Incentives for Non-Disclosure by Corporate Groups

26 Pages Posted: 1 Dec 2009

See all articles by Michael E. Bradbury

Michael E. Bradbury

Massey University

Graeme Dean

The University of Sydney - Discipline of Accounting

Frank L. Clarke

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Abstract

A regulatory approved deed of cross guarantee (the deed) was introduced into Australia in December 1991, relieving participating companies within a group from having to prepare, have audited, and file financial statements. We examine the characteristics of firms that obtain relief from filing (and therefore disclosing) separate financial statements of closed-group companies by adopting the deed. This is the first attempt to analyse adoption using large-scale archival data. The results support the survey evidence in Dean and Clarke (2005), thus providing triangulation on their work. In particular they support the view that the decision to adopt the deed is a function of strategic factors as well as accounting and auditing cost savings. Those strategic factors were not in focus when regulators first introduced a deed of indemnity in 1985, nor when the original indemnity was modified to become a deed of cross guarantee in 1991 or when it was further modified in 1998. Further, evidence is provided to test the conflicting ideas arising from the analytical literature and the mixed results in the empirical, voluntary disclosure literatures. That evidence suggests that non-disclosure 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 and the proportion of foreign operations (proxying for deed complexity). The proportion of outside directors (a proxy for legal liability) and the number of shares outstanding (a proxy for agency costs of equity) are not associated with the decision to adopt the deed.

Suggested Citation

Bradbury, Michael E. and Dean, Graeme and Clarke, Frank L., Incentives for Non-Disclosure by Corporate Groups. Abacus, Vol. 45, No. 4, pp. 429-454, December 2009. Available at SSRN: https://ssrn.com/abstract=1514067 or http://dx.doi.org/10.1111/j.1467-6281.2009.00298.x

Michael E. Bradbury

Massey University ( email )

School of Accountancy
Private Bag 102 904
Auckland
New Zealand
64 9 414 0800 (Phone)
64 9 441 8133 (Fax)

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 L. Clarke

affiliation not provided to SSRN

No Address Available

Register to save articles to
your library

Register

Paper statistics

Downloads
1
Abstract Views
837
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information