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JAAR
22,2
286
Received 4 June 2020
Revised 21 September 2020
14 November 2020
Accepted 5 December 2020
Journal of Applied Accounting
Research
Vol. 22 No. 2, 2021
pp. 286-306
© Emerald Publishing Limited
0967-5426
DOI 10.1108/JAAR-06-2020-0114
Internal control quality and
voluntary disclosure: does CEO
duality matter?
Hichem Khlif
Faculty of Economics and Management of Sfax, University of Sfax, Sfax, Tunisia
Khaled Samaha
Department of Accounting, The American University in Cairo (AUC),
Cairo, Egypt, and
Ines Amara
Faculty of Economics and Management of Sfax, University of Sfax, Sfax, Tunisia
Abstract
Purpose – The authors examine the association between internal control quality (ICQ) and voluntary
disclosure and test whether chief executive officer (CEO) duality, as a proxy for CEO structural power,
moderates such a relationship in an emerging market (Egypt).
Design/methodology/approach – ICQ is measured using a survey of external auditors, while a content
analysis approach is used to measure the level of voluntary disclosure in annual reports.
Findings – Based on a sample of 512 firm-year observations over the period of 2007–2014, the authors
document that ICQ is positively and significantly associated with voluntary disclosure, suggesting that better
controls improve corporate reporting policy. In addition, CEO duality moderates the association between ICQ
and voluntary disclosure since this positive relationship association becomes insignificant for companies
characterised by CEO duality. These results remain stable after controlling for endogeneity (self-selection
problem), political instability and industry characteristics.
Research limitations/implications – The findings of the study provide preliminary evidence on the
association between ICQ and voluntary disclosure, and how CEO structural power may affect this association.
Future empirical investigations may extend this work to cover the relationship between ICQ and other
attributes of corporate transparency including earnings quality and accounting conservatism.
Practical implications – The findings highlight the need for Egyptian regulators to enact new rules obliging
firms to communicate information about ICQ or charging auditors to report information about firm’s ICQ in
their reports. The results also alert policymakers about the adverse effect of combined leadership structure
(CEO duality) since it mitigates the positive impact of ICQ on voluntary disclosure.
Originality/value – The authors contribute to internal control literature by exploring the association between
ICQ and voluntary disclosure on an emergent unregulated market with respect to internal control disclosure.
They also highlight how CEO duality, as a proxy for CEO power, mitigates the beneficial effect of ICQ on
corporate reporting policy on the Egyptian stock exchange (EGX).
Keywords Voluntary disclosure, ICQ, CEO duality, Egypt
Paper type Research paper
1. Introduction
Extant literature dealing with the effect of internal control quality (ICQ) on managements’
decisions has investigated several aspects of corporate transparency including earnings
quality and earnings management (Chalmers et al., 2019). This stream of empirical literature
suggests that higher ICQ leads to higher earnings quality (e.g. Brown et al., 2014 in Germany;
Oh et al., 2014 in Korea) or lower discretionary accruals (e.g. Lu et al., 2011 in Canada; J€arvinen
and Myllym€aki, 2016 in USA). A neglected aspect in this stream of empirical literature is
whether ICQ affects management’s behaviour through the extent of voluntary disclosure. For
instance, Hu et al. (2013) posit that low ICQ may introduce unintentional errors and intentional
misstatements which may bias financial reporting quality. The lack of confidence in firm’s
internal control system may reduce management incentives to communicate information in
excess of mandatory requirements. Previous studies in the Egyptian setting have explored Internal control
the effect of ICQ on auditors through audit report lag (Khlif and Samaha, 2014) and on quality and
investors through cost of equity capital (Khlif et al., 2019). No studies have explored the effect
of ICQ on management’s behaviour, as proxied by voluntary disclosure, in emerging
disclosure
economies. Accordingly, we try to extend this stream of research dealing with the economic
consequences of ICQ in emerging economies.
Our research aims to explore the association between ICQ and voluntary disclosure and
test whether Chief Executive Officer (CEO) duality, as proxy for CEO power, moderates such 287
a relationship in an emerging economy, namely, Egypt. Therefore, our research aims to
respond to the following questions: does ICQ affect corporate transparency through
