The determinants of voluntary strategy disclosure: an international comparison

The purpose of this paper is to examine the roles of country-level characteristics versus firm-level characteristics in explaining variations in firms’ voluntary strategy disclosures.

Strategy disclosure in annual reports is measured using an index of 40 items derived from the strategy literature. The sample is 204 large companies from 12 Asian and European countries in 2005. The disclosure index is subdivided into four underlying latent constructs using principal components analysis. The authors then use OLS regression to test whether total disclosure score, and the latent constructs are associated with country-level characteristics and firm-level characteristics.

The authors find that total strategy disclosures are more prevalent in stakeholder-oriented countries, in countries with greater levels of financial transparency, but are less prevalent in countries with a culture of secrecy, and strategy disclosures are more likely to occur in companies with greater economic incentives to disclose, with a Big 4 auditor or which are listed in New York. These findings also occur but not as consistently with the four latent constructs.

The sample used in this paper comprises large public companies, so the findings may not be generalisable to all companies. Nevertheless, the findings demonstrate that both country- and firm-level variables matter in explaining voluntary strategy disclosure.

The IASB released an IFRS Practice Statement in 2010, which recommends, but does not require, disclosure of information about corporate strategy in Management Commentary statements. The findings of this paper may help inform the issue of whether regulators should make strategy disclosures mandatory.

The paper contains the first detailed examination of the roles of country-level characteristics versus firm-level characteristics in explaining variations in corporate voluntary strategy disclosures.