Voluntary Disclosure of Company Information - Costly Additions or a Step towards Competitive Advantage?

An Application to the Case of Publicly Quoted Football Clubs in Europe

Diploma Thesis, 2000
135 Pages, Grade: 1.7


Voluntary Disclosure of Company Information ­
Costly Additions or a Step towards Competitive Advantage?
An Application to the Case of Publicly Quoted
Football Clubs in Europe.
Patrick Roy
Berlin, 31 March 2000
© by EAP and Patrick Roy

European Research Project: Voluntary Disclosure of Company Information
Patrick Roy
Index of Figures ______________________________________________________ IV
Executive Summary (English) ____________________________________________ V
Executive Summary (French) __________________________________________ VII
Executive Summary (German) __________________________________________ IX
1 Introduction
Problem Area and Objectives of the Work ____________________________________ 1
1.2 Rationale
Conception of Strategic and Non-financial Voluntary Disclosure, Delimitation and Use
of Terms ________________________________________________________________ 4
2 Demand for Strategic and Non-financial Voluntary Disclosure ______________ 6
2.1 Function
and Role ________________________________________________________ 6
2.2 Target
Groups ___________________________________________________________ 7
2.3 Factors
Affecting Demand __________________________________________________ 9
Contents and Relevance of Specific Voluntary Disclosure Areas __________________ 10
2.4.1 Strategic
2.4.2 Non-Financial
3 Supply-Side Factors Influencing Voluntary Disclosure Behaviour __________ 14
3.1 Regulatory
as a Supply-Side Factor _____________________________ 14
3.1.1 Organisations Relevant to Setting Disclosure Standards ______________________________ 14
3.1.2 Legal
Potential Opportunities and Disadvantages of Voluntary Disclosure as Supply-Side
Factors ________________________________________________________________ 17
3.2.1 Effects on Capital Markets ___________________________________________________ 19
Processing of Information in Capital Markets __________________________________ 19
Executives' Assessment of Effects and Resulting Disclosure ______________________ 20
3.2.2 Effects outside Capital Markets ________________________________________________ 23 Management
24 Employees
25 Competitors
__________________________________________________________ 26
Customers, Suppliers, Creditors ____________________________________________ 27
Other Possible Benefits __________________________________________________ 27
Common Costs Related to Disclosure _______________________________________ 28
3.2.3 Significance of Company Characteristics _________________________________________ 30

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4 Enhancing the Knowledge of Voluntary Disclosure ______________________ 34
Necessity for a Better Understanding of Voluntary Disclosure ___________________ 34
Unresolved Problems and Hypotheses to Examine _____________________________ 35
Specific Additional Knowledge to be Contributed ______________________________ 38
5 Determinants and Incentives for Strategic and Non-financial Voluntary
Disclosure in Practice ______________________________________________ 40
5.1 Research
Methodology ____________________________________________________ 40
5.1.1 Research
5.1.2 Research
Review of Annual Reports _________________________________________________ 47
5.2.1 Items for Voluntary Disclosure and their Scoring (Dependent Variable) __________________ 48
5.2.2 Corporate Characteristics (Independent Variables) __________________________________ 49
Results of the Review of Annual Reports _____________________________________ 50
5.3.1 Descriptive Statistics: Company Characteristics and Actual Disclosure by Companies ________ 50
5.3.2 Multiple Linear Regression: Company Characteristics and Disclosure Scores ______________ 56
5.3.3 Conclusions and Discussion __________________________________________________ 59
5.4 Interviews
with Executives _________________________________________________ 62
5.4.1 Obtaining the Data _________________________________________________________ 62
5.4.2 Analysing the Data _________________________________________________________ 63
Results of the Interviews with Executives _____________________________________ 65
5.5.1 Influence of Company Characteristics ___________________________________________ 65
5.5.2 Additionally Perceived Incentives and Disincentives ________________________________ 67
5.5.3 Process of Decision-Making __________________________________________________ 69
5.5.4 Differences between Strategic and Non-Financial Voluntary Disclosure __________________ 70
5.5.5 Conclusions and Discussion __________________________________________________ 71
6 Conclusion
Summary of Results and Interpretation ______________________________________ 75
6.2 Implications
6.3 Critical
of the Research _________________________________________ 81
6.4 Extension
Bibliography _________________________________________________________ 85

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Appendix A ­ Examples for Strategic and Non-financial Voluntary Disclosure ___ 92
Appendix B ­ Research Site in Detail _____________________________________ 94
Appendix C ­ Voluntary Disclosure Items _________________________________ 96
Appendix D ­ Basic Statistical Measures __________________________________ 98
Appendix E ­ Voluntary Disclosure Items: Frequency of Disclosure ____________ 99
Appendix F ­ Questionnaire for Telephone Interviews ______________________ 101
Appendix G ­ Complete Analysis of Telephone Interviews ___________________ 110

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Index of Figures
Figure 1: Expected relationships between independent variables and disclosure ____ 36
Figure 2: Football business system ________________________________________ 41
Figure 3: Development of the UK Football Club Index __________________________ 43
Figure 4: Overview of the research approach _______________________________ 46
Figure 5: Company characteristics I ______________________________________ 51
Figure 6: Company characteristics II ______________________________________ 52
Figure 7: Descriptive statistics for strategic voluntary disclosure scores ___________ 53
Figure 8: Descriptive statistics for non-financial voluntary disclosure scores _______ 54
Figure 9: Descriptive statistics for overall voluntary disclosure scores ____________ 55
Figure 10: Summary of the regression routine for strategic voluntary disclosure ____ 58
Figure 11: Summary of the regression routine for non-financial voluntary disclosure 58
Figure 12: Outputs of regression routines summarised ________________________ 59
Figure 13: Qualitative analysis as a circular process __________________________ 64

