The Impact of Firm Ownership Structure on Voluntary Disclosure: Empirical Evidence from Czech Annual Reports

Abstract

We investigate the impact of ownership structure on the extent of voluntary financial disclosure by examining the cross-sectional variation in the extent of disclosure in 1993 annual reports of newly privatized non-financial Czech firms included in the Prague stock Exchange 50 Index. A study of this sample forms a unique natural experiment to examine the impact of ownership on disclosure because the firms' ownership structures were exogenously set during the period studied and because the Czech accounting regime provided for great flexibility in the annual report disclosure choices of firms in 1993. In our conceptual model, owners derive benefits both directly from the firm and from changes in share values in the capital market. Both types of benefits are affected by the extent of disclosure made by the firm. We derive testable hypotheses regarding the effect of ownership on extent of disclosure based on owners' attempts to maximize their total benefits from ownership. As predicted by our hypotheses, we find that concentration of ownership and the size of stakes held by internal and external owners significantly affect the extent of disclosure, after controlling for non-ownership factors.

JEL Classification: M41, G30