The Voluntary Disclosure of Internet Financial Reporting (IFR) in An Emerging Economy: A Case of Digital Bangladesh

The voluntary disclosure of internet
financial reporting (IFR) in an emerging

economy: a case of digital Bangladesh
Mohammad Nurunnabi and Monirul Alam Hossain
Mohammad Nurunnabi is Abstract

Senior Lecturer in Purpose – The present study seeks to paint the current state of voluntary disclosure of internet financial
Accounting at the Business reporting (IFR) in Bangladesh as an example of an emerging economy and to investigate empirically
School, Edge Hill University, some company characteristics as determinants of such practice.
Ormskirk, UK. Design/methodology/approach – Using a sample of 83 listed companies in Bangladesh in the year
Monirul Alam Hossain is 2009 and the disclosure index of Deller et al., Marston, Xiao et al. and Marston and Polei and comments
Professor in Accounting at from the users and investors of Bangladesh, the study employs statistical analysis to investigate the
East West University, association between a number of company characteristics and the extent of voluntary disclosure of IFR.
Dhaka, Bangladesh. Findings – The findings revealed that only 29.12 percent (83) companies had web sites out of the 285
listed companies and only 33.34 percent (28) companies’ provided financial information. Out of seven
variables, only big audit firms and non-family ownership variables were significantly associated with the
levels of voluntary disclosure. Another important result revealed that despite the mandatory
requirements of having audit committee in Bangladesh, the companies without the audit committee
were disclosing voluntary information more and it raised the question on the lack of regulatory
enforcement in Bangladesh.
Research limitations/implications – The scope of this study is limited to a single country; it would be
interesting to replicate this study to a group of emerging countries which have many similarities to the
Bangladesh environment.
Originality/value – To the best of the authors’ knowledge, no studies have been conducted on IFR in a
South Asian emerging country, in particular Bangladesh. The study also is the first of its kind to examine
the whole population of a period in any country which enhances contribution to IFR literature. Unlike the
prior studies conducted in emerging countries, the study contributes not only to the present state of IFR
by the listed companies in Bangladesh but also the connectivity problem between the dream and reality
of the digital Bangladesh concept. The study also finds that the companies’ IFR practices are not
influenced by ‘‘Digital Bangladesh’’ concept.
Keywords Internet financial reporting, Voluntary disclosure, Emerging economies, Bangladesh,
Emerging markets, Information disclosure
Paper type Research paper
1. Introduction
Appropriate disclosure of financial data relevant to users is always a key issue in financial
reporting (Prodhan, 1986). At present, a significant number of companies in emerging
economies are making financial reporting through their web sites. Most of the recent
research provides evidence of the influence of the internet on financial disclosure practices
in both developed and emerging countries. During the last decade, the influence of the
internet on financial disclosure in emerging countries increased. Several IFR studies have
been carried out in developed countries (e.g. Marston and Leow, 1998; Pirchegger and
Wagenhofer, 1999; Ashbaugh et al. 1999; Brennan and Hourigan, 2000; Ettredge et al.,
2002; Marston, 2003; Oyelere et al. 2003; Bollen et al., 2006; Bonsón and Escobar, 2006;
Received: 29 November 2010
Abdelsalam et al., 2007; Despina and Demetrios, 2009) and there is a dearth of research on
Accepted: 17 May 2011 IFR practices of firms located in the context of emerging economies like Bangladesh
DOI 10.1108/15587891211190688 VOL. 6 NO. 1 2012, pp. 17-42, Q Emerald Group Publishing Limited, ISSN 1558-7894 j JOURNAL OF ASIA BUSINESS STUDIES j PAGE 17
(e.g. Xiao et al., 2004; Momany and Al-Shorman, 2006; Al-Shammari, 2007; Mohamed et al.,
2009; Mohamed and Oyelere, 2009; Desoky, 2009).
In November 1999, the International Accounting Standards Committee (IASC), now the
IASB, published a commissioned study: Business Reporting on the Internet. This report
reviewed the development of internet financial reporting as well as non-financial corporate
performance data (Momany and Al-Shorman, 2006). Amongst other matters, the report
proposed the short-term need for a code of conduct for internet financial reporting as well as
a longer-term review of the need for more specific accounting standards related to the
electronic release of information (IAS, 1999; cited in Momany and Al-Shorman, 2006). In
2002, the International Federation of Accountants released a free ten-page report that
provides guidance for companies seeking to use the internet to communicate supplemental
financial information to customers, stakeholders, analysts, and others via their corporate
web site where the report suggests control considerations and implementation strategies to
ensure the integrity of financial information on the web (Brune, 2002). Researchers like Xiao
et al. (2004) and Gowthorpe (2004) argued that financial reporting in the near future is
expected to move from traditional printed Annual Reports to using the internet as the main
source of primary information. As an increasing number of companies all over the world are
using the internet for financial disclosure, it is high time to think for an International Internet
Accounting Standards (IIASs) for harmonization of financial reporting practices.
The study empirically examines the extent of Internet Financial Reporting by the listed
companies in Bangladesh. The study develops a disclosure index of 56 voluntary items of
information based on the prior studies. After deriving several hypotheses and company
characteristics from similar prior studies, the association between the extent of disclosure of
the Internet Financial Reporting and these company characteristics will then be measured
using multiple regression models. Our study provides three important contributions. First, we
provide insight into IFR in an emerging economy, Bangladesh. Second, we try to connect
Internet Financial Reporting disclosure and ‘‘Digital Bangladesh’’ concept to identify the
dream or reality. Third, we have included two new variables to examine the extent of IFR
disclosure and its association with audit committee and ownership diffusion. With the
inclusion of this introduction, the study has been organized into five sections. The second
section provides an understanding of the Digital Bangladesh concept. The literature review,
theories and hypotheses development are discussed in the third section. The fourth section
contains research methodology and findings and analyses are in the fifth section. The final
section contains conclusion and limitations of the study.
2. Digital Bangladesh concept

The present government, led by the Awami league, made the commitment and pledge
towards the ‘‘Digital Bangladesh’’ concept. However, the concept is very vague and ‘the
government officials did not clearly answer the question, ‘what is digital Bangladesh’’’ ((The)
Financial Express, 2009). In general, to digitize Bangladesh, a series of reforms is needed in
almost every sector. But, this is difficult for a country greatly affected by climate change and
with a high poverty level. The present study seeks to answer the following questions of the
listed companies in Bangladesh – are they compatible with the digital Bangladesh concept
– is the concept just a dream? The study also explores the dream and reality of the digital
Bangladesh concept, which may link between the organizational behavior in terms of
technology adoption, disclosure and the digital concept.
The Transparency International Bureau stated that hiding information is a common
phenomenon in Bangladesh and that companies are no exception. To be transparent and
more accountable to stakeholders, the companies need to provide detailed information. It is
quite shocking that the stock market crashes in 1996 and 2011 also provide the same picture
of the traditional culture of not providing enough information to investors and the insider
information are key to gain abnormal returns (Nurunnabi et al., (forthcoming). The stock
market in Bangladesh requires companies to publish their annual report in print and
therefore, the companies do not publish any digitized report. The users of internet are
increasing (see Figure 1) but for a company to begin the practice of digitized reports is a
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PAGE 18 JOURNAL OF ASIA BUSINESS STUDIES VOL. 6 NO. 1 2012
Figure 1 Percentage of internet users’ in Bangladesh (2003-2010)
challenge towards ‘‘Digital Bangladesh’’. It brings up the question: Are the companies’
current reporting practices influenced by digital Bangladesh concept?
3. Literature review, theories and hypotheses development

