The paper "The Concept of Voluntary Disclosure, Accountability, Legitimacy and Stakeholder Theories" is a good example of finance and accounting coursework. Corporate governance is fortified by transparency and disclosure. The corporate world has experienced a number of scandals that have led to corporate failures owing to deficient or inadequate corporate disclosures. Moreover, the business environment has evolved and continues to evolve amid emerging developments such as financial liberalisation, globalisation, as well as technological improvements. These developments necessitate companies to evermore seek to connect with external parties to keep up with quick growth and competition.
According to Healy and Palepu (2001), corporate disclosures play a vital part in disseminating information to the important parties out of the organisation (creditors, shareholders, analysts, potential investors, suppliers, and others) since they rely on such information to evaluate a company, inform subjective estimates, and make effective decisions on whether to invest their funds in a company. Therefore, disclosure is a very important tool that companies use to connect to different stakeholders and in guaranteeing effective resource allocation in society and shrinking the information asymmetry stuck between a company and its stakeholders. In the accounting, literature disclosure is defined as “ informing the public by financial statements of the firm” (Ağca & Ö nder, 2007) or “ the communication of economic information, whether financial or non-financial, quantitative or otherwise concerning a company’ s financial position and performance” (Owusu-Ansah, 1998).
Corporate disclosure can either be mandatory and voluntary. Mandatory disclosure entails the information disclosed as demanded by legal requirements and legislations. Voluntary disclosure consists of any information released in addition to the mandatory disclosure. Meek et al. (1995) define voluntary disclosure as “ free choices on the part of company managements to offer accounting plus other information believed to be relevant to the decision needs of users of their annual reports. ” It may also include information “ suggested by an authoritative code or organisation” (Hassan & Marston, 2010). In view of the fact that corporate reporting guidelines aim at providing users with the minimum amount of information that can facilitate effective decisions making, voluntary disclosure is intended to fill in the gap left by the mandatory reporting procedures that are ostensibly inadequate in satisfying the user’ s needs.
The conventional system of financial reporting generally provides historical information, and in some industries, this system may well not sufficiently represent the precise complexity of a firm’ s actions. Therefore, managers ought to voluntarily disclose additional information that would gratify the requirements of different stakeholders. Moreover, voluntary disclosure aims to arrange for a rich interpretation to stakeholders regarding the company’ s long-standing sustainability (Boesso & Kumar, 2007). This information is conveyed to stakeholders either directly (through financial reports and press releases) or indirectly (through financial intermediaries such as banks or information intermediaries such as financial analysts) (Healy & Palepu, 2001). Accountability, Legitimacy and Stakeholder Theories Accountability Theory Accountability has several meanings in ethics.
As regards corporate governance, accountability refers to the ethical responsibility to account for the actions for which an individual is in charge. The corporate accountability theory defines the nature of the association among corporate managers and the rest of the social order. It sets out the debate as to why companies have a duty to report on their social, environmental, as well as economic performance besides financial performance. The theory emerged in the early `90s as a novel development of sustainability reporting was being introduced in corporate reporting and was adopted mainly by the multinational companies (MNC’ s).
MNC’ s had restructured their disclosure policy and adjacent to the financial information, they started to publicise information as regards their environment, social-economic performance (voluntary disclosure) (Ağca & Ö nder, 2007).
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Hassan, O., and Marston, C. (2010), Disclosure measurement in the empirical accounting literature: a review article, Economics and Finance Working Paper Series, Brunel University, Working Paper No. 10–18.
Healy, P. M. and Palepu, K. G. (2001), ‘Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature’, Journal of Accounting and Economics, 31(1-3), pp. 405-440.
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Meek, G. K., Roberts, C. B. and Gray, S. J. (1995), ‘Factors influencing voluntary annual reports disclosures by US, UK and Continental European multinational corporations’, Journal of International Business Studies, 26(3), pp. 555-572.
Owusu-Ansah, S. (1998), The impact of corporate attributes on the extent of mandatory disclosure and reporting by listed companies in Zimbabwe, The International Journal of Accounting, 33(5), pp. 605–631.
Yi, A., Davey, H., and Eggleton, I.R.C, (2011). Towards a comprehensive theoretical framework for voluntary IC disclosure. Journal of Intellectual Capital, 12 (4), 571 - 585.