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What determines the informativeness of firms' explanations for deviations from the Dutch corporate governance code?

What determines the informativeness of firms' explanations for deviations from the Dutch... The comply-or-explain principle is a common feature of corporate governance codes. While prior studies investigated compliance with corporate governance codes as well as the effects of compliance on firm behaviour and performance, explanations for deviations from a corporate governance code remain largely unexamined. This paper intends to fill that gap. The paper draws on the voluntary disclosure literature and agency theory to examine the association between firm characteristics and the informativeness of explanations for deviations from the Dutch corporate governance code. Applying content analysis to corporate governance statements for a sample of Dutch listed firms for the period 2005–2009, the study finds that ownership concentration and number of analysts following the firm are positively associated with informativeness. Furthermore, there is indicative evidence that board strength and informativeness are positively associated. The study also finds a negative association between leverage and informativeness. Institutional investors, however, do not seem to affect this type of disclosure. Taken together, the findings suggest that certain firm characteristics are associated with a firm's choice to provide either generic and uninformative explanations or more firm-specific and informative explanations. On the basis of the study's findings, I argue that firms having weaker boards, firms followed by fewer analysts, firms having more dispersed ownership and firms relying more on debt finance tend to approach comply-or-explain more symbolically than substantively. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Accounting and Business Research Taylor & Francis

What determines the informativeness of firms' explanations for deviations from the Dutch corporate governance code?

Accounting and Business Research , Volume 42 (1): 27 – Mar 1, 2012
27 pages

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References (118)

Publisher
Taylor & Francis
Copyright
Copyright Taylor & Francis Group, LLC
ISSN
2159-4260
eISSN
0001-4788
DOI
10.1080/00014788.2011.600630
Publisher site
See Article on Publisher Site

Abstract

The comply-or-explain principle is a common feature of corporate governance codes. While prior studies investigated compliance with corporate governance codes as well as the effects of compliance on firm behaviour and performance, explanations for deviations from a corporate governance code remain largely unexamined. This paper intends to fill that gap. The paper draws on the voluntary disclosure literature and agency theory to examine the association between firm characteristics and the informativeness of explanations for deviations from the Dutch corporate governance code. Applying content analysis to corporate governance statements for a sample of Dutch listed firms for the period 2005–2009, the study finds that ownership concentration and number of analysts following the firm are positively associated with informativeness. Furthermore, there is indicative evidence that board strength and informativeness are positively associated. The study also finds a negative association between leverage and informativeness. Institutional investors, however, do not seem to affect this type of disclosure. Taken together, the findings suggest that certain firm characteristics are associated with a firm's choice to provide either generic and uninformative explanations or more firm-specific and informative explanations. On the basis of the study's findings, I argue that firms having weaker boards, firms followed by fewer analysts, firms having more dispersed ownership and firms relying more on debt finance tend to approach comply-or-explain more symbolically than substantively.

Journal

Accounting and Business ResearchTaylor & Francis

Published: Mar 1, 2012

Keywords: agency theory; comply-or-explain; content analysis; corporate governance codes; voluntary disclosure

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