Annual report disclosure in a developing country: The case of the UAE

https://doi.org/10.1016/j.adiac.2008.05.001Get rights and content

Abstract

This paper examines the extent of disclosure in annual reports of 31 listed firms in the UAE for the fiscal year 2003, and seeks to determine the underlying factors that affect the level of disclosures. It also seeks to establish whether differences exist between the UAE sectors. This paper uses denominator-adjusted disclosure-indices. The extent of corporate disclosure is calculated and compared among firms and between sectors. Statistical analysis is performed using a logit regression through the implementation of Weighted Least Square and a weighted one-way analysis of variance (ANOVA) is employed to determine whether any differences exist in the extent of disclosure among the sample. This study hypothesizes that four main factors would affect the extent of disclosure in the UAE, namely, the sector type (banks, insurance, industrial, and service), size (assets), debt equity ratio, and profitability. Significant differences are found among sectors; however, the size, the debt equity ratio, and the profitability were found to have insignificant association with the level of disclosure.

Introduction

Adequate disclosure by corporations helps to ensure the efficiency of capital markets; yet disclosure in corporate annual reports varies widely among firms. Ensuring the provision of adequate disclosure is an important aspect of the regulation of public firms. The Abu Dhabi Securities Market and the Dubai Financial Market both seek to facilitate the trading of securities of the United Arab Emirates (henceforth UAE) public firms in a fair, efficient and transparent manner. The existence of robust accounting standards would result in proper disclosure. Banks, financial firms, and investment companies doing business in the UAE are required to adopt International Accounting Standards (now International Financial Reporting Standards, IFRSs) for their annual accounts. Non-financial firms face no such requirement. However, listed firms, along with a number of unlisted firms, in the UAE are more likely to adopt International Accounting Standards (Aljifri & Khasharmeh, 2006).

This paper examines the extent of disclosure in annual reports of 31 listed firms in the UAE for the fiscal year 2003 and seeks to determine the underlying factors that affect the levels of disclosure. It also seeks to establish if differences exist between the UAE sectors. Since the financial firms (especially banks) are heavily affected by government regulation and different types of sectors and firms (e.g., big and small) are examined in this study, denominator-adjusted disclosure-indices were used to enable inter-industry comparisons and the comparison of different types of firms. Using such indices, the extent of corporate disclosure is calculated and compared among firms and sectors.

Since the imposition by a central authority of the requirement for adherence to the International Accounting Standards, the UAE, with newly created public financial markets, presents an interesting case study for examining some of the disclosure issues. The relatively small number of firms permits a detailed examination of their annual reports. There are potentially important implications arising from this research as all public joint stock firms in the UAE will be required to be listed on the public markets, and the number of listed firms is expected to increase substantially. The UAE is an attractive country in which to invest for firms wishing to serve the growing markets of the Middle East, North Africa and Asia.

This study hypothesizes that four main factors should affect the extent of disclosure in the UAE, namely, the sector types (banks, insurance, industrial, and service), size (assets), debt equity ratio, and profitability. The study proposed that the explanatory variables could have a positive relationship with the extent of disclosure, except for the sectors type where different associations are expected. These hypotheses are consistent with some of the results in the accounting literature which found a significant relationship between these variables and the extent of disclosure [e.g., Wallace, Naser, and Mora (1994), Hossain, Tan, and Adams (1994), Cooke (1991), Inchausti (1997)].

Section snippets

Economic background

The economic philosophy in the UAE is based on the adoption of market economy and liberalization of trade which makes the UAE capable to adapt its own local laws with its international counterparts. Situated in the western region of Asia, the country's wealth is based on oil and gas output. As well, it shares a border with the Gulf of Oman, the Arabian Gulf, the Sultanate of Oman, and the Kingdom of Saudi Arabia. It is comprised of seven Emirates: Abu Dhabi, Dubai, Sharjah, Ras Al-Khaimah,

Literature on corporate disclosure

The extent and quality of disclosure in annual reports has long been of interest to stakeholders in the financial markets. Secord (2002) presented a careful examination of some studies related to disclosure such as those of Choi, 1973a, Choi, 1973b, Choi, 1973c, Cooke, 1989, Cooke, 1992, Wallace (1988), and Zarzeski (1996). Choi (1973c) noted that, “Disclosure appears to be an important consideration in granting a firm access to the limited reservoirs of consumer savings.” Choi, 1973a, Choi,

Data collection and index construction

This study examined the extent of disclosure of 31 UAE listed firms listed in either the Dubai financial market or Abu Dubai securities market.1 The choice of 2003 was for two reasons. Firstly, the annual reports from 2003 are the first ones reported after the AAA recommended that the Ministry of Economic make International Accounting Standards mandatory for all listed companies (

Results

The results of the study are reported and the empirical methods used to examine the research hypotheses of this study are discussed in this section. It covers three statistical methods: a descriptive analysis, a regression analysis, and a comparative analysis.

Summary and conclusions

This study concludes that the extent of disclosure in the UAE has significant association with the sector type (banks, insurance, industrial, and service). Clearly, banks are found to disclose more than the other three sectors, with the insurance firms having the lowest level of disclosure. One possible explanation is because of the significant role of the Central Bank's increasingly strict control of financial institutions. This has improved the banking and monetary system including financial

References (37)

  • CamffermanK. et al.

    An analysis of disclosure in the annual reports of U.K. and Dutch companies

    Journal of International Accounting

    (2002)
  • ChoiF.D.S.

    Financial disclosure in relation to a firm's capital costs

    Accounting and Business Research

    (1973)
  • ChoiF.D.S.

    Financial disclosure and entry into the European capital market

    Journal of Accounting Research

    (1973)
  • ChoiF.D.S.

    Financial disclosure in relation to the European capital market

    International Journal of Accounting

    (1973)
  • CookeT.E.

    Disclosure in the corporate annual reports of Swedish companies

    Accounting and Business Research

    (1989)
  • CookeT.E.

    An assessment of voluntary disclosure in the annual reports of Japanese corporations

    International Journal of Accounting

    (1991)
  • CookeT.E.

    The impact of size, stock market listing and industry type on disclosure in the annual reports of Japanese listed corporations

    Accounting and Business Research

    (1992)
  • DietrichJ.R. et al.

    Empirical analysis of the commercial loan classification decision

    The Accounting Review

    (1982)
  • Cited by (0)

    View full text