3.1 Literature review
The association between the level or quality of disclosure in Internet Financial Reporting and
corporate attributes has been examined in several countries using a disclosure index
approach. With the development of the internet and the expansion of the use of it for financial
reporting, there has been an increase in the number of academic investigations related to
this area (Parvan, 2005). The literature, with regard to internet financial reporting, has
covered many developed countries (e.g. Petravick and Gillet, 1996 (US); Lymer and
Tallberg, 1997 (Finland and the UK); Lymer, 1997 (UK); Koreto, 1997 (Ireland); Gray and
Debreceny, 1997 (US); Deller et al., 1999 (US, UK and Germany); Hussey et al., 1999 (UK);
Gowthorpe and Amat, 1999 (Spain); Hedlin, 1999 (Sweden); and Abdelsalam et al., 2007
(UK)) while some of these studies covered emerging countries (e.g. Xiao et al., 2004;
Momany and Al-Shorman, 2006; Al-Shammari, 2007; Mohamed et al., 2009; Mohamed and
Oyelere, 2009; and Desoky, 2009).
Marston and Leow (1998) examined the use of the internet for disseminating financial
reporting by FTSE-100 companies in the UK in 1996. They evaluated the influence of
company size and industry classification on financial reporting on the internet. They found
that internet financial reporting was positively associated with company size but not
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associated with industry classifications. Craven and Marston (1999) by investigating 206
large UK companies found that 74 percent (153) of these companies had a web site and 71
percent (109) had financial reporting on their web sites. They found that larger companies
were more likely to disclose more information on their websites while Industry variable was
found not to be significant.
Ashbaugh et al. (1999) attempted to investigate the use and the determinants of internet
financial reporting (e.g. company size, profitability and ownership diffusion) by 290 US
companies in 1995. They reported that 87 percent (252) of the companies had a web site
and 70 percent (176) of these disseminated financial reporting. A regression analysis
revealed that only company size was significant. Pirchegger and Wagenhofer (1999)
examined the extent to which 32 Austrian companies disclosed financial information on the
internet in 1997 and 1998, and the results were compared with those of the German DAX 30
listed companies. They reported that the level of disclosure increased from 57 percent in
1997 to 64 percent in 1998 for Austrian companies; whereas, it was 68 percent for German
companies. They also found that for Austrian companies the level of disclosure was
positively associated with company size and percentage of free float in 1997 and 1998.
However, such results did not extend to German companies.
Debreceny et al. (2002) investigated the extent to which 660 companies from 22 countries
used the internet for disseminating financial reporting in 1998 and examined how the
company determinants, like company size, leverage, listing on the US stock exchange and
listing on overseas securities markets, could be associated with internet financial reporting.
The sample included 30 companies with the highest market capitalization listed in the Dow
Jones Global Index for 22 countries. They found that 14 percent (95) of the companies had
no web sites and internet financial reporting was positively associated with company size
and a listing on the US stock exchange.
Ettredge et al. (2002) examined whether there was a relationship between the extent of
financial disclosure on the internet and company size, raising equity capital and companies’
traditional disclosure reputations. A sample of 220 US companies was analyzed in 1997. The
results reported 87 percent (193) of the companies had a web site. Only 40 percent (78) of the
companies disseminated financial reporting via their web sites. They also found that the level
of disclosure on the internet was positively related to company size and raising equity capital.
Marston (2003) has conducted a survey on the Internet Financial Reporting by the top 99
Japanese companies, and found that 57 companies were providing detailed accounting
information. She examined the relationship between the level of internet financial disclosure
and four corporate attributes (e.g. size, profitability, industry grouping and overseas listing
status). However, all of the variables were found to be not significant. Oyelere et al. (2003)
examined the relationship between extent of voluntary disclosure of financial information by
internet financial reports and several corporate attributes (e.g. company size, liquidity and
ownership diffusion Industry Leverage, profitability and internationality) by 229 New Zealand
companies. Their results showed that only firm size, liquidity, industrial sector and spread of
shareholding were significantly associated with the level of IFR disclosure.
Xiao et al. (2004) analyzed the company size, type of auditor, foreign listing, ownership
diffusion, profitability and leverage of 300 Chinese listed companies’ voluntary adoption of
internet-based financial reporting, and their extent of disclosure. They found that only size,
auditor and industry were positively associated with internet financial reporting, whereas
profitability was negatively associated with internet financial reporting. Marston and Polei
(2004) investigated the use of the internet for financial information disclosure by German
companies in 2000 and 2003 and identified factors influencing financial disclosure on the
internet. They found that company size was the only variable explaining financial disclosure
on the internet for those two years. Foreign listing was only associated with the level of
disclosure in 2003, and free float appeared to be the only variable related to the level of
disclosure in 2000.
Momany and Al-Shorman (2006) measured the extent of financial reporting on the internet of
the Jordanian companies listed on the Amman Stock Exchange (ASE). They found that
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about (45 percent) of the companies have web sites while (70 percent) of these companies
report financial information.
Abdelsalam et al. (2007) examined corporate internet reporting (CIR) comprehensiveness
and its determinants by using a disclosure index consisting of 143-items. Their findings
indicated that despite this new regulatory environment, there is considerable room for
improvement in CIR by London-listed companies. After controlling for size, profitability,
industry, and high growth/intangibles, they found that the CIR comprehensiveness of
London-listed companies is associated with analyst following, director holding, director
independence, and CEO duality. Al-Shammari (2007) investigated the use of the internet for
disseminating financial reporting by companies listed on the Kuwait Stock Exchange in 2005
and to determine company size, leverage, liquidity, profitability, company age, ownership
structure, industry, auditing firm and internationality influencing companies to use the internet
for this purpose. The results reported 77 percent (110 of the 143 companies) had web sites
and 70 percent (77) disseminated financial reporting information on their web sites. The
researcher found a relationship between the level of internet financial disclosure, and larger
companies with lower levels of liquidity that were audited by local auditing firms affiliated with
the Big Four international audit firms were more likely to engage in internet financial reporting.
Despina and Demetrios (2009) in their study tried to examine critically the main reporting
criteria followed by the 302 listed companies in the Athens Stock Exchange. They found that
the average IRI score that all the sample listed companies have achieved was 30.30 and the
weighted average score was 49.71 with the evidence that the capitalization category of the
company is positively related with the IRI score. Mohamed et al. (2009) investigated the
extent and variety of practices of internet financial reporting (IFR) by 142 companies listed
on the Muscat Securities Market (MSM) in Oman. They found that only 84 of the listed
companies have web sites, with even less (only 31) engaging in IFR.
Desoky (2009) investigated the use of the internet for disseminating financial reporting by
companies listed on the Egyptian Stock Exchange and to determine the factors like
company size, profitability, industry type, legal form, leverage, liquidity, and stock activity
have influence to use the internet using IFR practice. By using a disclosure index consisting
of 40 items, he reported 62.5 percent (55 companies out of 88 companies) had websites and
51.14 percent (55) disseminated financial reporting information on their web sites. His result
showed that company size, profitability, and stock activity are significantly positively
associated with the IFR.
3.2 Theories
There is a range of theories (agency theory, signaling theory and innovation diffusion) that
have been employed in the present study to explain why a company may voluntarily disclose
information in the internet.
B Agency theory. This theory explains why managers disclose information for the
shareholders (Akhtaruddin, 2005; Aljifri, 2008; Marston and Polei, 2004; Nurunnabi,
Hossain and Hossain, 2011). Managers believe that the shareholders will get their control
behavior through the agent-owners contract and the disclosure will be a means of achieving
the optimal contact. The theory assumes that the agency cost will vary with corporate
attributes (e.g. size, leverage, listing status, corporate governance compliance). It is
argued that voluntary disclosures lower agency costs. This argument would be the same for
larger company in terms of size, because if the larger company would use the higher debt
because of the tax advantage, then they will disclose more to satisfy the creditors. The other
corporate characteristics might be explained in the same argument. So, by disclosing more,
the managers will reduce the agency cost to be trustworthy to the shareholders, and then the
agency theory would be justified in this regard.
B Signaling theory. Spence (1973) introduced signaling theory to explain the labor markets.
This theory can explain why some firms disclose more information than the others (Watts
and Zimmerman, 1986). This theory suggests that voluntary disclosures are one means
for companies or managers to distinguish themselves from others on such dimensions as
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quality and performance and means and motivating factors for such disclosures
including the use of large auditors and high performance (Healy and Palepu, 2001;
Marston and Polei, 2004; Nurunnabi, Hossain and Hossain, 2011). The theory assumes
that the disclosure of information is a reaction to informational asymmetry in markets.
Companies hold much more information than the investors. Therefore, if the company
discloses much more information, it would reduce the information asymmetry. The
managers of the company will distinguish themselves from the others. The signal of the
company would be credential in terms of getting potential and prospective investors and
creditors. For example, the old company, the profitable company and the company using
big audit firms would disclose more than the others (e.g. loss making companies, new
companies etc). This argument may be the same for internet reporting companies, having
audit committees and independent directors.
B Innovation diffusion theory. The theory assumes that intra organizational structures
(e.g. accounting regulations and practices) are largely shaped by external factors.
Therefore, the organizations operating in the similar environment are assumed to
compare the demand and actual behavior including the structures, choices and designs
(Meyer, 1981; Di Maggio and Powell, 1983, 1991; Meyer and Rowan, 1977). For example,
the internal structures will reflect the rules and procedures that are perceived to be ‘‘right’’
within the society (Meyer et al., 1983). There are two components of isomorphism:
competitive isomorphism; and institutional isomorphism (DiMaggio and Powell, 1983,
p. 150). Then, they further classified institutional isomorphism into three categories:
Coercive isomorphism; Mimetic isomorphism; and Normative isomorphism. Abrahamson
(1991) further explored the DiMaggio and Powell’s (1983) coercive isomorphism and
mimetic isomorphism where ‘‘the force’’ is fundamental because a company is pressured
by powerful external organizations, such as the government and providers of capital, to
adopt an innovation irrespective of its benefit to the company.
The above theories explain voluntary information disclosure on the internet and can be
argued with (Marston and Polei, 2004) because they assumed that the IFR practices have
considerable importance in countries with developed securities markets. However, the
present study seeks to investigate that the IFRS practices in emerging economies are not
less important because the emerging countries emerging markets contribute to the world’s
economic growth by 31 percent in 2009 ((The) New Nation, 2009). Therefore, early adoption
of internet financial reporting could be due to organizational characteristics suggested by
economics based theories while later stages of adoption may be due to innovation diffusion
theory (Xiao et al. 2004, p. 198). These theories will be used to develop the hypotheses in
section 3.3, which will be empirically tested at a later stage and in this context; five variables
are employed to explain the voluntary disclosure of IFR.
3.3 Hypotheses development