voluntary disclosure in emerging economies? How does the power of CEO influence this
association?
We examine these relations in Egypt for the following reasons. On the one hand, Egyptian
market is characterised by a larger cross-sectional variation found in terms of disclosure level
(Ebaid, 2016) and ICQ (Ebaid, 2016; Khlif and Samaha, 2014; Khlif et al., 2019). Thus, Egyptian
listed companies operating under a low mandatory disclosure regime will have more
incentives to distinguish themselves from their country’s mean levels and improve their
disclosure practices and ICQ in order to increase the marketability of their shares (Khlif et al.,
2015b, 2019). On the other hand, internal control disclosure is unregulated in the Egyptian
stock exchange (EGX, hereafter) (Khlif et al., 2019). Finally, the EGX is considered as one of the
most active stock market in emerging economies. For instance, Allini et al. (2018, p. 300) posit
that “EGX annual performance based on Morgan Stanley Capital International Index (MSCI
Index) ranged from 1.59% to 29.36%, compared with
6.00% to
1.82% for the emerging
markets index, and with
18.98% to 4.71% for all countries world index, in 2002 and 2014,
respectively (www.msci.com)”. These features of Egyptian setting increase the pertinence of
exploring the association between ICQ and voluntary disclosure in this context. In this
regard, Khlif et al. (2019, p. 145) suggest that “an active stock exchange may increase firms’
management incentives to ameliorate firms’ transparency through the improvement of ICQ”.
Voluntary disclosure is defined as “disclosures in excess of requirements, representing free
choices on the part of company managements to provide accounting and other information
deemed relevant to the decision needs of users of their annual reports” (Meek et al., 1995, p. 555).
To measure voluntary disclosure, a content analysis of annual reports is used to proxy for the
level of voluntary disclosure. Internal control is a set of procedures established by a company
to ensure the credibility of financial reporting, promote accountability and prevent fraud. ICQ
is proxied using a survey among Egyptian’s external auditors based on an internal control
checklist. Finally, CEO duality exists when the CEO, who holds top management position,
serves also as the chairman of the board. This unified leadership structure provides CEO with
power in taking decisions, called, CEO structure power (Hu and Gan, 2017).
Based on a sample of 512 firm-year observations over the period of 2007–2014, we
document that ICQ is positively and significantly associated with the voluntary disclosure.
This finding implies that ICQ is an important component of corporate transparency since it
improves disclosure level. When testing for the moderating effect of CEO duality on the
relationship between ICQ and voluntary disclosure, we document that the interaction
variable between CEO duality and ICQ becomes insignificant. These associations remain
stable after controlling for endogeneity problem. In addition, the positive effect of ICQ on
voluntary disclosure remains stable after controlling for political instability caused by
Egyptian revolution for the pre- (2007–2010) and post- (2011–2014) revolution periods and
industry characteristics (industrial versus commercial sectors).
This study contributes to accounting literature as follows. With respect to researchers, our
study explores the association between ICQ and voluntary disclosure by focusing on an
emerging unregulated market with respect to internal control disclosure and demonstrates
JAAR how combined leadership structure (CEO duality) affects such a relationship. Accordingly, it
22,2 extends and complements previous studies dealing with the economic effects of ICQ in
emerging economies (e.g. Khlif and Samaha, 2014; Khlif et al., 2019). With respect to
managers, our findings highlight the role played by ICQ as a key transparency component in
improving the voluntary dissemination of information. With respect to policymakers, our
findings may urge Egyptian regulators to enact new rules, obliging firms to communicate
information about ICQ or charging auditors to report information about firm’s ICQ in their
288 reports. Our results also alert policymakers about the adverse effect of a combined leadership
structure (CEO duality) since it mitigates the positive impact of ICQ on voluntary disclosure.
The remainder of the paper is organised as follows. Section 2 presents the legal and
institutional characteristics of the Egyptian setting, reviews the previous literature
and elaborates the hypotheses. Section 3 presents the data collection, the methodology and
descriptive statistics. Section 4 discusses the research findings. The final section summarises
the paper and provides some future research avenues.

