CHAPTER ONE

INTRODUCTION

1.0 Background of the Study Comment [a1]: 1.01.1 Background of the

Study
Full disclosed information plays an important role in representing management’s
transparency 1and accountability in conducting the business. Traditionally, firms use a paper
based reporting system to share any information to their stakeholders (Probal & Bose, 2007).
During these past decades internet becomes an alternative media used by firms to disseminate
any information to their stake holders. This alternative media is a paperless based reporting Comment [a2]: stakeholders

system and is often called as Internet Financial Reporting (IFR) (Probal & Bose, 2007). IFR
is one example of firms’ voluntary disclosure. Firms adopt IFR based on certain motives,
such as to publish a more up-date information, to increase efficiency and effectiveness
(Andrea & Yang, 2008), and to reduce information asymmetry as well. In this regard,
literature has reviewed the disclosure of information to the stakeholders with the use of
internet as IFR. Comment [a3]: ??????????
What do you mean by this statement?

Corporate Governance (CG), the way through which companies are directed and controlled
(……..). UK Corporate Governance code (July 2018) elaborating further in more finance
sense, implies that CG is the manner in which the suppliers of finance assure that themselves
a reasonable assurance on their investment returns (Shleifer &Vishny, 1997 cited in Mapitiya,
Ajward & Seneratne, 2015). CG is aimed at ensuring that firms are adhering to best practices Comment [a4]: ?????

as disclosed by Organisation for Economic Co-operation and Development (OECD) code of

best practice (2012) such that, the corporates are performing the operations in the best interest
of the all stakeholder in increasing the confidence of the stakeholders in capital markets there
by increasing the credibility and accountability of information provided by the firms (Yap,
Saleh & Abessi, 2011). Bipin, Bhojraj and Sengupta (2005) suggests, a sound CG is needed Comment [a5]: suggest

to support a more transparent disclosure. Good CG supported by a strong regulation can

1
Transparency is the access and proper disclosure of financial information, such as a company's audited
financial reports.

1
avoid financial disclosure from any possible misstatement 2(Nyoman, Alijoya, Djemat &
Sembodo, 2006).

Many studies have been carried out in the context of IFR in global context aimed at
understanding the extent of IFR adoption of a particular country and furthermore certain
studies are determining the factors that drive the adoption of IFR among the firms. In the
context of Sri Lanka very limited empirical evidence exists related to IFR (Kuruppu, Oyelere
& Al Jabri, 2015; Sheham, 2016). The two empirical studies have evaluated the use of
internet as medium of voluntary communication of information by listed firms in Sri Lanka.
The findings reveal that Sri Lanka is still at a nascent stage that provides high opportunities
and challenges for stakeholders. And further, these local studies are mainly concerned on the
web disclosure adopted by firms on board categories of “company history”, goods and
services”, “financial information”. Thus the researcher observes, this research study is a
pioneering research that has been carried out in Sri Lanka, which examines the extent of IFR
adoption practiced in Sri Lanka by way of comprehensive content analysis on the nature and
type of disclosures made available through websites and the impact of CG on IFR practices
of listed firms in Sri Lanka. Comment [a6]: ????????
What do you mean by this sentence?

1.1 Research Problem Comment [a7]: 1.2 Problem of the Study

The separation of ownership and control within firms lead to more information asymmetry
3
among principals and agents. Corporates adopts voluntary disclosure practices in order to Comment [a8]: Ple check the accuracy of these
two words
minimize the information gap and the empirical studies performed on voluntary disclosures
states that managers’ voluntary enhanced the visibility of corporate financial and non-
financial information aimed at reducing agency cost and contract cost to further improve the
transparency (Andrea & Yang, 2008). Moreover Sengupta, Bohraj and Ajinkya (2005) states
that promoting stronger governance could also promote more transparent disclosure thus
more accountability of managers to the interested parties.

Full disclosed information plays an important role in representing management’s

transparency and accountability in conducting the business. (Probal & Bose, 2007) During Comment [a9]: AFTER CITATION DON’T FORGET
TO PUT FULL STOP
these past two decades, internet becomes an alternative media used by firms to disseminate
any information to their stakeholders. This alternative media is a paper- based reporting
system and is often called as IFR. IFR is one example of firms’ voluntary disclosure. In
2
Misstatement is a difference between actual financial statement items prepared by the client and those required
by applicable accounting standards.
3
Asymmetric information, or information asymmetry, occurs when one party in a transaction has greater
information about the topic at hand than the other party.