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Executive Summary (English)
In a first step, this ERP derives the theoretical necessity to provide voluntary strategic and non-financial
information. It is argued that companies are an integral part of a common environment and society,
acting in a framework of interdependent relationships. A company is more and more seen as a
community of interests of different groups, and it can only act in an optimal way if the demands of all
groups are taken into account and its behaviour is adjusted accordingly. In this context, interest groups'
demands for company information depend on the possibilities of improvements in decision making or
monitoring that arise with its use, which in turn is mainly determined by the potential of information to
reduce uncertainty in the areas of interest. For external decision-makers, uncertainty often arises from
sources about which conservative company statements provide little insight. Due to the traditional,
finance-oriented concept of disclosure, this is particularly true for strategic and non-financial aspects.
Related additional information that is voluntarily provided can considerably reduce uncertainty, even
more so as part of audited statements. Conventional financial reporting and existing disclosure
requirements will generally not nearly satisfy those information needs of user groups.
Any economic action, though, should only be taken if related benefits are exceeding related
costs. This priority of economicalness also holds for companies' production, processing and
disclosure of information. Therefore, it is necessary to consider as detailed as possible potential
opportunities and disadvantages for voluntarily disclosing company information both on and
outside capital markets. This is done in a second major part of the present work. First, voluntary
disclosure can potentially affect share prices and thereby the market value of the firm, markets not being
strong-form efficient. So, by giving company information, a higher market value can directly be induced,
thereby potentially lowering the cost of capital which, for example, improves the company's competitive
position in the battle for cheap additional financing. Second, it is important for companies to consider the
analysis of information on the part of target groups other than investors or intermediaries. Like in the
case of participants in capital markets, results of such analyses are of interest if and when they lead to a
change in behaviour of these groups that, in turn, can positively or adversely affect the relationships with
the company. Various other costs and benefits exist associated with disclosure that are unrelated to a
certain target group.

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The practical part of the present work, following the above discussion, first of all examines which
amount of strategic and non-financial information is already voluntarily released by companies. It
then tries to explain that by determining decision-making processes, the importance decision-
makers' attach to that form of disclosure, and the degree to which they take into account the
potential opportunities and disadvantages related to it. Moreover, relationships between disclosure
scores and company characteristics are established and examined as to their causality, and the most
commonly voiced incentives and disincentives for voluntary disclosure are determined. To that purpose,
results of a quantitative and another more qualitative analysis are combined. It shows that all
companies provide more information than is required by regulation, average disclosure scores, however,
being rather low. Decision-makers consider strategic voluntary disclosure to be much more significant
than additional non-financial information, which, in turn, shows their narrow focus on the group of
shareholders and investors when deciding about voluntary disclosure. It also emerges that decision-
making processes in the companies are based on intuition and personal experience instead of an
analysis of information needs and thoughts about wider consequences of releasing additional strategic
and non-financial information. This may be a reflection of missing knowledge of effects of voluntary
disclosure primarily outside capital markets. Further empirical research mainly in that field could
give managers helpful guidance in disclosure decisions and bring them to consider voluntary
disclosure and its possible consequences more comprehensively. That can make further external
action to encounter the established deficiencies partly unnecessary.

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Executive Summary (French)
Dans une première partie, cet ERP démontre la nécessité théorique de publier volontairement des information
stratégiques et non-financières. Il est argumenté que les entreprises sont une partie intégrante de l'environnement et
de la société, agissant dans un contexte d'interdépendances. Une entreprise est, de plus en plus, considérée comme
une communauté d'intérêts de différents groupes. Elle ne peut avoir des activités optimales que si les demandes de
tous ces différents groupes sont pris en compte et si elle ajuste son comportement en conséquence. Ainsi, les
demandes des groupes d'intérêts pour des informations sur l'entreprise dépendent des possibilités d'amélioration
des prises de décision ou d'évaluation qui pourraient en découler. Ces dernières possibilités sont, elles mêmes,
déterminées par l'information publiée, pouvant potentiellement permettre de réduire des incertitudes dans des
domaines stratégiques. Pour les décisionnaires extérieurs, l'incertitude provient souvent, en effet, des aspects pour
lesquels les publications financières et conservatrices des entreprises fournissent peu de données. Dû au concept
traditionnel et financier de la publication d'informations, ceci est particulièrement vrai pour les aspects stratégiques et
non-financiers. Les informations complémentaires sur l'entreprise, publiées volontairement, peuvent réduire
considérablement les incertitudes, d'autant plus si elles font parties des éléments audités. Les exigences actuelles en
matière de publications financières conventionnelles ne satisfont, en général, pas les besoins de ces groupes.
Pourtant, toute action économique ne doit être menée que si les bénéfices qui en découlent sont
supérieurs aux coûts. Cette priorité économique s'applique également à la production ainsi qu'au
traitement et à la publication des informations. Ainsi, il est nécessaire de considérer, de manière
la plus détaillée possible, les opportunités et les inconvénients potentiels présentés par la
publication volontaire par les entreprises d'informations, que cela soit sur, ou en dehors, des
marchés de capitaux. En conséquence, ceux-ci sont discutés dans une deuxième partie majeure
de ce travail. La publication volontaire d'informations peut potentiellement, dans un premier
temps, influencer le prix des actions et donc, la valeur boursière de l'entreprise car les marchés
ne sont pas parfaitement transparents. Ainsi, en fournissant des informations sur l'entreprise, une
valeur boursière plus grande peut être directement induite. Ceci a pour conséquence une
diminution potentielle du coût du capital qui améliore, entre autres, la compétitivité de l'entreprise
dans le domaine de financements complémentaires peu chers. Dans un deuxième temps, il est
important pour les entreprises de considérer l'analyse de l'information du point de vue des
groupes d'intérêts plutôt que de celui des investisseurs ou des intermédiaires. Similairement aux
acteurs sur les marchés de capitaux, les résultats de ces analyses sont pertinents si ils
engendrent une changement d'attitude de ces groupes d'intérêts, qui, lui même, peut influencer,
positivement ou négativement, les relations avec l'entreprise. Associés à la publication
d'informations, il existe aussi d'autres types de coûts et de bénéfices qui ne sont pas liés à un
certain groupe d'intérêts.