3.3.1 Company age. A number of researchers have argued that older companies are more
likely to have established reporting systems at a lower cost (e.g. Haniffa and Cooke, 2002;
Al-Shammari, 2007; and Gandı́a 2005, 2008). Older companies may be more motivated to
disclose information voluntarily, and as a result, it would be done through internet financial
reporting. It is expected that the older companies are more likely to disclose more
information than the newer firms. Al-Shammari (2007) argued that a younger company may
suffer a greater competitive disadvantage if it discloses certain items such as information on
research and development expenditure, capital expenditure and new products while
researchers like Haniffa and Cooke (2002) has argued that companies that obtained a listing
only recently would have an incentive to disclose more information in order to combat
skepticism and raise the confidence of investors. This variable was tested by Al-Shayeb
(2003 and Al-Shammari (2007) who did not find any association. The following specific
hypotheses will be tested regarding company age:
H1. Older firms are more likely to disclose more voluntary information in the Internet
Financial Reports than younger firms.
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3.3.2 Profitability. Companies having higher profitability may disclose more information in
their corporate annual reports than the companies with lower profitability (or losses) for a
number of reasons. Based on the signaling theory, researchers like Ross (1979) and Desoky
(2009) have argued that companies with high profit or good news have the incentive to
distinguish themselves from those with less profit or bad news to raise capital at the lowest
possible price. Profitability was used by a number of researchers as an explanatory variable
for differences in IFRs disclosure level. Among these researchers Desoky (2009) found a
positive association between profitability and the extent of disclosure. There are studies like
Juhmani (2008) and Desoky (2009) that found a positive association between the level of
disclosure and profitability. This hypothesis was tested by Ashbaugh et al. (1999), Ettredge
et al. (2002), Marston (2003), Oyelere et al. (2003), Marston and Polei(2004), Xiao et al.
(2004) and Al-Shammari (2007) and found that disclosure on the internet was not
significantly positively associated with the profitability variable whereas Xiao et al. (2004)
found a negative association between internet financial reporting and profitability. In the
present study, net profit to sales and rate of return on equity has been used as the measures
of profitability. The following specific hypotheses have been tested regarding profitability:
H2a. Firms with higher net profit to sales are more likely to adopt internet financial
reporting to a greater extent than do those firms with lower net profit to sales ratios.
H2b. Firms with higher rates of return on equity are more likely to adopt internet financial
reporting to a greater extent than do those firms with lower rates of return on assets.
3.3.3 Industry type. Industry type has been used by a number of researchers as an
explanatory variable for differences in disclosure level. The study of IFR by Oyelere et al.
(2003), Bollen et al. (2006), and Desoky (2009) suggested that there may be an industry
effect on IFR. Among them Oyelere et al. (2003) and (Xiao et al. 2004) found a positive
association between industry type and the extent of disclosure whereas Marston and Leow
(1998), Craven and Marston (1999), Brennan and Hourigan (2000), Marston (2003),
Al-Shammari (2007) and Juhmani (2008) and Desoky (2009) did not find any positive
association between the variables. The following specific hypotheses will be tested
regarding industry type:
H3. Firms falling within non-financial industry type disclose different amounts of
financial information in their internet financial reporting than do those firms falling
with in other industry types.
3.3.4 Size of the company. Larger firms tend to go to the stock market for financing more
often than smaller firms do and as a result may disclose more information in their IFRs for
their own interest. Since companies like to have as favorable a share price as possible,
greater disclosure may be felt to give more confidence to investors (Firth, 1979). It is argued
that voluntary disclosures lower agency costs for the larger companies (e.g. Jensen and
Meckling, 1976 and Watts and Zimmerman, 1978). As a result, by disclosing more
information in IFR, the managers will reduce the agency cost to be trustworthy to the
shareholders, and then the agency theory would be justified in this regard. In this study,
sales turnover and total market capitalization will be used to test the significance of the
relationship between the company size and the extent of financial disclosure on the internet.
There are several studies which have been found that a significant association between the
size of the company and the extent of disclosure in the IFRs in both developed and emerging
countries. Marston and Leow (1998), Craven and Marston (1999), Ashbaugh et al. (1999),
Brennan and Hourigan, 2000), Debreceny et al. (2002), Ettredge et al. (2002), Marston
(2003), Oyelere et al. (2003), Xiao et al. (2004), Momany and Al-Shorman (2006), Bonsón
and Escobar (2006), Bollen et al. (2006) and Al-Shammari (2007) found that disclosure on
the internet was significantly positively associated with size.
The following specific hypotheses have been tested regarding size of the firm:
H4a. Firms with greater total market capitalization disclose financial information on the
internet to a greater extent than do those firms with fewer total assets.
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H4b. Firms with greater sales disclose financial information in the internet to a greater
extent than do those firms with lower sales turnover.
3.3.5 Audit firms with international affiliations to the Big Four (þ2). It has been argued that
larger, well known audit firms may be able to exercise greater influence and they may be
associated with higher disclosure levels (Firth, 1979). As a result, larger audit firms may have
more influence over their clients to disclose more information than the minimum, which is
adequate. The client company may attempt to improve the appearance of its financial
position and results of operations and errors and inadequate disclosure, which support such
motives may be considered to be purposely caused by the management of the company
(Hossain, 1999). In Bangladesh, the law does not permit Big Four or any foreign auditing
firms- they only can do this audit work through the affiliation with a local firm. That is why we
can say that the audit firms in Bangladesh can be classified into two groups: local audit firms
with international affiliations with the Big Four and local audit firms without international
affiliations with the Big Four. Al-Shammari (2007) findings supported this inference with a
positive relationship between larger auditing firms and the level of disclosure as internet
financial reporting. Some studies have examined empirically the relation between the
characteristics of the audit firm (size of audit firm or international link of the auditing firm) and
the extent of IFRs disclosure and found positive association between the audit firm size and
the level of disclosure. However, there is also empirical evidence of no significant relation
between the size of the firm and the extent of disclosure (Xiao et al. 2004).
The following specific hypothesis has been tested regarding the audit firm size or
international link of the audit firm:
H5. Firms audited by a local audit firm with international affiliations to the Big Four are
more likely to adopt internet financial reporting than companies audited by a local
audit firms without international affiliations to the Big Four.
3.3.6 Ownership diffusion. Bangladesh tends to have a higher concentrated ownership of

