Company Size, Listed Versus Unlisted Stocks, and the Extent of Financial Disclosure

Abstract

Even a cursory examination of an extensive sample of corporate annual reports indicates that the adequacy of disclosure varies from company to company. In quite a few cases, the variation is substantial. There are many factors which could contribute to the observed variation. One of the problem areas in corporate reporting is that little is known about the extent to which these factors affect the adequacy of disclosure in annual reports. This paper reports on a study of the relationship between a subcomponent of adequate disclosure-the extent to which selected items of information are presented in corporate annual reports-and two company characteristics. One characteristic is the size of the company, and the other is the company's listing status. Listed companies have their common stock traded on either the New York (NYSE) or American (AMEX) Stock Exchanges. Unlisted companies are represented by those companies whose stock is traded in the Over-the-Counter (OTC) market. A measure of disclosure was constructed, based on the informational desires of financial analysts, and defined in terms of 39 selected types of information which might appear in the annual report. Weights were assigned to each of the 39 items (types) of information in order to recognize differences in the relative importance of their disclosure. The weights, as well as a justification for inclusion of the items in the study, were based on the responses contained in the completed questionnaires returned by 131 financial analysts. The measure of disclosure was applied to the annual reports of 88 com-