Impact of firm characteristics on transparency & disclosure: evidence from financial sector of Pakistan

Abstract

Transparency and disclosure plays significant role in improving corporate governance. Governance in the perspective of transparency and disclosure protects shareholders rights through timely disclosure of information of corporate activities. Considerable amount of research has deliberated separation of ownership and control in order to mitigate agency problem. The issue of corporate governance is apparently new in the corporate infrastructure of Pakistan. Nevertheless other economies have taken up corporate governance as serious issue. The present study is an attempt to understand the relationship of firm characteristics such as firm size, leverage, liquidity, profitability, board composition and audit committee composition in the frame of transparency and disclosure as indicator of governance. Contribution of present study can be counted in terms of construction of transparency and disclosure index using standard and Poor’s transparency and disclosure scoring system at three levels such as ownership structure and exercise of shareholder rights, financial transparency and information disclosure and board & management structure process disclosure. In the pursuit of construction of the transparency and disclosure index, annual reports for the sample of 99 firms from financial sector of Pakistan over the period of six years (2007-2012) are used. Panel data models fixed and random effect model followed by Hausman test have been employed. Finding of the study after application of diagnostic statistical criteria reveals that firm size, financial leverage and audit committee composition have significant positive causal relationship with overall transparency and disclosure score, while liquidity and the board composition have negative but significant causal relationship with transparency and disclosure.