shares. The governance structure of public limited companies prefers to keep ownership
holdings within the family connections (i.e. closely-held companies or family controlled
companies). It is revealed that in Bangladesh 72.5 percent of the outstanding shares are
owned by households/sponsors and individuals. Chowdhury (2006) observed that even
when the company is listed on the stock exchanges, few shares are available for trading, as
the majority remains held by the original sponsors. Tan (2000) opined that family controlled
firms have concentrated power and very reserved in making voluntary disclosures but tend
to adhere to rules and regulations. Chau and Gray (2002) found that the level of information
disclosure is likely to be less in family-controlled firms because the demand for information is
less compared to firms that have wider ownership. On the other hand, Ho and Wong (2001)
find a negative relation between family controlled firms and the level of voluntary disclosure.
Jensen and Meckling (1976) found that insiders have greater access to company
information, and that is why the demand for publicly available information is likely to
decrease (Jensen and Meckling, 1976). Al-Shammari (2007) argued that companies with
more insiders (that is, more closely held ownership) have less motivation to disclose detailed
information than companies with widely held share ownership. Oyelere et al. (2003) and
Momany and Al-Shorman (2006) found that disclosure on the internet was significantly
positively associated with ownership diffusion; whereas Ashbaugh et al. (1999), Xiao et al.
(2004), and Al-Shammari (2007) found that disclosure on the internet was significantly
positively associated with ownership diffusion. The following specific hypotheses will be
tested regarding ownership diffusion:
H6. Companies with widely held ownership are more likely to disclose more information
in internet financial reporting than companies with closely held ownership do.
3.3.7 Audit committee. The presence of an audit committee significantly influences the
magnitude of corporate disclosure (Ho and Wong, 2001). An audit committee is formed to
effectively monitor and control the validity of accounting information and thus ensures the
quality of disclosure (McMullen, 1996). The composition of audit committees with insiders
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and outsiders is also an important factor in examining the level of disclosure (Akhtaruddin
and Hossain, 2005). Forker (1992) regarded audit committee as an effective monitoring tool
to improve disclosure and reduce agency costs. According to the Securities Exchange
Commission (SEC) of Bangladesh, the listed companies should have an Audit Committee as
a sub-committee of the Board of Directors ((The) SEC, 2006). It is expected that the size of
the audit committee is positively related to the level of voluntary disclosure in Internet
Financial Reporting. As a result it can be argued that a higher proportion of audit committee
members to total members on the board will enhance the quality of information disclosed.
The following specific hypotheses will be tested regarding audit committee:
H7. A higher proportion of audit committee members to total members on a board are
positively related to the level of voluntary disclosure.
4. Research methodology
4.1 Selection of sample
The total number of companies listed on the Dhaka Stock Exchange (DSE) and Chittagong
Stock Exchanges (CSE) at 31 December 2009 was 378 (see Appendix 1, Table AI). To find
out the company’s website information, we looked up the each company’s information from
the Dhaka Stock Exchange, Chittagong Stock Exchange, Google search engine, and
corporate annual reports. Interestingly, some companies have provided their websites
information in both the DSE and the corporate annual reports, but were not accessible; the
sites were either under construction or did not exist. Out of 378 companies, there are only 83
companies (29.12 percent) that have websites and our sample includes all 83 companies in
both stock exchanges (see Table I for sample companies by industry, Table II for sample
companies with web sites, Appendix 2 (Table AII) for sample companies). The sample
represents the 100 percent of the total population as there are 83 companies having the
Table I Sample companies with web sites by industry

Industry Sample
1. Cement 4
2. Ceramics 4
3. Engineering 12
4. Food and Allied 5
5. Fuel and Power 5
6. IT 6
7. Pharmaceuticals and Chemicals 9
8. Services and Real Estate 2
9. Tannery 2
10. Textile 3
11. Others 5
12. Banks and Insurances 26
Total 83
Table II Companies with web sites

n %
Total companies 378

Less: Treasury, Debenture and Corporate Bond (93)
Total companies available for sampling 285 100
Less: Companies with no web sites (158) 55.44
Less: Companies web sites under construction (5) 0.02
Less: Companies provided wrong web sites in
annual report and DSE, CSE (39) 13.68
Companies with web sites 83 29.12
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websites and such a cohesive representation of sample enables the research findings to be
generalisable to companies listed on DSE and CSE.
4.2 The Disclosure Index

4.2.1 Developing the Disclosure Index. The quality of financial reporting in a country
depends on the legal requirements governing disclosure, together with professional
recommendations, which may have a varying degree of effectiveness depending on the
influence of the professional bodies concerned (Marston, 1986). In addition, national and
international accounting standards and stock exchange requirements may have an impact
on the disclosure of information in corporate annual reports (Ahmed and Nicholls, 1994).
Companies usually disclose information in a number of ways, such as through annual report
and accounts, interim and quarterly reports, prospectus, employee reports and
announcements to the stock exchange (Xiao et al., 2004). The major task of the present
research is to develop a suitable disclosure index comprising items of information that are
expected to be disclosed on the internet from the viewpoint of emerging countries. Marston
and Shrieves (1991) are of the opinion that the usefulness of the disclosure index as a
measure of disclosure is dependent on the selection of items to be included in the index. The
selection of items included in the disclosure index is a major task in the construction of any
disclosure index (Marston and Shrieves, 1991). There is no generally accepted theory to
predict users’ information needs and there is an absence of an appropriate generally
accepted model for the selection of the items of information to be included in a disclosure
index to judge the quality of information of a corporate annual report (Deller et al., 1999).
We have developed a disclosure index of 56 items (see Appendix III, Table AIII) proposed by
Deller et al. (1999: USA, the UK and Germany); Marston (2003: Japan); Xiao et al. (2004: China);
and Marston and Polei (2004: Germany) and the comments from the policy-makers, users and
investors of Bangladesh. There, 56 items are categorized into three sections, including
‘‘Contents on financial statements’’ (14 items), ‘‘Other financial information’’ (24 items) and
‘‘Presentation and user support’’ (18 items). The items of information included in the disclosure
index have been considered from the viewpoint of a general-purpose context rather than a
specific user group context. At the same time attention has been given to voluntary disclosure
as the internet reporting is not mandatory to Bangladesh. The disclosure requirements of the
respective companies’ acts and ordinances, stock exchange requirements and income tax
laws have also been taken into the account. To summarize, the items of information included in
the disclosure index have been developed based on the following criteria:
B items of information commonly required by the statutes of the emerging countries on
internet reporting (Xiao et al., 2004; Deller et al., 1999; and Craven and Marston,
1999);
B disclosure items identified in other studies examining disclosure in the Bangladesh which
used the disclosure index methodology (Parry and Groves, 1990; Ahmed and Nicholls,
1994; and Karim, 1995); and
B disclosure items applicable to Bangladeshi context based on the views of policymakers,
users and investors from Bangladesh.
4.2.2 Scoring in the Disclosure Index. It can be argued that there are no differences on the
results between the weighted and unweighted indices and therefore, the present study,
analysis has been based upon unweighted indexes. The fundamental issue of
unweighted disclosure index is that all the items of the index are considered equally
and the advantage of this approach is that it considers all user groups rather than
focusing on particular groups (Firth, 1979). To assess the extent of voluntary disclosure a
scoring sheet was developed where if the company disclosed the information on web will
receive a score of 1 otherwise 0.
X di
TDS ¼ ð1Þ
di¼1 n
j j
where:
di ¼ 1 if the item disclosed, otherwise 0.
n ¼ number of total items.
TDS ¼ Total disclosure score.
4.3 The dependent, independent and explanatory variables

Using the unweighted disclosure index, TDS as the dependent variable and the seven
independent variables (see Table III) have been used in the present empirical study. The
independent variables are divided into two categories: control variables and test variables.
4.5 General regression model

We have developed the two models of the general form of OLS (Ordinary Least Squares)
regression model to justify the association between the dependent and independent
variables in the form of TDS (Total Disclosure Score) index and the relevant hypotheses. The
two models are given below, where the first model is based on the control variable and the
second model is based on the control variable and test variable:
Model-1:
Y ¼ b0 þ b1 Age 1 þ b2 Profitability 2 þ b3 Industry 3 þ b4 Size 4 þ b5 BigAudit 5 þ 1 ð2Þ
where:
Y ¼ the total voluntary IFR disclosure index or TDS (total disclosure score).
b0 ¼ constant.
bi ; i ¼ 1. . .5 ¼ parameters.
1 ¼ error term.
Table III Independent variables, proxy and expected sign