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Suivant cette discussion, l'aspect pratique de ce travail examine, d'abord, le montant des
informations stratégiques et non­financières déjà publiées volontairement par les entreprises. Il
tente, ensuite, d'expliquer ce comportement en déterminant les processus de prises de décisions,
l'importance attachée par les décisionnaires à cette forme de publication, ainsi qu'en évaluant,
dans quelle mesure ces derniers prennent en compte les opportunités et les inconvénients liés à
cette pratique. De plus, ce travail établit les liens entre le nombre de publications et les
caractéristiques de l'entreprise et analyse les raisons conduisant à ces publications. Les raisons
les plus souvent données comme encouragements, ou découragements, à des publications
volontaires sont, ensuite, déterminées. Dans ce but, les résultats d'une analyse quantitative et
d'une plus qualitative sont associés. Ces analyses révèlent que toutes les entreprises fournissent
plus d'informations que celles exigées par la législation mais que le nombre de publications
volontaires reste néanmoins plutôt faible. Les décisionnaires considèrent que la publication
stratégique et volontaire d'informations est bien plus significative que celle d'informations
complémentaires non-financières. Ce résultat montre, de plus, que les décisionnaires se
concentrent principalement sur les actionnaires et les investisseurs quand il décident de publier
volontairement des informations. Il apparaît, également, que les procédures de prises de
décisions dans les entreprises reposent sur l'intuition et l'expérience personnelle des
décisionnaires plutôt que sur l'analyse des besoins en information ou sur l'évaluation des
conséquences plus larges de la publication d'informations stratégiques et non-financières. Ceci
pourrait traduire une absence de connaissance des effets d'une publication volontaire
d'informations en dehors des marchés de capitaux. Une recherche empirique plus poussée
spécialement dans ce domaine pourrait aider les managers en leur donnant des
recommandations quant à la publication d'informations ainsi que les encourager à considérer, de
manière plus exhaustive, la publication volontaire d'informations et ses conséquences possibles.

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Executive Summary (German)
In einem ersten Schritt leitet diese Diplomarbeit (European Research Project, ERP) die
Notwendigkeit von freiwilliger Unternehmenspublizität in strategischen und nicht-finanziellen
Bereichen her. Es wird argumentiert, daß Unternehmen ein integraler Bestandteil einer
gemeinsamen Umwelt sind und sich in einer Reihe interdependenter Beziehungen mit dieser
befinden. Daher werden sie zunehmend als Interessengemeinschaften verschiedener
Anspruchsgruppen gesehen, die nur dann optimal handeln können, wenn die Ansprüche
umfassend beachtet und berücksichtigt werden. Dabei sind Informationsansprüche davon abhängig,
wie die jeweilige Information zur Verbesserung von Entscheidungsprozessen genutzt werden kann. Dies
wiederum wird vom Potential der Information bestimmt, Unsicherheit in den betreffenden
Entscheidungsbereichen zu reduzieren. Unsicherheit besteht für externe Entscheidungsträger vor allem
in den Bereichen, in die herkömmliche Unternehmensinformationen wenige oder gar keine Einblicke
gewähren. Aufgrund der traditionellen, finanzorientierten Auffassung der Publizität gilt dies in
besonderem Maße für strategische und andere nicht-finanzielle Aspekte. Entsprechende freiwillige
Publizität kann daher Unsicherheit erheblich reduzieren, insbesondere dann, wenn sie im Rahmen von
testierten Dokumenten stattfindet. Gängige Finanzberichterstattung und bestehende Pflichtpublizität sind
dagegen nicht in der Lage, die Befriedigung der Informationsbedürfnisse der Anspruchsgruppen
annähernd zu gewährleisten.
Die Erstellung, Verarbeitung und Veröffentlichung von Informationen steht dabei jedoch wie jede
unternehmerische Handlung auch unter dem Primat der Wirtschaftlichkeit, d.h. der Gesamtnutzen
für das Unternehmen soll die Gesamtkosten übersteigen. Aus diesem Grund gilt es, die Chancen
und Risiken der freiwilligen Unternehmenspublizität sowohl bezüglich der Kapitalmarktteilnehmer
wie auch außerhalb des Kapitalmarktes möglichst umfassend zu berücksichtigen. In einem
zweiten wesentlichen Teil des ERPs werden deshalb diese Chancen und Risiken diskutiert. So
kann freiwillige Publizität zum einen den Aktienkurs und damit den Marktwert des Unternehmens
beeinflussen, weil keine strenge Informationseffizienz auf dem Kapitalmarkt besteht. Durch die
Veröffentlichung von Unternehmensinformationen können also direkt ein höherer Marktwert und
somit potentiell geringere Kapitalkosten hervorgerufen werden. Dadurch verbessert sich
beispielsweise die Position des Unternehmens im Wettbewerb um die möglichst günstige
Beschaffung von zusätzlichem Kapital. Zum anderen ist es für Unternehmen von hoher
Bedeutung, die Auswertung von Informationen seitens anderer Adressaten als der