2
certain developing countries this type of disclosure has not been formally regulated (Spica,
2008). Firms adopt IFR based on certain motivates, such as to publish a more up-date Comment [a10]: Please add some more because
you mentioned developing countries…
information, to increase efficiency and effectiveness (Andrea & Yang, 2008), and to reduce
information asymmetry as well. Bipin et al (2005) suggests, a sound CG is needed to support Comment [a11]: ??????

a more transparent disclosure.

In establishing a relationship between IFR and CG, Probal and Bose (2007) States that IFR is Comment [a12]: state

form of voluntary disclosure, accordingly as voluntary disclosure is associated with CG,

ultimately it draws a connection between IFR and CG. Enhancing more on the relationship
Ojah and Mokoteli (2012) depict that IFR aids in decreasing agency problems and enhancing Comment [a13]: ?????

CG. Furthermore, Solonandrasna (2014) states that although IFR seems to increase the level
of firm transparency, it is also likely to be subject to greater managerial discretion on the
voluntary disclosures made available through websites thus when deciding on what
information should be disclosed on the web, managers may intentionally not disclose
information that are at interest of the managers depriving the decision usefulness of
information disclosed.

Therefore, there is a need for further studies to upgrade the IFR through the CG in listed
firms in Sri Lanka. The problem is addressed by this study is to examine the significant
impact of CG on internet financial reporting of firms listed under Colombo Stock exchange
(CSE) in Sri Lanka. Comment [a14]: ,Sri Lanka
Comment [a15]: Please try to polish your
problem statement in a logical way rather than
using sentences from earlier paragraph.
1.2 Research Questions
Based on the research problem, the following questions are developed by the researcher,

RQ1. Does CG impact on Internet Financial Reporting?

RQ2. Is there any significant relationship between CG and Internet Financial

Reporting?

1.3 Objectives of the Study

The main objective of the study is “to examine the impact of the CG on internet financial
reporting of listed firms in Sri Lanka” Comment [a16]: “to examine the impact of CG
on Internet Financial Reporting of these frims”.

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Secondary Objective:
 To find out the relationship between CG and internet financial reporting of listed
firms in Sri Lanka. Comment [a17]: To find out the relationship
between CG and Internet Financial Reporting of
these firms.

1.4 Significance of the Study

This research is to be aimed mainly to investigate extent to which IFR is adopted by firms in Comment [a18]: study

Sri Lanka, and the impact of CG on IFR in the listed firms in Sri Lanka. The adoption of IFR Comment [a19]: this is not our purpose of the
study, just we want to study the impact and
practices still at a beginning stage in listed firms in Sri Lanka (Kuruppu, Oyelere, & Al Jabri, relationship

2015). Accordingly it is essential to evaluate the extent of IFR adoption by firms as a

voluntary disclosure of information to interested parties. Comment [a20]: I don’t think that this
paragraph is esseantial

 In this case this research is very unique as in the context of Sri Lanka only above
mentioned few studies are performed so it will contribute to extant literature by way of
new knowledge in IFR practices. Comment [a21]: ????

 In globally several researches have been carried out in terms of IFR but contradictory
results are found in regards to the determining factors of IFR. This study contributes to Comment [a22]: ??????????

the extent knowledge by bridging the above mentioned gap by means of analyzing the
impact of CG mechanism on IFR practices adopted by firms.
 Knowledge on IFR is important for all the potential investors of the firm. Higher level of
IFR practices leads to higher level of transparency. Updated material information would
guide the investors to take effective investment decisions. Comment [a23]: ????

 Recent years, major changes in corporate governance structure in Sri Lanka such as
increased role of non-executive directors, role of the audit committee etc. has taken place
in order to comply with international trends. Comment [a24]: ???

 The findings of the study would have implications for Sri Lankan finds and regulatory Comment [a25]: ????

authorities since heavy reliance is placed on corporate governance to improve

transparency and disclosure practices on listed Manufacturing firms. Comment [a26]: ????