Independent variable Proxy Expected sign
Control variables:
Age Old companies, if the companies listed before
(AGE) 1994 ¼ 1 otherwise 0 þ
Profitability Net Profit Margin ¼ Net Profit/Total Sales at 31
(NPMARGIN and ROE) December 2009 þ
Return on Equity ¼ Net Profit/Total Shareholders
Equity at 31 December 2009 þ
Industry If the companies are non-financial ¼ 1, otherwise
(NONFINCOMP) 0 þ
Size
(LNSALES and LNMKTCAP) Natural log of Total Sales at 31 December 2009 þ
Natural log of Total Market Cap. at 31 December
2009 þ
If the companies are linked audited by Big 6
Big Audit Audit Firms in Bangladesh ¼ 1 otherwise 0 in
(BIGAUD) 2009
Test variables:
Non-Family Ownership If the companies are not linked with family
(NOTFAMILY) ownership directors ¼ 1, otherwise 0 in 2009 þ /- (?)
Corporate Governance Link If the companies have Audit committee ¼ 1
(AUDCOM) otherwise 0 in 2009 þ /- (?)
j j
Model-2:
Y ¼ b0 þ b1 Age 1 þ b2 Profitability 2 þ b3 Industry 3 þ b4 Size 4 þ b5 BigAudit 5
þ b6 Nonfamilyownership 6 þ b7 CorporateGovernanceLink 7 þ 1 ð3Þ
where:
Y
¼ the total voluntary IFR disclosure index or TDS (total disclosure score).
b0
¼ constant.
bi; i ¼ 1. . .7
¼ parameters.
1
¼ error term.
5. Findings, Analyses and discussion

5.1 Descriptive statistics
The accessible web site of Bangladesh is 83 companies (29 percent) out of 378 companies
and surprisingly no jute and paper industry companies have web sites. However, the high
percentage have been observed in both emerging and developed markets, such as Desoky
(2009) 62.5 percent in Egypt, Mohamed and Oyelere (2009) in Bahrain 79 percent,
Pirchegger and Wagenhofer (1999) in Austria and Germany, Ashbaugh et al. (1999) in USA,
Marston (2003) in Japan, Gowthorpe (2004) in UK, Marston and Polei (2004) in Geramny,
Xiao et al. (2004) in China and Khadaroo (2005) in Malaysia and Singapore, Oyelere et al.
(2003) in New Zealand and Smith and Peppard (2005) in Ireland.
Table IV represents the descriptive statistics for dependent and independent variables. The
level of average voluntary IFR disclosure in the sample companies is 18.01 (32.14 percent),
with a maximum of 51 (91.07 percent) and a minimum of 3 (5.36 percent). The level of
average voluntary IFR disclosure is consistent with Xiao et al. (2004) in China (31.23
percent), Desoky (2009) in Egypt 36.9 percent and Ettredge et al. (2002) 37 percent.
However, the result is inconsistent with Marston and Polei (2004) in Germany 55 percent (in
2000) and 68 percent in 2003. It is also seen that there is a broad range of variation in the
sample. Regarding the independent variables, company size, sample companies have an
average market capitalization (in logarithms) of Tk. 8.05 with standard deviation of Tk. 1.67
million, the average of the total sales (in logarithms) was Tk. 21.07 million with a standard
deviation of Tk. 1.36 million, the net profit margin have an average 0.13 where as the return
Table IV Descriptive statistics

Variable Minimum Maximum Mean Std deviation
TDS 3 51 18.01 11.407

AGE 0 1 0.48 0.502
NPMARGIN 20.35 0.60 0.1310 0.13360
ROE 22.21 4.23 0.2116 0.63924
BIGAUDIT 0 1 0.54 0.502
LNSALES 17.48 24.52 21.0773 1.36949
LNMKTCAP 3.63 10.96 8.0548 1.67486
NONFINCOMP 0 1 0.68 0.468
AUDCOM 0 1 0.65 0.481
NOTFAMILY 0 1 0.49 0.503
Note: The description of the variables are shown in Table III
j j
Table V Disclosure level by the sample companies
TDS range No. of companies Percentage of the sample
0-10 34 40.96
11-20 14 16.87
21-30 24 28.92
31-40 9 10.85
41-50 1 1.20
51 and above 1 1.20
Total 83 100
on equity have an average of 0.21. The result suggests that the voluntary disclosure of IFR by
the listed companies of DSE and CSE are very poor.
Table V indicates that the overall voluntary disclosure distribution of sample companies. The
table shows that there is great variability of overall disclosure and the level of disclosure by
sample companies is relative poor. It shows that around 41 percent of the companies had
scored below 10 (17 percent) and only one company had score above 50. With respect to
the voluntary disclosure score range, 87 percent companies had score below 30 (50
percent) and surprisingly, only 13 percent companies had scored more than 50 percent.
From Tables VI– VIII, we observed that only 33.34 percent companies provided financial
information and Desoky (2009) found 51.14 percent in Egypt, Xiao et al. (2004) found 71
percent in China and Ashbaugh et al. (1999) found 70 percent in USA. From Table VII, the
items of 14, 19, 20, 23, 27, 28, 30, 31, 32, 34, 35, 37, 40 and 54 are the least disclosed items
and none of the sample companies did not disclose information about directors dealing
company’s shares (item no. 27) which Xiao et al. (2004) found only 5.4 percent in China. The
result is consistent with Marston and Polei (2004) because they found that only two
companies provided clear boundaries between the audited and unaudited information
(items no. 40). However, the result is inconsistent with the information on board meeting
(items no. 31), because Marston and Polei (2004) found that 84 percent disclosures and the
present study found that only 2.41 percent. From Table VIII, the items of 16, 21, 26, 29, 41,
42, 43, 44, 4549, 50 and 56 are the most disclosed items by 48.19 percent companies). It is
also found that more than 90 percent of the companies had contact us, phone no. and
English version of homepage (items no. 49, 42 and 50) and this is somewhat inconsistent
with Xiao et al. (2004) because they found only 47.3 percent of their sample companies had
English version of homepage, 16.3 percent companies provided contact us and in China.
Therefore, the study revealed that most of the sample companies presentation and user
Table VI Least disclosure items by companies (, 10)

Disclosure of items by
Items sample companies % disclosed by companies
Information about directors dealing in the company’s shares 0 0.00

Information on Directors remuneration 2 2.41
Clear boundaries between the audited and unaudited information 2 2.41
Information on Board Meeting 3 3.61
Information on IFRSs/BFRSs 3 3.61
Share price history or share price graphing facility 4 4.82
Information on ISA/BSA 4 4.82
Segmental reporting 5 6.02
Ownership structure (composition) 5 6.02
Monthly or weekly sales or operating data 5 6.02
Information on Audit Committee 9 10.84
Information on the dividend policy 9 10.84
Information on Corporate Governance 10 12.05
Terms of conditions 10 12.05
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Table VII Disclosure of items by companies
Disclosure of items by % disclosed by % not disclosed by
Disclosure of items sample companies companies companies
Contents on financial statements

1 Balance sheet of current year 38 45.78 54.22
2 Balance sheet of past year(s) 30 36.14 63.86
3 Income statement of current year 37 44.58 55.42
4 Income statement of past year(s) 30 36.14 63.86
5 Cash flow statement of current year 36 43.37 56.63
6 Cash flow statement of past year(s) 28 33.73 66.27
7 Statement of change in owners’ equity of current year 34 40.96 59.04
8 Statement of change in owners’ equity of past year(s) 25 30.12 69.88
9 Notes to the accounts of current year 28 33.73 66.27
10 Notes to the accounts of past year(s) 24 28.92 71.08
11 Audit report of current year 27 32.53 67.47
12 Audit report of past year(s) 23 27.71 72.29
13 Interim reporting 23 27.71 72.29
14 Segmental reporting 5 6.02 93.98
Other financial information

15 Management discussion/analysis 24 28.92 71.08
16 Information on corporate strategy 72 86.75 13.25
17 Number of shares 15 18.07 81.93
18 Current share price 19 22.89 77.11
19 Share price history or Share price graphing facility 4 4.82 95.18
20 Ownership structure (composition) 5 6.02 93.98
21 Press releases 48 57.83 42.17
22 Main indicators about the company performance 22 26.51 73.49
23 Monthly or weekly sales or operating data 5 6.02 93.98
24 Corporate social responsibility 28 33.73 66.27
25 Environmental information 16 19.28 80.72
26 General information about directors 43 51.81 48.19
27 Information about directors dealing in the company’s shares 0 0.00 100.00
28 Information on Corporate Governance 10 12.05 87.95
29 Information on Company Policy 62 74.70 25.30
30 Information on Audit Committee 9 10.84 89.16
31 Information on Board Meeting 3 3.61 96.39
32 Information on Directors Remuneration 2 2.41 97.59
33 Information on Shareholdings 12 14.46 85.54
34 Information on IFRSs/BFRSs 3 3.61 96.39
35 Information on ISA/BSA 4 4.82 95.18
36 Graphs on Financial Performance 13 15.66 84.34
37 Information on the dividend policy 9 10.84 89.16
38 Information on the EPS 20 24.10 75.90
Presentation and user support

