Incentives for Non-Disclosure by Corporate Groups

45 Pages Posted: 29 Jan 2008

See all articles by Michael E. Bradbury

Michael E. Bradbury

Massey University

Graeme Dean

The University of Sydney - Discipline of Accounting

Frank Clarke

University of Newcastle, Australia - Department of Accounting & Finance

Multiple version iconThere are 2 versions of this paper

Date Written: December 2007

Abstract

A regulatory approved Deed of cross guarantee (the Deed), introduced into Australia in December 1991, exempts nominated companies (the closed group) from having to prepare, have audited, and file financial statements. We examine the characteristics of firms that obtain relief from filing (and therefore disclosure) of separate financial statements of closed group companies by adopting the Deed. The results support the view that the decision to adopt the Deed is a function of the accounting and auditing cost savings. There is also evidence that non-disclosure within corporate groups arises when firms are in a more competitive industry and, in particular, when there is ability to retain non-disclosure at the consolidated level (i.e. where the number of segments is high). Other factors supporting non-disclosure are leverage, the proportion of foreign operations (proxying for Deed complexity). We do not find the decision to adopt the Deed is associated with the proportion of outside directors (a proxy for legal liability), the number of shares outstanding (agency costs of equity). The paper adds to Verrecchia and Weber (2006) by using a unique Australian financial setting.

Keywords: voluntary disclosure, cross-guarantees, group accounts

JEL Classification: M41, M45, M47, M49, G32, G34

Suggested Citation

Bradbury, Michael E. and Dean, Graeme and Clarke, Frank, Incentives for Non-Disclosure by Corporate Groups (December 2007). Available at SSRN: https://ssrn.com/abstract=1088113 or http://dx.doi.org/10.2139/ssrn.1088113

Michael E. Bradbury (Contact Author)

Massey University ( email )

School of Accountancy
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Auckland
New Zealand
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Graeme Dean

The University of Sydney - Discipline of Accounting ( email )

H69 Economics and Business Building
Sydney, NSW 2006
Australia
00 612 692 3520 (Phone)
00 612 692 4202 (Fax)

Frank Clarke

University of Newcastle, Australia - Department of Accounting & Finance ( email )

University Drive
Callaghan 2308, New South Wales
Australia
+61 2 434 84136 (Phone)
+61 2 434 84101 (Fax)

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