Date of Award
Master of Business
Faculty of Business and Public Management
Associate Professor Colin Dolley
This thesis is an empirical examination of the relationship between six firm characteristics, namely: firm size, industry membership, minority interest, financial leverage, firm diversification, ownership diffusion, and voluntary disclosure of segment information in a regulated environment. This study provides empirical evidence that there are incentives for Australian companies with specific firm characteristics to voluntarily disclose segment information in a regulated setting. The theoretical frameworks employed in this research study are agency theory and contracting theory. Compensation contracts are employed to resolve the potential conflicts of interest between the shareholders and managers giving rise to agency cost of equity. Debt contracts are employed to resolve the bondholders and shareholders/managers conflict giving rise to agency cost of debt. Management may voluntarily disclose additional segment information to reduce these agency costs. Compensation contracts and debt contracts align the interests of management with those of shareholders and debtholders. Managers are directly rewarded using a variety of compensation plans, such as stock option grants and stock appreciation rights. Managers have incentives to maximise firm value under these compensation plans as they may be rewarded with an increase in bonus payments and an increase in the value of their share options. In information costs (or proprietary costs), there are two forces influencing voluntary disclosure: (i) the cost of providing information and (ii) the corresponding associated benefits. Where there is a demand for private information by shareholders, debtholders and investors, its non-disclosure is likely to be interpreted as bad news and hence adversely affect firm value. Managers have incentives to voluntarily disclose additional segment information if there is a net benefit in disclosure. Certain industries may attract a disproportionate share of scrutiny from government agencies and special interest groups. These companies are more likely to voluntarily disclose additional segment information to reduce the likelihood of political costs. Political considerations include managers' concern about attracting explicit and implicit taxes, or regulatory actions. The six hypotheses in this thesis focus on a test of the contracting theory and agency theory. The firm size and firm diversification hypotheses are used as a test of the contracting theory, information costs. The industry membership hypothesis is employed to test the contracting theory, political costs. The minority interest, financial leverage and ownership diffusion hypotheses are used as a test of the agency theory. This study is based on a sample of 185 companies listed on the Australian Stock Exchange top 300 shares. Univariate and multivariate tests were performed on the six hypotheses in this thesis. The univariate test results provide evidence to support voluntary segment disclosure is significantly related to firm diversification, minority interest and financial leverage but no support was found for firm size, ownership diffusion and industry membership. The bivariate logistic regression test results found statistically significant support that voluntary disclosure of segment information in a regulated environment is related to firm diversification and firm size. No support was found for minority interest, financial leverage, ownership diffusion and industry membership.
Chan, M. C. (2003). Voluntary disclosure of segment information in a regulated environment : Australian evidence . Retrieved from http://ro.ecu.edu.au/theses/1319