39 Sound or video files 11 13.25 86.75
40 Clear boundaries between the audited and un-audited
information 2 2.41 97.59
41 Annual report in PDF and/or HTML format 41 49.40 50.60
42 Phone no., address, or e-mail hyperlink to investor relations 79 95.18 4.82
43 Financial data in processable format (such as Excel) 41 49.40 50.60
44 Possibility to download information 44 53.01 46.99
45 Hyperlinks inside the annual report 44 53.01 46.99
46 External links to related contents 17 20.48 79.52
47 Date when site was last updated 13 15.66 84.34
48 Sitemap 37 44.58 55.42
49 Contact us 81 97.59 2.41
50 English version of home page 78 93.98 6.02
51 Internal search engine 35 42.17 57.83
52 FAQ/Query 19 22.89 77.11
53 Privacy 13 15.66 84.34
54 Terms of conditions 10 12.05 87.95
55 Webmail 36 43.37 56.63
56 Career/Jobs 50 60.24 39.76
j j
Table VIII Most disclosure items by companies (. 40)
Disclosure of items by % disclosed by
Items sample companies companies
Contact us 81 97.59
Phone no., address, or e-mail hyperlink to
investor relations 79 95.18
English version of home page 78 93.98
Information on corporate strategy 72 86.75
Information on Company Policy 62 74.70
Career/Jobs 50 60.24
Press releases 48 57.83
Possibility to download information 44 53.01
Hyperlinks inside the annual report 44 53.01
General information about directors 43 51.81
Financial data in processable format (such as
Excel) 41 49.40
Annual report in PDF and/or HTML format 41 49.40
support are favorable, but Xiao et al. (2004, p. 211) opined ‘‘very few companies presented
information in proccessable formats’’. A possible explanation for the variation in the level of
voluntary disclosure could be related to the company-specific characteristics. Therefore, the
remaining parts of this study focus on this issue.
5.2 Correlation matrix and multicollinearity analysis

Table IX presents the correlation matrix and reveals a number of significant correlations
between dependent and independent variables. These suggest that some of the
hypotheses can potentially be supported. It has been observed that there is a significant
positive association between dependent and six independent variables (NPMARGIN,
BIGAUDIT, LNSALES, LNMKTCAP, NONFINCOMP, and NOTFAMILY) at the 0.01 level
(one-tailed). It also shows that negative correlation exists between NONFINCOMP and
LNSALES, NONFINCOMP and LNMKTCAP, and NOTFAMILY and NONFINCOMP. Judge
et al. (1985), and Bryman and Cramer (1997) suggest that simple correlation between
independent variables should not be considered harmful until they exceed 0.80 or 0.90. In
this study, all the correlations are lower than 0.80. To further assess the potential for
multicollineraity, we performed regression analyses on both models (Model 1 and Model 2)
and VIF (Variance Inflation Factors) and tolerance levels (see Tables X – XI). Since all values
of Tables (X – XI) are more than 0.10 of tolerance levels, there is no issue of multicollinearity
between the independent variables (Menard, 1995). Weisberg (1985) suggests that
multicollinearity in explanatory variables has been diagnosed through analyses of VIF
(Variance Inflation Factors). Neter et al. (1989) and Myers (1990) suggest that the VIF for the
independent variables are less than 10 should be considered an indication of harmful
multicollinearity. In the present study, all of the variance inflation factors (VIF) for the
independent variables are less than ten, representing that there is no multicollinearity exist
between the variables. These findings suggest that multicollinearity between the
independent variables is unlikely to create a serious problem in the interpretation of the
results of the regression analysis.
5.3 Regression analysis

We performed an Ordinary Least Square (OLS) regression model 1 for seven variables and
Model 2 for nine variables and the results of which are presented in Table X and Table XI. The
multiple regression model is significant at 5 percent level (p , 0:05). From Model 1 (Table X),
we observed that the adjusted coefficient of determination (R 2) indicates that 33.5 percent
of the variation in the dependent variable (Total Disclosure Score Index) is explained by
variations in the independent variables and the coefficient representing BIGAUDIT is
statistically significant between 1 percent and 5 percent levels, while the coefficients for
j j
j
j
Table IX Pearson Correlation Matrix

Variable TDS AGE NPMARGIN ROE BIGAUDIT LNSALES LNMKTCAP NONFINCOMP AUDCOM NOTFAMILY
TDS 1.000
AGE 0.049 1.000
NPMARGIN 0.326** 20.182 1.000
ROE 20.009 20.034 20.177 1.000
BIGAUDIT 0.389** 0.102 0.034 0.217* 1.000
LNSALES 0.471** 0.238* 0.107 0.229* 0.352** 1.000
LNMKTCAP 0.528** 20.040 0.472** 0.264** 0.381** 0.743** 1.000
NONFINCOMP 20.390** 0.177 20.554** 0.026 20.108 20.317** 20.462** 1.000
AUDCOM 20.017 0.040 0.038 0.077 0.182 0.135 0.028 20.120 1.000
NOTFAMILY 0.287** 20.148 0.200* 20.066 20.023 0.114 0.173 20.331** 0.110 1.000
Notes: The descriptions of the variables are shown in Table III; * Correlations that are significant at the 0.05 level (one-tailed); ** Correlations that are significant at the 0.01 level
(one-tailed)
Table X Regression results of Model 1
Unstandardized Standardized
Model 1 coefficients coefficients Collinearity statistics
Variable B Std. error Beta t Sig. Tolerance VIF
(Constant) 228.430 22.829 21.245 0.217

AGE 0.573 2.299 0.025 0.249 0.804 0.800 1.251
NPMARGIN 7.537 11.489 0.088 0.656 0.514 0.453 2.207
ROE 22.568 1.814 20.144 21.416 0.161 0.794 1.259
BIGAUDIT 5.644 2.282 0.248 2.473 0.016 0.814 1.228
LNSALES 1.576 1.365 0.189 1.155 0.252 0.306 3.273
LNMKTCAP 1.495 1.276 0.219 1.171 0.245 0.234 4.278
NONFINCOMP 23.741 2.841 20.154 21.317 0.192 0.603 1.658
Notes: Model 1 Summary: R ¼ 0.627; R square ¼ 0.393; Adjusted R Square ¼ 0.335; R square change ¼ 0.393; F change ¼ 6.841; Sig.
F change ¼ 0.000; F value ¼ 6.841; Sig. ¼ 0.000; the descriptions of the variables are shown in Table III
Table XI Regression results of Model 2

Unstandardized Standardized
Model 2 coefficients coefficients Collinearity statistics
Variable B Std. error Beta t Sig. Tolerance VIF
(Constant) 232.343 22.343 21.448 0.152