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Kapitalmarktteilnehmer zu berücksichtigen. Dieser Vorgang ist dann von Interesse, wenn die
Auswertungsergebnisse Verhaltensänderungen hervorrufen, die positive oder negative Auswirkungen
auf die Beziehungen zur Unternehmung nach sich ziehen können. Eine Reihe weiterer Nutzen und
Kosten der Publizität ergeben sich unabhängig von den jeweils betrachteten Adressatengruppen.
Der auf diese Diskussion folgende praktische Teil der Arbeit untersucht zunächst, in welchem Maße
strategische und nicht-finanzielle Informationen von Unternehmen freiwillig veröffentlicht werden. Es wird
dann versucht, dieses Maß zu erklären. Zu diesem Zweck wird die Gestaltung der unternehmerischen
Entscheidungsprozesse ebenso beleuchtet wie die Bedeutung, die Entscheidungsträger der freiwilligen
Publizität beimessen, und der Umfang, in dem sie sich der mit ihr verbundenen potentiellen Vor- und
Nachteile bewußt sind. Weiterhin werden Beziehungen zwischen Unternehmenscharakteristika und den
Publizitätsquoten ermittelt und auf ihre Kausalität überprüft sowie die am häufigsten vorgebrachten
Argumente für und gegen die fakultative Veröffentlichung der genannten Informationen vorgestellt. Zu
diesem Zweck werden Ergebnisse einer quantitativen und einer qualitativen Analyse kombiniert. Es zeigt
sich, daß alle Unternehmen mehr als das gesetzlich geforderte Maß an Informationen veröffentlichen,
wobei die durchschnittlichen Publizitätsquoten jedoch recht niedrig sind. Die Entscheidungsträger halten
die zusätzliche Veröffentlichung von strategischen Informationen für wesentlich wichtiger als die in
anderen untersuchten Bereichen. Dies spiegelt ihre gedankliche Fokussierung auf Aktionäre und
Investoren im Rahmen der Entscheidungen über freiwillige Publizität wider. Es stellt sich zudem heraus,
daß die betreffenden Entscheidungsprozesse größtenteils auf Intuition und persönlichen
Einschätzungen basieren und weniger auf Analysen und Abwägungen der Informationsbedürfnisse oder
der umfassenden Berücksichtigung der vielfältigen Konsequenzen freiwilliger Publizität. Dies mag in
mangelndem Wissen über deren Auswirkungen vor allem außerhalb von Kapitalmärkten begründet
liegen. Hierzu können weitere wissenschaftliche Erkenntnisse erwartet werden, wobei gerade
empirische Studien den Entscheidungsträgern wertvolle Hilfen liefern und zu einer umfassenderen
Beurteilung der untersuchten Publizitätsformen beitragen können. Dies dürfte die Notwendigkeit des
Tätigwerdens unternehmensexterner Interessenten zur Behebung gegenwärtiger Informationsdefizite

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1 Introduction
Problem Area and Objectives of the Work
An essential objective of corporate reports is to supply information to a number of interest groups that
enables them to make decisions, mainly about the allocation of scarce resources (Cooke, 1989).
Information playing a key role in this process, it is important for executives, policymakers and external
users to know the extent to which voluntary disclosure - that is disclosure not required by regulation -
occurs in corporate reports and to understand the incentives or disincentives to disclose information
voluntarily. This understanding has been described as "the quintessential accounting problem"
(Verrecchia, 1990, p.245), and voluntary disclosure in general is a focus of interest of an increasing
amount of executives in financial departments as well as of researchers. Providing such additional
information implies costs like collection and processing costs or proprietary costs that need not
necessarily be incurred. At first glance, doing so seems lacking in economic logic. However, there are a
number of potential benefits associated with voluntary disclosure. The most obvious and widely
discussed benefit is that by satisfying investors' demand for information needed in investment decisions,
the company can lower its cost of capital and thereby raise additional capital on the best available terms.
Moreover, other stakeholder groups have their own information needs, and voluntary disclosure should
also be decided about with regard to its effects on those groups (Kaden, 1991). This is even more
important as far as information is concerned that is not purely financial in nature and on which the
present work concentrates to close a gap in existing literature. The aim of this research project is to
develop a framework that contributes to understanding the phenomenon of voluntary disclosure and its
The practical part of this ERP tries to establish which companies are likely to publish non-required
statements in the area of "strategic" and "non-financial" information and what guides executives in their
decisions for or against voluntarily disclosing them. An important question is to know in how far these
people are aware of disclosure-related costs and benefits and incorporate them into their decision-
making processes, and how they weigh these up.
Therefore, the basic objectives to be achieved with this work are:

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- to provide a comprehensive discussion of disclosure-related factors as a theoretical basis
- to establish a numerical measure to compare the extent to which voluntary disclosure can be
found in the companies' reports
- to examine this extent, analysing different companies' disclosure behaviour as to different types of
information and finding independent variables that have significant influence on the overall level of
disclosure by the use of statistical models
- to discover what the decision making process is like in the companies concerning decisions for or
against voluntary disclosure, delivering supporting as well as additional qualitative explanations as
to what is or is not disclosed and for which reasons
- to evaluate which role voluntary disclosure plays in companies' information strategies
- to analyse the findings with regard to differences across Europe
Hence, the overall aim is to develop a broad model describing which degree of voluntary
disclosure can be expected from a company with given characteristics and explaining the reasons
for that by taking into account executives' perception of the importance of that kind of information
and their decision-making processes. To do so, a statistical analysis of the extent of voluntary
disclosure and its association with independent company characteristics is combined with a
qualitative investigation, which represents a development of what researchers have done so far in
this field.
1.2 Rationale
To start with, it is necessary to define and describe the concept that underlies the employment of the
terms of "strategic" and "non-financial voluntary disclosure". This is done in the last Chapter 3 of that Part
1. While strategic and non-financial information is an area of disclosure which is of growing interest and
concern, the understanding of it therefore becoming of great importance, it is not well developed in terms
of identifying the demand of the relevant user groups or the supply-side factors to be taken into account.
Part 2 and Part 3 are designed to overcome this problem.

