Purpose This article examines the sincerity of two sets of narrative disclosures in the letters of chairpersons (CPs) and chief executive officers (CEOs) to stakeholders. The study sought to compare ...the level of optimism between the two letters and whether such optimism (as per its link to future performance) was sincere or not and the differences in the level of sincerity between the two letters.Design/methodology/approach Chairpersons’ and chief executive officers’ letters as contained in annual reports for firms listed on the Johannesburg Stock Exchange over a 4-year period were analysed. Textual analysis software was used to measure optimism in 200 CPs’ and 200 CEOs’ letters. The level of optimism was compared using mixed-model repeated measures analysis of variance. Sincerity was operationalised as the positive association between the level of optimism and future performance and a negative association as evidence of impression management. Two-way linear fixed effect regression models were used.Findings This study found that CPs’ letters were more optimistic than those of CEOs’. More specifically, the results point to impression management in both CPs’ and CEOs’ letters, with only CPs’ letters indicating a significant negative association.Practical implications Relative to the CEOs, CPs may use more optimistic writing styles to sway stakeholders who are anticipating worse-than-expected future performance; readers should be aware of the potential consequences of such practices.Originality/value The results provide support for the obfuscation hypothesis as a theoretical underpinning regarding CPs’ and CEOs’ letters. Overall, the results question the ability of such narratives to lessen agency costs.
Background: South Africa issued regulations implementing country-by-country (CbC) reporting standards for multinational enterprises (MNEs) on 23 December 2016. Country-by-country reporting will be ...applicable to all MNEs with a group revenue in excess of R10 billion. Aim: The aim of the study was twofold: to identify ambiguities that might influence the filing obligation and subsequent scope of CbC reporting in South Africa and to quantitatively measure the potential impact of any identified ambiguities. Setting: This study used data from Johannesburg Stock Exchange-listed companies. Methods: The study commences with a review of the relevant regulations and other applicable literature and continues with a quantitative analysis exploring alternative interpretations deduced from this review. Results: The review identified conflicting interpretations of how companies can be categorised as an MNE Group or not, as well as in measuring the revenue threshold. An analysis of the group structures and annual reports of a selected sample of 78 companies showed that the scope of CbC reporting will depend on the definitions applied to an MNE Group and revenue. Conclusion: Further guidance is needed to determine whether non-controlling entities must be considered as Constituent Entities, as well as how to measure revenue (i.e. whether only the International Financial Reporting Standards IFRS 15 revenue line item should be used or whether other income should also be included).
Background: Information asymmetry manifests when one party has more or better information than the other. Information asymmetry is said not only to increase transaction costs and decrease liquidity, ...but also to diminish the quality of the investment decisions taken by investors, thus weakening the overall functioning of markets. Aim and setting: A well-developed Internet investor relations (IIR) strategy, coupled with increased disclosure levels, should theoretically decrease information asymmetry levels. The majority of related studies to date used either an indirect disclosure proxy or involved an examination of the annual report, and have used data from United States or European companies. Empirical studies to date have produced mixed results. The aim of this study was to ascertain whether a relationship exists between the quality of IIR (via corporate websites) and information asymmetry. Method: This study used data from Johannesburg Stock Exchange (JSE)-listed companies. Multiple regression analysis was applied with information asymmetry as dependent variable and IIR as one of a set of selected explanatory variables. A self-constructed measurement instrument was used to measure IIR for a sample of 85 companies. Given the inherent difficulty with direct observation of information asymmetry, three different proxies were used to estimate information asymmetry. Results: A significant negative association was found between IIR and information asymmetry for all three information asymmetry proxies that were used: bid-ask spread, price impact, and analyst following. Conclusion: Empirical support is provided for the notion that companies may potentially benefit from a well-developed IIR strategy through reduced information asymmetry.
PurposeThe aim of this study was threefold: to examine companies' e-mail handling performance, to ascertain whether companies' view corporate websites and respond to e-mail requests as mutually ...exclusive or complementary, and finally to gauge the strategic importance of retail investors.Design/methodology/approachThe findings are based on an analysis of the corporate websites and e-mail handling performance of the 77 smallest companies listed on a South African stock exchange. A “mystery investor” approach was employed to measure companies' e-mail handling performance in terms of responsiveness, timeliness and relevance of responses. A disclosure score was calculated for each company based on a content analysis of corporate websites.FindingsThe opportunity for improvement exists, as evidenced in the fact that only 53% of companies responded to an e-mail request from a retail investor. The results suggest that corporate websites and the e-mail functionality are not used in isolation but as complementary. Although the results suggest that companies neglect retail investors, companies that provided a dedicated investor relations (IR) contact address prioritised both their corporate websites aimed to a wide range of stakeholders, as well as responding to an e-mail request received from a retail investor.Originality/valueThis study contributes to research on the association between one-way and two-way communication channels, aimed at retail investors. It is the first study to explore these relationships using data from the smallest companies listed on the stock exchange of an emerging economy.