AGE 0.984 2.253 0.043 0.437 0.664 0.791 1.264
NPMARGIN 9.698 11.274 0.114 0.860 0.393 0.447 2.236
ROE 22.037 1.783 20.114 21.142 0.257 0.781 1.281
BIGAUDIT 6.540 2.271 0.288 2.880 0.005 0.781 1.280
LNSALES 1.857 1.354 0.223 1.371 0.175 0.295 3.389
LNMKTCAP 1.016 1.277 0.149 0.796 0.429 0.222 4.506
NONFINCOMP 22.737 2.855 20.112 20.959 0.341 0.568 1.761
AUDCOM 23.232 2.212 20.136 21.461 0.148 0.896 1.116
NOTFAMILY 4.459 2.156 0.197 2.069 0.042 0.863 1.159
Notes: Model 2 summary: R ¼ 0.662; R Square ¼ 0.439; Adjusted R Square ¼ 0.368; R square change ¼ 0.046; F change ¼ 2.935; Sig.
F change ¼ 0.060; F value ¼ 6.251; Sig. ¼ 0.000; The descriptions of the variables are shown in Table III
NPMARGIN, AGE, LNSALES, LNMKTCAP, NONFINCOMP, and ROE are not statistically
significant. The Table X also shows that the F ratio is 6.841 (p ¼ 0:001), which supports the
significance of the model. On the other hand, Model 2 (Table XI) presents that the adjusted
coefficient of determination (R 2) indicates that 36.8 percent of the variation in the dependent
variable (Total Disclosure Score Index) is explained by variations in the independent
variables after adding two new variables and the coefficient representing BIGAUDIT and
NOTFAMILY are statically significant between 1 percent and 5 percent levels, while the
coefficients for NPMARGIN, AGE, LNSALES, LNMKTCAP, NONFINCOMP, ROE and
AUDCOM are not statistically significant. The Table XI also shows that the F ratio is 6.251
(p ¼ 0:001), which supports the significance of the model.
The adjusted R 2 of both Model 1 and 2 (33.5 percent, 36.8 percent) compare favorably
with a similar studies using voluntary disclosure indices of IFR by Marston and Polei (2004)
at 31.2 percent, but inconsistent with the previous study of Bollen et al. (2006) at 25.7
percent; Xiao et al. (2004) at 8 percent; Ettredge et al. (2002) at 17.5 percent, Desoky
(2009) at 28.8 percent. From the Model 1 and 2, the variable of age is not positively
significant at 5 percent level, suggesting that the older companies will not have direct
influence on the level of voluntary disclosure and therefore, this finding did not support H1.
The possible reason is that the IFR is voluntary in Bangladesh and there is no regulatory
pressure to disclose information on the internet. The variable of profitability based on return
on equity and net profit margin is not significant and therefore, H2 is not supported. This
implies that more profitable companies do not disclose significantly more voluntary
j j
information than less profitable ones do. This result is widely consistent with the previous
study of Oyelere et al. (2003) in New Zealand, Marston and Polei (2004) in Germany,
Marston (2003) in Japan, Ashbaugh et al. (1999) in USA. However, the result is inconsistent
with the study of Desoky (2009) in Egypt and Juhmani (2008) in Bahrain. The previous
empirical studies imply that in emerging countries the profitable companies tend to
disclose more voluntary information than the developed economies. The result of this study
is thus inconsistent with the previous study of IFR in emerging economies. Turning to the
industry variable, the results showing that the industry is negatively associated with the
level of disclosure indicates that the non-financial companies disclose less than the
financial companies and consequently H3 is rejected. The result is consistent with Desoky
(2009), Craven and Marston (1999) and Juhmani (2008), However, the result was not
supported by the studies of Bonsón and Escobar (2006), Oyelere et al. (2003) and Marston
(2003). The empirical evidence from the regression model presents that size by log of
market capitalization and log of sales are not statistically related to the level of voluntary
internet disclosures at the 5 percent level. The negative relation on the coefficient suggests
that size has no direct influence on the level of voluntary IFR disclosure in the companies in
Bangladesh and this result is supported by the prior studies of Juhmani (2008) and
Pirchegger and Wagenhofer (1999). However, most of the empirical studies did find that
size has a positive relation on the level of disclosure (For example, Desoky, 2009;
Debreceny et al., 2002; Ashbaugh et al., 1999; Craven and Marston, 1999; Brennan and
Hourigan, 2000; Ettredge et al., 2002; Marston, 2003; Oyelere et al., 2003; Marston and
Polei, 2004, Bollen et al., 2006; Bonsón and Escobar, 2006; Xiao et al., 2004; Estébanez
et al., 2010; Khlif and Souissi, 2010; Canada et al., 2009). Moreover, to date, the empirical
evidence on the relation between big audit and the disclosure is mixed, for example
Bonsón and Escobar (2006) found the positive relation whereas Xiao et al. (2004) found
negative relation. The present study found H5 is significance at 5 percent level and
indicates that the companies audited by the big 4 (þ 2) audited firms disclose more
voluntary IFR than the companies audited by the other audit firms. One possible answer for
this significance is that the big audit firms who have multinational link want to retain their
reputation and differentiate themselves from others in Bangladesh. However, it may be
noted that Bangladesh has a very low percentage of auditors (1750) compare to other
emerging economies such as India, Pakistan and Sri Lanka ((The) New Nation, 2009).
Turning to the test variables, the non-family ownership is positively significant at the 5 percent
level and implies that the companies that are not linked with family ownership tend to
disclose more information than the companies that have family ownership, such as major
shareholders are family members who dominate the boards in most companies, filling
positions of executive directors, and CEOs. This represents interesting information that
family directorship companies are reluctant to disclose information because they are not
bothered about the shareholders in Bangladesh, as an example of an emerging country,
which might be relevant to other emerging economies. In H7, the variable of corporate
governance link (audit committee) is negatively associated with the level of voluntary
disclosure. It implies that if the companies have audit committee they will disclose less
voluntary information than the companies with no audit committee. However, it is surprising
that from 2006, the SEC announced that all the listed companies should have the audit
committee mandatory as a corporate governance compliance checklist. But the present
study represents that there are 29 companies are without the audit committee. One possible
answer for the variation is the lack of regulatory enforcement in Bangladesh (Akhtaruddin,
2005).
During 1996 after the stock market crash in Bangladesh, there were very few investors and
users of annual report talk about the digitized transparent information. The privatizations of
the telecommunication sectors in recent years are enhancing the speed of transformations
through open market competition. To attain the dream of a digital Bangladesh, the
government effort will bridge between the dream and the reality and consequently eliminate
the connectivity problems. However, the investors should be more encouraged to use
internet financial information and the policy makers should give a good orientation of using
these facilities and the drawbacks of non-usage. But the reality is that in early 2006, there
j j
Figure 2 Theoretical assumption and the connectivity explanations
were 300,000, representing only a 0.20 percent of population ((The) New Nation, 2009). The
users are increasing day by day substantially and being improved in the last couple of years
but it is still below 1 percent of the population. The Theoretical Assumption and the
connectivity explanations are presented in Figure 2.
6. Conclusion and limitations

The purpose of this study sought to empirically investigate the association between a
number of company characteristics and the extent of voluntary disclosure of IFR by the listed
companies of Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE) in
Bangladesh in 2009 as an example of an emerging country. The findings revealed that only
29.12 percent of the companies had websites out of the 285 listed companies, only 33.34
percent of the companies provided financial information and more than 95 percent of the
companies did not disclose the IFRSs or ISA compliance on the internet in Bangladesh and
these indications raised the reality of ‘‘Digital Bangladesh’’ concept. The reality check lies
where the companies in Bangladesh were reluctant to disclose information and the result
also showed the unchanged behavior of the organizations. Furthermore, it was found that
there are lack of regulatory enforcement on corporate governance compliance (Nurunnabi,
Karim and Norton, 2011; Akhtaruddin, 2005) in Bangladesh. It may be noted that the political
connectedness and the corruption are the root causes of non-complying standards
(Nurunnabi and Islam, forthcoming). The findings also revealed that the voluntary disclosure
of IFR by the listed companies of DSE and CSE in Bangladesh depend on some firm
characteristics where the big audit firms and non-family ownership variables were significant
in explanatorily variable to the levels of voluntary disclosure. On the other hand, age, size,
profitability, industry and audit committee variables were found not significant. One reason
could be that presentational features of corporate websites had a lower impact on the
usefulness of the information. The results at least provided some sort of knowledge of
internet financial reporting practices in emerging economies, and Bangladesh in particular.
The users of financial reporting including investors need confidence of financial markets and
information disclosure is a vital element to fulfill this confidence and in this case this empirical
study would provide a communication bridge to the various stakeholders in the society.
j j
The contributions of this study are: First, to the best of our knowledge, no studies have been
conducted on IFR in South Asian emerging country, in particular Bangladesh. Second, the
study also is the first of its kind to examine the whole population of a period in any country,
which enhances contribution to IFR literature. Finally, unlike the prior studies conducted in
emerging countries, the study contributes not only to the present state of IFR by the listed
companies in Bangladesh but also the connectivity problem between the dream and the
reality of digital Bangladesh concept.
The study has some limitations: first, the findings are based on a single year which might be
compared with previous years; second, the study is based on a single emerging economic
country which may limit the generalisability of the results to other jurisdictions and the scope
might be extended by comparative studies with other emerging economic countries; third,
there are other empirical variables such as leverage, multinational link, liquidity risk,
independent directors could be further explanatory variables; and finally, all items included
in the disclosure index are equally weighted, which means that all information items are
assumed to be of the same degree of importance for investors, however, assigning different
weights for different items in the list might mislead because the relative importance of each
item varies from company to company and the study could be employed as an un-weighted
disclosure index or a comparison study of weighted and un-weighted disclosure index.
Nevertheless, it is hoped that the results of this study provided insight into the voluntary
disclosure of IFR practices in Bangladeshi listed companies and unlike most previous
research which concentrated on countries with advanced capital markets, this investigation
concerned a country with an emerging market (Bangladesh) who has dreamed to be
digitalized country but the reality of unchanged behavior of organization.
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j j
Appendix 1
Table AI Total companies in DSE and CSE (31 December 2009)