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Part 2 deals with demand-side factors. After presenting the crucial role that the studied form of disclosure
plays in today's society to enable companies to attain their ultimate goals (Chapter 1), Chapters 2 and 3
describe the user groups together with a short reasoning on why these have a legitimate interest in
strategic and non-financial information. Specific sub-groups of that information particularly fundamental
to satisfying users' needs are then isolated in Chapter 4 of that part. The needs are ascertained by
deducing them from the objectives of the respective target groups and by falling back upon empirical
studies that have established certain informational preferences.
Part 3 is the main part of the theoretical foundations laid in this study, as it discusses supply-side factors
in detail that are deemed to most strongly determine voluntary disclosure behaviour. The question of
existing disclosure requirements is addressed in Chapter 1. In Chapter 2, assumptions about the effects
of voluntary disclosure are examined. First, this includes a discussion of potential consequences on
capital markets and of the way executives may assess these. Although debated much less in literature,
disclosure behaviour also affects companies' positions on other markets and in its wider environment.
Both to decide about and to understand that behaviour, it is therefore imperative to consider the
opportunities and threats related to voluntary disclosure outside capital markets that are investigated in a
second main section of that chapter. Third, several empirical studies have tried to find independent
company variables that might explain the extent of a company's voluntary disclosure, representing
certain incentives or disincentives and thereby also depicting situations in which voluntary disclosure
seems most appropriate. These studies are discussed in the last section.
With the insight from the first three parts, the necessity of a detailed knowledge about voluntary
disclosure for different groups can then easily be deduced in Part 4, together with the identification of
some problem areas in which present knowledge is particularly limited.
In the form of research questions and hypotheses, this leads up to the practical Part 5 of this study. The
emphasis is first put on examining and judging the extent of voluntary disclosure by reviewing
companies' annual reports and on determining associations with company characteristics as possible
explanations. In a second step, this is complemented by a study of executives' actual perception of
voluntary disclosure and their decision-making processes in this area, data coming from own interviews.
Part 6 brings together the results of the preceding parts. It summarises and interprets main results and
illustrates their implications followed by critical reflections about the limits of the research and the
generalisability of findings. At the close of the work, areas of further research are proposed in which
results would help to extend the understanding of voluntary disclosure.

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Conception of Strategic and Non-financial Voluntary Disclosure,
Delimitation and Use of Terms
Information that limited companies communicate to the outside world is subject to certain
minimum levels which are specified by regulation. Beyond these minimum levels companies can
voluntarily disclose a whole host of useful information to better achieve the objectives of their
statements. In this study, voluntary disclosure is defined as disclosure of information that is not required
in any of the different European countries concerned. This makes it possible to set a common
benchmark for all companies and facilitates comparisons between them.
Voluntary disclosure can be classified as part of a company's communication policy. In the past, such a
policy was often described as the totality of communication efforts directed towards investors. Ellis
(1985) gave a typical definition of the time when he called it "the overall process by which the corporation
communicates with investors, explaining the company's future challenges and opportunities, discussing
present strategy and past performance, and developing a constituency of informed and interested
investors" (p.34). Those definitions were subsequently extended to include the communication with
creditors (Lingenfelder and Walz, 1988) and nowadays also with other relevant stakeholder groups. The
extensive form of disclosure that is able to satisfy needs of all these interest groups is the concept
underlying the use of the term "voluntary disclosure" in that study.
Such voluntary information, then, may be described as being purely financial, strategic, or non-financial
information. For the purpose of this work, the term "strategic information" encompasses any information
used to illustrate companies' activities in terms that are not primarily historical and earnings based
. "Non-
financial information", on the other hand, is defined here as any information that is primarily designed to
report on a corporation's relationships with, or impact upon, the wider society or non-shareholder groups.
Within the domain of voluntary disclosure, this transnational work concentrates on the disclosure of non-
financial and strategic information as defined above and excludes purely financial information. One
principal reason for this is that in the case of purely financial information, some countries have extensive
reporting requirements. Therefore, given the above definition of voluntary disclosure, considering
financial information would result in the elimination of a big part of voluntary disclosure for those
companies not coming from these countries, but nevertheless reporting the information concerned. In
the end, this fact would heavily bias the results of the statistical analysis and would make useful
comparisons between companies from different countries impossible. Additionally, as already

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emphasised, strategic and non-financial reporting are relatively new areas especially requiring further
To sum it up, the term "strategic and non-financial voluntary disclosure" is used here to refer to
information in excess of conventional financial statements and additional purely financial information. The
focus, therefore, is on information, some of which may well be financial in nature, which is likely to be of
interest to a variety of user groups concerned with the social and economic impact of companies as well
as its future performance. These user groups and the legitimacy and nature of their demand for
information shall be discussed in the following Chapter 2.

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Demand for Strategic and Non-financial Voluntary Disclosure
Function and Role
Objectives of statements like the annual report are generally presumed to be (1) to provide a report to
the legal owners or shareholders of a corporation on the stewardship of the resources entrusted to its
management, thereby also keeping potential sources of further financing open by encouraging investors,
and (2) to provide information useful for decision making by investors, lenders, and other interested
parties (Gray and Roberts, 1991). In the past, the information contained in those statements was often
limited to events which had to be reported and which could be described in monetary terms.
Furthermore, the primary focus of conventional reporting is on earnings and its components. With this
relatively narrow focus, it is unlikely that all of the information needs of users, such as investors and
lenders, let alone groups like employees, trade unions, governments, and the general public, will be
satisfied (Gray, Owen and Maunders, 1987).
However, companies are an integral part of a common environment and society, acting in a framework
of interdependent relationships. This recognition leads to the requirement of taking into account the
needs of all interest groups in society and of acting accordingly to satisfy them, which finds its expression
in several newer concepts of economic theory. The stakeholder approach, for example, takes the
persons affected by a company's activity or existence as groups with different demands on the company.
A company is therefore seen as a community of interests of different groups, and it is postulated that it
can only act in an optimal way if the demands of stakeholders are taken into account in accordance with
their respective potential of influence. Similarly, the orientation towards wider society is reflected in the
concept of societal marketing. Kotler (1988), who introduced this term, points out that historical
approaches have to be enlarged and describes an organisation's task as being "to determine the needs,
wants and interests of target markets and to deliver the desired satisfactions ... in a way that preserves
or enhances the consumer's and the society's well-being" (p.28). All these approaches
deduce the
necessity of establishing relations with the various groups to communicate and inform. Only then can the
ultimate goal of a company, predominantly assumed to be that of maximising firm value (for more on that
see Section 3.2.1), be achieved in the long term.
For similar approaches other than the two examples mentioned here, integrating questions of society and the
environment into the principles of business management, see Staehle (1991).

