Voluntary and compulsory information disclosed online. The effect of industry concentration and other explanatory factors
| Date | 26 September 2008 |
| DOI | https://doi.org/10.1108/14684520810913990 |
| Published date | 26 September 2008 |
| Pages | 596-622 |
| Author | Isabel Gallego Álvarez,Isabel María García Sánchez,Luis Rodríguez Domínguez |
| Subject Matter | Information & knowledge management,Library & information science |
Voluntary and compulsory
information disclosed online
The effect of industry concentration and other
explanatory factors
Isabel Gallego A
´lvarez, Isabel Marı
´a Garcı
´aSa
´nchez and
Luis Rodrı
´guez Domı
´nguez
Facultad de Economı
´a y Empresa, University of Salamanca, Salamanca, Spain
Abstract
Purpose – This work aims to check the validity of the hypotheses of the agency, signalling, political
costs and proprietary costs theories in the disclosure of information online. More specifically, to
determine the prevalence of the purposes alleged by those theories, we analyse the effect of industry
concentration and other factors on an index of items of information disclosed on corporate web sites, in
its entirety as well as its breakdown into information whose elaboration and disclosure is compulsory
and information whose elaboration and disclosure is voluntary.
Design/methodology/approach – First, a content analysis of the quoted non-financial Spanish
companies’ web sites was carried out. To do this, three disclosure indexes were created and applied.
Then three causal models were estimated by applying a linear regression, taking several factors into
consideration.
Findings – The findings emphasise the relevance of the hypotheses of political costs theory as the
main explanatory factor for voluntary disclosure of information on the internet by quoted Spanish
firms. In particular, the hypothesis that the greater the firm’s monopolistic power, the more visible the
company is and the more political costs it faces. To reduce these costs, such companies have an
interest in disclosing greater amounts of information.
Practical implications – The researchers have analysed only one year of data from one country,
but this analysis is significant because the motives which lead a firm to disclose information can be
very different depending on its geographic location, especially if the factors which determine
disclosure practices are associated with the political costs that the companies face.
Originality/value – This is the first study to examine the effect of industrial concentration on the
disclosure of information online.
Keywords Internet, Onlineoperations, Information disclosure, Spain
Paper type Research paper
Introduction
Whether to disclose corporate information is one of the most significant decisions for
companies due to the multiple effects that can stem from this action. Corporate
information includes records of historical and financial data, descriptions of activities,
exposition of the current situation and future plans, etc. – that is, those data that can
influence investor expectations and other individuals’ behaviour towards the company
and that are publicly available for those people interested in analysing a specific firm.
Divulgation can alleviate some of the problems firms usually face, including the
differing incentives for managers and owners; the need to stand out from competitors,
The current issue and full text archive of this journal is available at
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OIR
32,5
596
Refereed article received
27 September 2007
Approved for publication
14 February 2008
Online Information Review
Vol. 32 No. 5, 2008
pp. 596-622
qEmerald Group Publishing Limited
1468-4527
DOI 10.1108/14684520810913990
to obtain new funding and to send signals to markets; and those caused by the
relationships with the public sector and governments.
Several theories provide hypotheses in favour of voluntary disclosure, taking into
consideration the different problems which the disclosure can solve. For instance,
agency theory fosters the revelation of corporate information as a way to control
managers’ actions and align incentives for managers and owners.
According to signalling theory, the disclosure of information can be considered a
signal to capital markets, sent to decrease the asymmetry of information which often
exists between managers and other individuals, to optimise financing costs and to
increase corporate value.
In accordance with political costs theory, to avoid the shifting of business wealth
towardsthe public and/or politicalsector, companies will voluntarilydisclose information
when this will lead to an improvement in the relationships with governments and the
public sector by decreasing political costs (e.g. taxes) and obtaining certain advantages
(subsidies, governmental actions in favour of the corporation, etc.).
However, the disclosur e of corporate informati on need not have positive
consequences. Proprietary costs theory considers the disclosure of information to be
a disadvantage because of the likely detrimental use of this information by some
external users (dissenting shareholders, employees and competitors).
Considering the background provided by such theories, several factors may
influence the amount of information disclosed. The empirical evidence has emphasised
that large companies tend to disclose information because they face larger problems in
relation to the separation of ownership and management (agency theory) as well as
information asymmetry. They are more politically visible and the effect of proprietary
costs (those related to the competitive damage caused by excessive information) is
more significant.
However, when the influence of other representative factors is analysed the results
are not so conclusive. For example, industry concentration is one of the factors for
which there is mixed evidence. An industry can be regarded as concentrated when
most of the sales produced in that industry are generated by a small number of
companies. In contrast, it can be considered competitive when companies have similar
market shares, in other words, when they have similar shares of sales in that sector. As
for the repercussions of industry concentration (versus industry competition), the
conclusions reached in prior research have been completely different.
On the one hand, some studies (Verrecchia, 1983; Darrough and Stoughton, 1990;
Balakrishnan et al., 1990; Wagenhofer, 1990; Harris, 1998; Botosan and Standford, 2005;
Macagnan, 2005) point out that the disclosure of information may occur less often in
competitive industries due to the fact that such disclosure could harm the corporations’
competitive position. On the other hand, other works (Deegan and Carroll, 1993;
Rodrı
´guez, 2004) have displayed a positive link between a company’s monopolistic
position and the amount of voluntary information, in that the more monopolistic power a
firm holds, the more visible it is and the more political costs it faces. To diminish these
costs, firms have an interest in revealing more information. Finally, Christopher and
Hassan (1995) and Berger and Hann (2002) did not find any relationship between the
disclosure of segment information and industry concentration.
This work is an attempt to contribute to the previous literature by verifying the
effect of industry concentration on the disclosure of information on the internet, given
Voluntary
and compulsory
information
597
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