Background: Although research shows that almost all listed companies have corporate websites with dedicated investor relations (IR) sections that enable companies to ‘push’ information to investors, ...it was argued that such an asymmetrical approach to communication is insufficient for companies wishing to exercise good IR. The purpose of this study was to test the effectiveness of the Internet to act as a mechanism to achieve more interactive communication between companies and investors.Objectives: The objectives of the study were to measure the responsiveness, timeliness and relevance of companies’ responses to e-mail requests, and to test for the determinants (size, market-to-book ratio, profitability, leverage and liquidity) thereof.Method: The mystery investor approach and a content analysis were used to study the e-mail handling performance of companies. The associations between company-specific characteristics were statistically tested. Results: It was found that the e-mail handling performance of companies in this study was poor compared with previous studies. Significant relationships between company size and responsiveness and relevance, and between market-to-book ratio and relevance were reported, as well as between the contact method used to request information and relevance and the use of social media and timeliness.Conclusion: Specific areas where companies could improve their investor communications were identified. The need for further research was discussed to explain some of the relationships found, as well as those not found, in contrast to what was expected. Future research is warranted to examine the relationship between the e-mail handling performance of companies and information asymmetry and the cost of equity of companies.
In the aftermath of corporate collapses and scandals, transparent communication with stakeholders is vital in rebuilding trust. Notwithstanding sound theoretical arguments advocating the importance ...of board diversity, e.g. improved corporate governance, empirical results remained mixed. The purpose of this study was to explore the impact of board composition on companies' use of their websites as voluntary communication channel for corporate governance and transparency disclosures. A quantitative methodology was used to measure corporate governance and transparency disclosures available on corporate websites for a sample of JSE-listed companies. By means of multiple regression analysis, findings showed that companies with more board members, a higher percentage of female directors and directors over the age of 50 years excel in the disclosure of corporate governance and transparency-related information. Pertaining to strategic information, companies with more independent non-executive directors disclosed more strategic information and companies with more ethnic directors scored higher on attempts to level the accessibility of information to all stakeholders. Overall, the findings, therefore, suggest that as board diversity may improve both corporate governance and transparency; stakeholders may also benefit from well-diversified boards. Finally, support is provided for the Employment equity and Broad-based employment equity Acts, as well as the Women Empowerment and Gender Equality Bill implemented in South Africa to encourage more gender and ethnic diversity.
The use of corporate websites as communication medium may contribute to good governance and specifically transparency as one of the basic principles of governance, mitigating the effect of the agency ...problem. The primary objective of this study was to ascertain the link between voluntary corporate website disclosure and information asymmetry for the smallest JSE-listed companies. Rule 26, as issued by the LSE for its AIM-listed companies, was used as proxy for disclosure while the bid-ask spread stood as a proxy for information asymmetry. The results of a content analysis showed that the majority of smaller listed JSE companies are not on par with their UK counterparts. Using agency theory, it was argued that if information voluntarily disclosed by companies on their corporate websites is useful to investors, it should theoretically decrease information asymmetry. Although empirical evidence of a negative relationship between disclosure and the bid-ask spread was found, the relationship changed to not significant once controlled for market capitalisation. Besides the bid-ask spread, the association between disclosure and both share price volatility and share turnover (both as alternative proxies for information asymmetry) was tested, and both were found non-significantly related to disclosure. The results reported do suggest that the Rule 26 minimum corporate website disclosures may not be sufficient in persuading investors to change their trading behaviour. Although there has been no research on the voluntary compliance and effect of Rule 26 website disclosure on information asymmetry using JSE small-cap data, a major limitation of this study is that generalisation of results is limited to small listed companies.
Background: Investors require detailed financial and nonfinancial information to evaluate investments. This information is available in various forms (e.g. hard copies, published media, broker and ...investment consultants and corporate websites). Corporate websites have the potential to be both a one-stop-shop for investor needs and an efficient cost-effective medium for companies to communicate with investors. As previous research (Baard & Nel 2006) showed unacceptable low levels of Internet presence in selected African countries compared to other international companies, including companies in South Africa, a follow-up study was undertaken. An improvement was expected given the rapid increase in Internet users, improvements in infrastructure, the arrival of wireless access technologies and lower tariffs.Objectives: The objectives of this study were to measure the availability of corporate websites and dedicated investor relations (IR) sections; to evaluate the content of IR information communicated and to compare findings with previous research.Method: For ease of comparison this study has evaluated the same 40 companies in each of the countries, namely Egypt, Kenya, Morocco, Nigeria and Tunisia that were evaluated in the 2006 study. A number of steps were taken to find the websites after which all the working websites were screened and evaluated against a checklist of international best practices.Results: Although improvements were apparent, 19% of the companies in the study still do not have websites, 20% do not supply financial information on websites and a significant number of companies do not optimally utilise websites according to international best practices.Conclusion: Notwithstanding improvements, a significant number of companies do not optimally utilise their corporate websites to communicate to investors. Possible reasons were discussed (e.g. necessary skills, available technology and cost), but it was concluded that companies are probably either negligent, do not regard it as important to communicate information to investors via corporate websites, or do not realise the benefits of communicating company information in this manner.
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