hossain & Hammami, 2009)

Appendix 3: Collinearity Statistics
Variable

VIF

1/VIF

Firm Size

1.19

0.839133

Leverage


1.13

0.888229

Profitability

1.07

0.933075

Auditor Size

1.06

0.939685

Age of the Firm

1.04

0.957551

Najm-Ul-Sehar et al.