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Reflecting this necessity and the limitations of traditional financial reporting, companies should be
expected to voluntarily provide information that is not part of the statutory financial statements. In this
context, strategic information, almost like financial information, is commonly regarded as being of direct
decision relevance to user groups like investors (e.g., Tonkin, 1989). Non-financial information is directed
more toward a company's social accountability, aimed at a broader group of stakeholders.
There is no
doubt in the academic literature that both types of information mentioned above are likely to be of high
importance to any reader wishing to gain a more comprehensive picture of a corporation (Gray and Roberts,
These basic reflections on voluntary disclosure indicate that reporting over and above minimum
requirements is influenced by a set of supply and demand forces. Investors and other stakeholder
groups demand different information for different purposes. These groups and the information in the area
of strategic and non-financial voluntary reporting they consider relevant will be further discussed in
Chapter 2. Supply is affected by existing regulations presented in Chapter 3.1 as well as by the costs
and their comparison with the achievable benefits that companies associate with disclosure as discussed
in Chapter 3.2.
2.2 Target
As pointed out, companies' disclosure should generally be oriented towards the needs of all parties in its
surroundings (see also Kaden, 1991). Decisions about voluntary disclosure, therefore, have to take into
account the informational needs of all interest groups. The following groups demanding additional
company information can be distinguished (see Foster, 1986, chap. 1; Kaden, 1991, pp. 59-62):
The group of providers of equity capital comprises current and potential shareholders as well as
intermediaries like security analysts or economic journalists. For them, the information they
receive contains the basis for the allocation of dividends and the assessment of the company's
future prospects, the latter area being one in which strategic and non-financial voluntary
disclosure plays an important part. Founded on that, decisions can then be made by
shareholders which typically will have either an investment focus or a stewardship focus. In an
investment focus, the emphasis is on buying or selling shares ("control by exit") to choose a
portfolio that is consistent with preferences. In decisions with a stewardship focus, the concern

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of shareholders is with monitoring the behaviour of management and, above all, attempting to
affect its behaviour ("control by voice").
The analysis to be undertaken for those decisions can be done by shareholders themselves or
by intermediaries. These can also act as pressure groups on management to influence the
content of information provided. However, they may have different rankings for the information
desired than the shareholders for whom the analysis is conducted. In any case, providers of
equity capital are major recipients of company statements and consequently of voluntary
Lenders and suppliers have similar informational interests concerning short-term loans. Their
decisions concern the establishment or continuation of a relationship. Since relationships are
often long-term, the company's future prospects are at least as important as the current
performance. As far as long-term loans are concerned, lenders even make the same demands
for information as providers of equity capital.
The demand for strategic and non-financial information by employees can arise from several
motivations. They have an interest in the continued existence of their company because the
security of their job is related to it. Employees may also demand additional information to judge
future profitability and solvency, as this determines the company's future ability to pay their
wages as well as the viability of their pension plans. Finally, this group is also interested in
certain Human Resources information, for example about working conditions. Labour unions
also belong to that group and analyse all that information with regard to future negotiations with
the employers.
Relationships with customers often extend over many years. In the case of sports clubs, this
can best be illustrated by sponsorship deals. Customers have a vested interest in monitoring the
long-term performance of firms with which they have those relationships and want to gain a
comprehensive picture of these firms' capabilities and competitiveness, as their own future at
least partly depends on it. This interest is likely to increase when concerns develop about
possible bankruptcy.
Authorities, i.e. state agencies, have various informational needs depending on their respective
tasks. Demands for additional strategic and non-financial information can arise in areas such as

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regulatory intervention or concerning questions of social and regional policy in which the state
may pursue own objectives.
The rest of the general public consists of an almost open-ended set of parties that may make
demands on corporations. Among them are environmental protection organisations, supporter
groups, or the lobbying groups of the community in which the company operates, that all may
desire additional details relating to strategic and non-financial areas.
Factors Affecting Demand
It has been pointed out that the demand for company information "is derived from the improvement in
decision making or monitoring that arises with its use. Factors that determine whether such an
improvement is expected to occur include (A) the potential of information to reduce uncertainty and (B)
the availability of competing information sources" (Foster, 1986, p.9).
Concerning the potential of information to reduce uncertainty, the related issues are the level of
uncertainty faced by the external decision maker and the expected gains from reducing it, as well as the
role that the information can play in modifying beliefs about uncertainty. Uncertainty often arises from
sources about which financial statements provide little insight. This is why regarding the strategic and
non-financial areas uncertainty is generally high, and related additional information that is voluntarily
provided can considerably reduce it, even more so if it forms part of audited statements. It has been
outlined in the previous chapter that this reduction of uncertainty is of high interest to several user
As regards the availability of competing information sources, in most cases the choice is not one
information and monitoring device to the exclusion of others, but will concern the appropriate mix of the
many devices available. However, there are a number of reasons for which voluntary statements
provided by the company directly to the user groups, e.g. by disclosure in annual reports, have a
comparative advantage over those competing sources. The two most important ones are the higher
reliability of the information issued to interested parties by the company itself on the one hand, and the
lower costs for these parties related to that information source on the other hand.
An important factor that is associated with the demand for information and from which conflicts may arise
is that each party will not have similar rankings as to the items that should in their view be additionally