Category Total companies
Cement 8
Ceramics 5
Engineering 23
Food and Allied 35
Fuel and Power 9
IT 7
Jute 4
Paper and Printing 8
Pharmaceuticals and Chemicals 25
Services and Real Estate 6
Tannery 8
Textile 39
Others 13
Bank 46
Investment 14
Insurance 35
Treasury 84
Debenture 8
Corporate Bond 1
Total 378
Appendix 2
Table AII Sample companies

1 Confidence Cement 30 Titas Gas Transmission & Dist. Co. Ltd 60 National Bank
2 Heidelberg Cement Bd. 31 Agni Systems Ltd 61 Prime Bank
3 Lafarge Surma Cement Ltd 32 BDCOM Online Ltd 62 Southeast Bank
4 Meghna Cement 33 Bangladesh Online 63 AB Bank
5 Fu-Wang Ceramic 34 Daffodil Computers Ltd 64 Al-Arafah Islami Bank
6 Monno Ceramic 35 In Tech Online Ltd 65 Bank Asia
7 Shinepukur Ceramics Limited 36 Information Services Network 66 Brac Bank
8 Standard Ceramic 37 ACI Limited 67 City Bank
9 Aftab Automobiles 38 Ambee Pharma 68 Dutch Bangla Bank
10 Anwar Galvanizing 39 Beximco Pharma 69 Eastern Bank
11 Atlas Bangladesh 40 Glaxo SmithKline 70 Exim Bank
12 Aziz Pipes 41 Libra Infusions Limited 71 IFIC Bank
13 Bangladesh Lamps 42 Orion Infusion 72 Jamuna Bank
14 BSRM Steels Limited 43 Reckitt Benckiser(Bd.)Ltd 73 Mercantile Bank
15 Golden Son Ltd 44 Renata Ltd 74 Mutual Trust Bank
16 National Tubes 45 Square Pharmaceuticals Ltd 75 NCC Bank
17 Olympic Industries 46 Eastern Housing 76 One Bank
18 Quasem Drycells 47 Summit Alliance Port Limited 77 Premier Bank
19 S. Alam Cold Rolled Steels Ltd 48 Apex Tannery 78 Pubali Bank
20 Singer Bangladesh 49 Bata Shoe 79 Shajalal Islami Bank
21 Pran 50 Anlima Yarn 80 Social Investment Bank
22 Apex Foods 51 Desh Garmants 81 Standard Bank
23 BATBC 52 Square Textile 82 Trust bank
24 Fu Wang Food 53 Aramit Ltd 83 Uttara Bank
25 Gemini Sea Food 54 Berger Paints Bangladesh Ltd
26 BOC Bangladesh 55 BEXIMCO
27 Dhaka Electric Supply Company Ltd 56 Miracle Ind.
28 Padma Oil Co. 57 Sinobangla Industries
29 Power Grid Company of Bangladesh Ltd 58 Dhaka Bank
59 Islami Bank
j j
Appendix 3
Table AIII Disclosure Index

Contents on Financial statements Other financial information Presentation and user support
1 Balance sheet of current year 15 Management discussion/analysis 39 Sound or video files

Boundaries of audited & un-audited
2 Balance sheet of past year(s) 16 Information on corporate strategy 40 info.
3 Income statement of current year 17 Number of shares 41 Annual report in PDF and/or HTML
Phone no., address, or e-mail
4 Income statement of past year(s) 18 Current share price 42 hyperlink to investor relations
5 Cash flow statement of current year 19 Share price history 43 Financial data in processable format
6 Cash flow statement of past year(s) 20 Ownership structure (composition) 44 Possibility to download information
Statement of change in owners’ equity
7 of current year 21 Press releases 45 Hyperlinks inside the annual report
Statement of change in owners’ equity Main indicators about the company
8 of past year(s) 22 performance 46 External links to related contents
Monthly or weekly sales or operating
9 Notes to the accounts of current year 23 data 47 Date when site was last updated
10 Notes to the accounts of past year(s) 24 Corporate social responsibility 48 Sitemap
11 Audit report of current year 25 Environmental information 49 Contact us
12 Audit report of past year(s) 26 General information about directors 50 English version of home page
Information about directors dealing in
13 Interim reporting 27 the company’s shares 51 Internal search engine
14 Segmental reporting 28 Information on Corporate Governance 52 FAQ/Query
29 Information on Company Policy 53 Privacy
30 Information on Audit Committee 54 Terms of conditions
31 Information on Board Meeting 55 Webmail
Information on Directors
32 Remuneration 56 Career/Jobs
33 Information on Shareholdings
34 Information on IFRSs/BFRSs
35 Information on ISA/BSA
36 Graphs on Financial Performance
37 Information on the dividend policy
38 Information on the EPS
Corresponding author
Mohammad Nurunnabi can be contacted at: Mohammad.Nurunnabi@edgehill.ac.uk
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The voluntary disclosure of internet

financial reporting (IFR) in an emerging

Mohammad Nurunnabi is Abstract

2. Digital Bangladesh concept

3. Literature review, theories and hypotheses development

3.3 Hypotheses development

3.3.6 Ownership diffusion. Bangladesh tends to have a higher concentrated ownership of

Table I Sample companies with web sites by industry

Table II Companies with web sites

Total companies 378

4.2 The Disclosure Index

4.3 The dependent, independent and explanatory variables

4.5 General regression model

Y ¼ b0 þ b1 Age 1 þ b2 Profitability 2 þ b3 Industry 3 þ b4 Size 4 þ b5 BigAudit 5 þ 1 ð2Þ

Table III Independent variables, proxy and expected sign

Y ¼ b0 þ b1 Age 1 þ b2 Profitability 2 þ b3 Industry 3 þ b4 Size 4 þ b5 BigAudit 5

þ b6 Nonfamilyownership 6 þ b7 CorporateGovernanceLink 7 þ 1 ð3Þ

5. Findings, Analyses and discussion

Table IV Descriptive statistics

TDS 3 51 18.01 11.407

Note: The description of the variables are shown in Table III

Table VI Least disclosure items by companies (, 10)

Information about directors dealing in the company’s shares 0 0.00

Contents on financial statements

Other financial information

Presentation and user support

5.2 Correlation matrix and multicollinearity analysis

5.3 Regression analysis

PAGE 32 JOURNAL OF ASIA BUSINESS STUDIES VOL. 6 NO. 1 2012

(Constant) 228.430 22.829 21.245 0.217

Table XI Regression results of Model 2

(Constant) 232.343 22.343 21.448 0.152

6. Conclusion and limitations

Akhtaruddin, M. (2005), ‘‘Corporate mandatory disclosure practices in Bangladesh’’, The International

Desoky, A.M. (2009), ‘‘Company characteristics as determinants of internet financial reporting in

(The) Financial Express (2009), 23 July.

Gandia, J.L. (2008), ‘‘Determinants of internet-based corporate governance disclosure by Spanish

Khlif, H. and Souissi, M. (2010), ‘‘The determinants of corporate disclosure: a meta-analysis’’,

McMullen, A. (1996), ‘‘Audit committee performance: an investigation of the consequences associated

Marston, C. (1986), Financial Reporting Practices in India, Crom Helm, London.

(The) New Nation (2009), 16 March.

Financial Accounting Standards Board (2000), Electronic Distribution of Business Reporting

Table AI Total companies in DSE and CSE (31 December 2009)

Table AII Sample companies

Table AIII Disclosure Index

1 Balance sheet of current year 15 Management discussion/analysis 39 Sound or video files

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com

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