Online reporting by banks: a structural modelling approach
| Published date | 26 June 2007 |
| Date | 26 June 2007 |
| DOI | https://doi.org/10.1108/14684520710764096 |
| Pages | 310-332 |
| Author | Carlos Serrano‐Cinca,Yolanda Fuertes‐Callén,Begoña Gutiérrez‐Nieto |
| Subject Matter | Information & knowledge management,Library & information science |
Online reporting by banks:
a structural modelling approach
Carlos Serrano-Cinca, Yolanda Fuertes-Calle
´n and
Begon
˜a Gutie
´rrez-Nieto
Department of Accounting and Finance, University of Zaragoza,
Zaragoza, Spain
Abstract
Purpose – A structural equation model is proposed to explain internet reporting by banks. The
model relates three constructs of financial institutions (size, financial performance, and internet
visibility) to their final influence on internet information disclosure (e-transparency).
Design/methodology/approach – This paper’s proposed model analyses a sample of Spanish
financial institutions using publicly available data. The model is tested using partial least squares.
Findings – A positive andstatistically significant relationship has been found between size, financial
performance, internet visibility, and e-transparency, with direct and indirect effects. The study shows
that size accounts for most of the variance. Size has a positive effect on e-transparency, financial
performance, and internet visibility. However, the direct effect of financial performance and internet
visibility on e-transparency is small.
Research limitations/implications – The researchers have analysed only one year of data from
one country and one sector. The direction of cause and effect assumed in the model is a logical one, but
statistical methods cannot prove causality, only association. Even though any bank can disclose its
financial information online for a very low cost, building a robust, interactive web site requires major
resources. This gives larger banks a value added advantage.
Originality/value – The paper examines the relationship between size, financial performance,
internet visibility and e-transparency using a structural model. Although structural models are
commonly used in many scientific disciplines, they have not yet been applied in disclosure research.
Keywords Financial reporting,Online operations, Disclosure,Financial institutions,
Linear structureequation modelling
Paper type Research paper
Introduction
Today financial institutions are struggling to adapt themselves to constant changes in
their business model. One of their most critical challenges is to come to terms with the
internet, which offers both risk and opportunity. Recent research (Debreceny et al.,
2002; Serrano-Cinca et al., 2004; Xiao et al., 2004) has found a connection between firms’
technological strength and the amount of information they disclose on the internet.
Business information on the internet has become a very important part of business
information services (Liu, 2000). The internet is a technology with the power to
revolutionize external reporting (Jones and Xiao, 2004). Healy and Palepu (2001, p. 432)
are right when they predict that “the increasing use of the internet by investors is likely
The current issue and full text archive of this journal is available at
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The work reported in this paper was supported by grant Ref. S-14 (3) of the Department of
Science, Technology and University (Aragon Regional Government). Two anonymous referees
have suggested valuable comments that have improved the first version.
OIR
31,3
310
Refereed article received
26 September 2006
Approved for publication
20 October 2006
Online Information Review
Vol. 31 No. 3, 2007
pp. 310-332
qEmerald Group Publishing Limited
1468-4527
DOI 10.1108/14684520710764096
to continue, reducing the costs of providing voluntary disclosures and presumably
increasing their supply”. In recent years, supervisory bodies around the world have
contributed to this growth by enacting measures that regulate the disclosur e of
information on the internet. These include the Sarbanes-Oxley Act (Sarbanes and
Oxley, 2002) and the Directive 2004/109/EC (2004) on harmonisation of transparency
requirements from issuers.
The disclosure of information is a key issue in the financial sector. As a result,
numerous studies have been conducted on this topic. For example, Bryant (1980) and
Bernanke and Gertler (1990) find that information asymmetry between a bank and its
depositors can lead to a bank run or even to bankruptcy. Chen and Hasan (2006) study
the effect of banking system transparency on firms’ stability. Eijffinger and Geraats
(2006) analyse the transparency of central banks. Tadesse (2006) focuses on the
consequences of regulated disclosure. Akhigbe and Martin (2006) study the effects of
the Sarbanes-Oxley Act on financial sector transparency. Spiegel and Yamori (2006)
analyse the causes of corporate information disclosure in the banking sector.
The purpose of this paper is to test the hypothesis that financial institutions with a
major internet presence disclose more and better online corporate information than do
their counterparts. It also tests two of the classical hypotheses of empirical research on
disclosure using the explanatory variables of corporate size and financial performance.
This paper also makes a methodological contribution. Numerous theories have been
proposed to explain companies’ behaviour in regard to the voluntary disclosure of
corporate information. These include the agency theory (Watts and Zimmerman, 1986),
the signalling theory (Morris, 1987), the political-costs theory (Holthausen and
Leftwich, 1983), the cultural relevance theory (Gray, 1988), the legal systems theory (La
Porta et al., 1998), and the legitimacy theory (Preston and Post, 1975). Such theories
generally use intangible concepts like “performance”, “legitimacy”, “culture”,
“visibility” and “transparency” that cannot be measured directly; therefore, they are
called latent variables or constructs. This paper proposes that these theories be tested
using Structural Equation Modelling (SEM), a multivariate technique that performs
multiple regressions between latent variables. Fornell (1987, p. 408) called SEM a
“second generation of multivariate analyses,” but it is still under-utilised in accounti ng
and finance (Blanthorne et al., 2006). Although SEM has not commonly been used to
analyse financial information, it has been used to process surveys (Hunton et al. ,2000;
Sweeney et al., 2003; Baines and Langfield-Smith, 2003; Wang et al., 2006). This paper
uses SEM to test the proposed model, which allows the latent variables to be employed
properly; it also provides a better understanding of their relationships.
The remainder of this paper is organised as follows. The next section presents a
review of the recent literature on information disclosure, describes the proposed model,
and establishes the hypotheses based on the literature. The third section presents the
empirical study using data from 70 Spanish financial institutions. The fourth section
presents the results from the measurement and structural models. The final section
provides the authors’ conclusions.
Theoretical background and hypotheses
Under the umbrella of information disclosure theories, several hypotheses have been
established that relate the amount of corporate information issued by companies to
variables such as profitability (Wallace et al., 1994), size (Firth, 1984), listing status
Online reporting
by banks
311
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