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Contents and Relevance of Specific Voluntary Disclosure Areas
It has been argued above that because of the claim for usefulness of information within the framework of
decisions to be made by target groups, their informational needs have or at least should have a
determining influence on the contents of voluntary disclosure, knowing that there may be conflicts
between groups. First of all, these needs must be ascertained. This can be done by deducing them from
the objectives of the respective target groups and by trying to find out about their informational
preferences in an inductive approach with the help of empirical studies (Kaden, 1991). In applying both
the deductive and the inductive approach to strategic and non-financial communication, certain areas
emerge that can be considered as particularly relevant subjects for voluntary disclosure and that are
described below. For the inductive part, existing empirical studies are used to extract the strategic or
non-financial information that was found to be of interest. All of these studies aimed at directly
establishing the needs of target groups, asking them to judge various items of information by assigning
marks. While this method has the advantage that decision-relevance can directly be inferred from the
answers, some important problems are inherent. One, by giving a list of items to be marked, a pre-
selection is already made by the researcher. Two, it is highly questionable whether respondents are
willing or able to correctly judge an information as to its relevance in their decision-making at all. Three,
these studies focus on participants of capital markets and neglect the information needs of all other
parties. These problems concern all voluntary disclosure items, but are particularly crucial as regards the
relatively new area of non-financial information. Because of that, the deductive approach is of high
significance in the following assessment of the contents of that information demanded by target groups.

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2.4.1 Strategic
General corporate information
Some general information on company history or structure is likely to be considered useful. This is
mainly true for shareholders and potential investors who may benefit from knowledge about long-term
historical performance to the extent that it throws some light on future performance, for example through
an improved understanding of a company's strategy and operations. Information about the corporate
structure may assist users in evaluating whether a company seems to have built up the necessary
organisational framework to succeed in the future.
Future prospects
Investment decisions and thereby share prices will normally be based on the expected future
performance, rather than on their past performance (Harrington, Fabozzi and Folger, 1990). This
explains why investors will generally be particularly interested in any information about the company's
future prospects. Pernsteiner (1991) theoretically underlines the need for that information in the decision-
making process of small investors. Its importance to both professional and private investors is shown for
example in a study conducted by the German Handelsblatt (1988). Additionally, the significance of that
kind of disclosure in the stock market is confirmed by various researches like that of Hoskin, Hughes and
Ricks (1986) finding a highly significant association between prospective officer comments and stock
returns. Future prospects information can encompass information about expected developments in
terms of turnover, profit and cash flow after the date of the accounts as well as the underlying
assumptions and trends.
Corporate Strategy
Providing mission statements, strategies and explicit objectives gives users a clear definition of the
company's focus and targets being pursued. It thereby "serves to enhance management's accountability
to the providers of capital" (Meek, Colwell and Peavey, 1991, p.19), even more so should the impact of
such statements, strategies and objectives on current or future results expressly be explained by the
management itself. The early study of Hub (1972), for example, already confirms the high importance
that the group of institutional investors and intermediaries attaches to long-term objectives in their
decisions. The work force may be interested in that information insofar as a company's strategy can
sometimes be directly related to questions of job security or career opportunities.

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2.4.2 Non-Financial Disclosure
Information about directors
Directors are the people making the decisions that ultimately determine the success or failure of a
company. Knowledge about these important elements will mainly be desired by investors in order to
evaluate whether the directors seem to be able to lead the company to future heights. Baker and Haslem
(1973) and Buzby (1975) were the first to empirically prove the interest in directors and management
expressed by investors and financial intermediaries respectively. Those groups may want to take into
account directors' experience, their physical and mental condition, their financial interest in the company
and the possibility of interest conflicts arising from other directorships that could be held.
Human Resource disclosure
As Meek et al. (1991/94) point out, information on Human Resources is likely to be of interest to
investors, the work force itself, and the wider society. Investors can be deemed to be interested as the
performance of a company also depends crucially upon the performance of the work force. Statements
on employee morale, the functions of senior management, recruitment policies, or on the development of
employee numbers will be relevant to that group. The work force itself will be interested as far as the
information given describes actions, developments or events having an impact upon e.g. working
conditions or job security. This may be the case for disclosure in areas like accidents or injuries,
preventive measures, and significant changes in employee numbers or categories. The wider society,
finally, is generally interested in factors like equal opportunity policies as matters of social justice.
Social policies and value-added statement
The environment, i.e. both the physical environment and the community in which a company operates,
as well as the impact of a company's activities upon it are undoubtedly an area of growing awareness
and concern being expressed by various parties. In its principles of corporate governance, for example,
the OECD (2000) states that such information relating to the physical environment and other public
policy commitments may be important for investors to better evaluate the relationship between a
company and the community. Furthermore, a study conducted by the US/UK research and publishing
group Shelley Taylor & Associates showed that 44% of major institutional investors surveyed in 1994
were interested in company environmental policy (cited in OECD, 1998, p.11). Governments also
impose more and more environmental legislation, reflecting the growing concern.

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Value-added statements, as defined e.g. by Meek et al. (1991/94), report on the amount of wealth
generated and the share of this wealth attributable to all groups that participate in the value chain. Once
it has been accepted that corporations are accountable to a wider audience than simply shareholders,
then the interest and advantages of these statements become apparent.
The existence or non-existence of environmental protection or community programmes or at least
charitable donations as well as the attribution of wealth, therefore, are of interest to most target groups.
To give the reader an impression of what these disclosures may look like, Appendix A shows some
examples from four of the areas described above.