 4
In this pandemic the awareness on the IFR practices and its link with CG is an essential
factor to be concerned by the managers of the firms. It will enable them to understand
their role in ensuring transparency and minimizing the information gap their by
improving their quality of service. Comment [a27]: ?????

4
It is an outbreak of a disease that occurs over a wide geographic area (such as multiple countries or
continents) and typically affects a significant proportion of the population. (E.g. COVID 19 Pandemic)

4
 IFR practices and extent to which it determined by CG is also essential for regulators and
policy makers such as Professional accounting bodies such as Institute of Chartered Comment [a28]: p
Comment [a29]: ??????
Accountants of Sri Lanka (ICASL), Securities Exchange Commission (SEC) and
Colombo Stock Exchange ( CSE), to regulate the quality of voluntary disclosure. The
results of this research may be useful for regulators in Sri Lanka as they continue to Comment [a30]: study

deliberate the appropriate corporate governance requirements.

1.5 Limitations of the Study

 The data will be collected from a limited number of representative sample of the firms Comment [a31]: Please use hyphen

belongs to the firms in Sri Lanka. It will limit the accuracy of the results. Therefor Comment [a32]: ?????

findings can’t be generalized as this is a non-random based sampling which will cause the Comment [a33]: ????

sample to be biased.
 Secondly a variable based limitation, in this study as the independent variable of IFR
practices can be evaluated based on an Index developed in line with the literature.
However, I terms of literature to the best knowledge of researcher no study has been Comment [a34]: ????

conducted within the index based evaluation on IFR. Hence it will be challenging due to Comment [a35]: ??????

less availability of local literature in developing index.

 In addition to that IFR practices are highly associated with the technological
improvements such that IFR practices observed are subjected to changes in technology.
Sri Lanka being a developing country the level of technological penetration is relatively
less in comparison to developed countries. Comment [a36]: ??????

 It is only consider about one year’s data on annual report and also this research depends Comment [a37]: ???
Comment [a38]: reports
on annual report data and firm websites.
Comment [a39]: study

1.6 Research Methods Comment [a40]: Research Method and

Approach

Research methodology focuses on the research process and the kind of tools and procedures
to be used;
 The quantitative research approach is using for the research study.
 Sample of this study is 100 firms.
 The study is related with secondary data collection. In this research the researcher collect
data from the annual report, CSE website and CSE publications as well as firm websites.
Data for the study relies over the period of one year.
 The modes of analysis are Descriptive statistics, correlation and Regression analysis.

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 Comment [a41]: Under research method and
 STATA and E-Views package is using for this research. approach, you should give brief idea about your
research method (inductive or deductive) and
approach (quantitative or qualitative). That’s all

1.7 Chapter Outline

The study is organized into five chapters. The chapters are structured as follows:
 The first chapter includes background of the study, research problem, research questions,
objective of the study, significance of the study, and limitation of the study. It provides
brief insight in to the research study.
 The second chapter reviews the theoretical framework of Internet Financial Reporting,
Governance Attributes. It also includes the review of the previous empirical studies Comment [a42]: ????
Don’t change the name time to time. Please be
related to IFR practices and Governance Attributes. consistent throughout the document.

 Chapter three will be the research approach utilized in conducting the study. In the Comment [a43]: Don’t use future tense.

chapter the sequence of the tasks performed in conducting the research work is
introduced. The chapter describes the research design, the research sample and method of
data collection and analysis used in the study.
 Chapter four includes the presentation of the data gathered by the researcher and analysis
of such data using various techniques described under methodology and testing of
hypotheses.
 Chapter five is the conclusion of the study with results from the empirical study, and

recommendations for the impact of CG on IFR practices of listed Firms in Sri Lanka. Comment [a44]: Ple check space between
sentences

1.8 Chapter Summary

This chapter creates the foundation to the study where the researcher has discussed the
background to the study which has paved the way to the research issue and research
objectives under consideration.

The broad objective of this study is to identify the extent to which IFR is practiced in Sri
Lanka and to derive a relationship between CG measures and the extent to IFR adoption Comment [a45]: Actually this is not your
research objective
hence this chapter implies the practical and theoretical significance of realizing such
objectives. Furthermore, this chapter elaborates the scope and methodology adopted in this Comment [a46]: ????

study concluding the chapter with a summary on the structure of the rest of chapters.