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Supply-Side Factors Influencing Voluntary Disclosure Behaviour
3.1 Regulatory
as a Supply-Side Factor
This chapter focuses on regulatory factors that affect the provision of voluntary disclosure in two ways.
First, for the purpose of examining and assessing voluntary disclosure, existing disclosure regulations
simply define whether disclosure of an item can be considered voluntary or whether it is mandatory. That
is a technical aspect that determines the classification of disclosure and represents the basis for the
empirical study to follow. Secondly, as a supply-side force influencing the amount of information given
over and above mandatory statements as well as its contents, codes, principles and recommendations
are of significance as they indicate areas which are supposed to be of importance to users of company
information and which could be subject to additional requirements in the future. The general environment
surrounding strategic and non-financial voluntary disclosure is presented in that chapter by firstly
describing the main players in the regulatory framework and afterwards giving a short overview of
existing regulation in the specific voluntary disclosure areas isolated above.
3.1.1 Organisations Relevant to Setting Disclosure Standards
The players in the regulatory field can be divided into three groups.
One, there are non-governmental, mostly private-sector standard-setting bodies which play an important
role in some countries (for example in the UK where the influence of professional accountants' bodies on
regulation is of long standing, as pointed out by Nobes, 1998, pp. 100-108). Increasingly, the action of
these bodies does concern disclosure in the areas of strategic and non-financial disclosure, like for
example the Cadbury, the Greenbury, and the Hampel Report in the UK, the Peters Report in the
Netherlands, or the Portuguese Recommendations on Corporate Governance.
However, the
procedures they present are rarely transformed into mandatory requirements, and it is widely agreed that
the self-regulatory bodies often charged with enforcing them are not at all swift to act (e.g., PIRC, 2000).
Additionally, these bodies are still largely concerned with improving the quality of existing information in
financial statements, and therefore their actions can principally be ignored in this study. Stock exchanges
A rather comprehensive collection of disclosure-related full text codes, principles and recommendations for most
European countries is given by the ECGN (2000).

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also belong to that group and generally require companies listed on them to comply with certain
disclosure requirements. Thus, Milan Stock Exchange, for example, has only recently revised its Code of
Conduct, and London Stock Exchange Listing Rules now require listed companies to disclose some
elements that have been recommended by the three Reports mentioned above. However, it has to be
seen that "disclosures required by the stock exchange beyond those of company law and standards are
few" (Nobes, 1998, p.96), which applies to the whole of Europe and especially to strategic and non-
financial information.
Two, national governments have the possibility to initiate reporting requirements in this as in any other
area. They may directly lay down those requirements in national law, e.g. in the Companies Act in the
UK, the Obligationenrecht in Switzerland or the Annual Accounts Act in the Netherlands. Up to now,
though, national regulation governing strategic and non-financial reporting is sparse apart from France
and the USA.
Three, supranational bodies and their activity are to be taken into account. The three most important
ones to be considered here certainly are the International Accounting Standards Committee (IASC), the
United Nations (UN) acting through several commissions and the European Community (EC) with its
Accounting Directives. Since both the IASC and the UN have no universal authority to impose legislation,
their views and recommendations on disclosure issues are only rarely transformed into formal
requirements. EC directives have to be autonomously translated into national law by each member state.
In actual fact, however, this autonomy is often very limited due to the detailed regulations already
contained in the directives (Kaden, 1991), which is particularly true for the EC Fourth (1978) and Seventh
Directive (1983) that are of primary interest in the context of that study. While these touch issues of
strategic and non-financial disclosure, EC directives have mainly been developed to harmonise existing
legal requirements and are therefore primarily concerned with purely financial reporting.
As can already be deduced from this description, and as has been stated by authors like Gray and
Roberts (1991) or Nobes (1998), there have generally been very few formal legislative requirements in
the area of strategic and non-financial disclosure. So, as Nobes (1998) puts it, that form of reporting has
received increased attention but, in the absence of statutory requirements or standards, little has been
achieved in practice. Developments in the last years have not changed that situation, as most initiatives
of the above organisations have not led to mandatory regulations. A contrast exists between the list of
proposals at international level developed by the supranational bodies and the paucity of regulation at
national level. Therefore, the discussion of disclosure requirements as such can be kept at a minimum.
They are briefly treated below if and when they may concern one of the groups of potential voluntary

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disclosure items that have been deduced in Chapter 2.4.
Arguments have also been presented in that
chapter explaining why these areas of voluntary disclosure are relevant to user groups even though there are
few or no legislative requirements to provide such information.
3.1.2 Legal
General corporate information
No relevant regulation is in place in that area that would specify a certain minimum level of information to
be disclosed as to the aspects mentioned in Chapter 2.4.
Future prospects
Relatively few disclosure requirements exist in this area, and those that do exist are imprecise, not
necessarily requiring the disclosure of statements with real information content. A good example is the
very vague Article 36 of the EC Seventh Directive on consolidated accounts (1983) which has been
incorporated in the national legislation of all EC countries and that only requires companies concerned to
comment on "the likely future development of those undertakings". However, no guidelines are given as
to its content, and hence disclosure remains subject to executiveial discretion.
Corporate Strategy
There are no formal requirements for disclosure in this area in national laws. Some codes and listing
requirements, among them those of the London Stock Exchange, have begun to demand information on
general company objectives and strategy, but again these disclosure rules remain so vague that
meaningful and interesting statements can still be considered voluntary.
Human Resource disclosure
Human Resource information is the area of strategic and non-financial disclosure that has
received the greatest interest, and mainly as a consequence of that, more regulation exists in this
area than in any other examined in the present work. Nevertheless, these requirements are all in
all still very limited. For European corporations, the most important statutory duties of disclosure
are those initiated by the EC. Both the EC Fourth Directive (1978) and the EC Seventh Directive
(1983) require companies to report the average number of employees, a breakdown of employee
numbers by category (without detailing what exactly is meant by that) and a breakdown of
employee costs. UK corporations are additionally required by national law to describe their policy
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Voluntary Disclosure of Company Information - Costly Additions or a Step towards Competitive Advantage?
An Application to the Case of Publicly Quoted Football Clubs in Europe
European School of Management and Technology, Berlin
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Patrick Roy (Author), 2000, Voluntary Disclosure of Company Information - Costly Additions or a Step towards Competitive Advantage? , Munich, GRIN Verlag, https://www.grin.com/document/185698


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