2. Literature review and hypotheses development

This section is devoted to briefly discuss the main characteristics of Egyptian setting in terms
of disclosure and corporate governance and to develop the theoretical arguments for the
association between ICQ and voluntary disclosure. Then, we try to justify how CEO duality,
as proxy for CEO structural power, may affect the association between ICQ and voluntary
disclosure.

2.1 Disclosure and corporate governance in Egypt

During the 2000s, Egypt has witnessed the adoption of several regulations aiming at
improving transparency and disclosure environment in the EGX. The Egyptian Institute of
Directors (EIoD) (http://www.eiod.org) institutes a corporate governance code, namely, the
Egyptian Code of Corporate Governance (ECCG), in late 2005 for companies quoted on the
EGX (Khlif and Samaha, 2014). This code mainly deals with four governance topics related to
the board of directors, directors’ remuneration, shareholders, accountability and audit (Khlif
and Samaha, 2016; Khlif et al., 2019).
Ebrahim and Abdel Fattah (2015) suggest that these new governance reforms have not
contributed to the improvement of transparency in the EGX since board responsibilities,
disclosure and transparency were identified as areas of weakness in corporate governance
practices in Egypt (Khlif et al., 2019). In this regard, Abdel-Meguid et al. (2014) posit that
corporate governance in Egypt represents a mere compliance with the “letters” of ECGC
rather than an effective adhesion with the “spirit” of corporate governance rules. Similarly,
the World Bank (2009) suggests that only a few companies have truly independent directors
since board members are frequently designated by powerful CEOs for their loyalty rather
than skills and independence (Khlif et al., 2019).
With respect to internal control, internal control disclosure is not regulated and the
internal audit function lacks real independence (World Bank, 2009). World Bank (2009)
specifies that “the chief internal auditor is to be appointed, reappointed, and dismissed by the
chief executive officer (CEO) and not the board’s independent audit committee as per good
practice and the chief internal auditor is to report directly to the CEO and not the board’s
independent audit committee” (p. 15). This implies that CEO has a dominating power over
internal audit function and internal control procedures.
With regard to disclosure, Egypt represents a low disclosure environment (Elbannan,
2011, Khlif et al., 2015b, 2019). Egyptian accounting and investment community is suffering
from a weak accounting institutional infrastructure, poor training, language barriers and low
accounting enforcement (World Bank, 2002). These ineffective governance attributes and Internal control
weak institutional auditing and accounting infrastructure may diminish management quality and
incentives to increase voluntary disclosure. In addition, high family and state ownerships in
the Egyptian setting (Khlif et al., 2015b) may also reduce management’s incentives to improve
disclosure
voluntary disclosure.
As a low disclosure environment with an unregulated internal control disclosure and
generally dominating CEOs over internal audit function, Egypt may represent an ideal
setting to investigate whether ICQ may have a role in improving disclosure environment and 289
how CEO structural power may affect such an association.

2.2 ICQ and voluntary disclosure

ICQ represents an important component of the internal information environment (Khlif et al.,
2019). Higher ICQ may incentivise managers to communicate more voluntary information
about the firm’s operations since they will receive better internal signals about firm’s current
situation and future opportunities (Khlif et al., 2019). According to Doyle et al. (2007) and Feng
et al. (2009), the strength of internal control systems will encourage management to
disseminate voluntary information that serves as a basis for the communication with external
parties including investors.
Doyle et al. (2007) suggest that the quality of voluntary disclosures is poorer in firms
characterised by weak internal control systems. Hu et al. (2013) posit that low ICQ may lead to
unintentional errors and intentional misstatements which may bias financial reporting quality.
For instance, low ICQ may result in erroneous internal management reports (Feng et al., 2009),
translating into errors in external financial reporting information. Similarly, Ashbaugh-Skaife
et al. (2009) posit that if firm’s internal control system has weaknesses, the quality and the
precision of its accounting signals are impaired (Ashbaugh-Skaife et al., 2009). Hu and Gan
(2017, p. 2015) posit that “the lower quality of an internal control system leads to poor accounting
quality and the less reliable dissemination of financial information to outside investors”.
Feng et al. (2009) suggest that lower ICQ may impair timely disclosure, making accounting
numbers less informative and obliging managers to use out-of-date information. For example,
if a company has a shortage in qualified accountants, it will lead to less compliance with
accounting rules and standards and tardy disclosures of information. Thus, management will
not take the risk of making voluntary disclosures given the lack of confidence on accountant
staff. Firm’s management may become reluctant in making voluntary disclosures to avoid
future litigation risks since internal control environment suffers from weaknesses which may
translate into erroneous internal management reports (Cheng et al., 2018).
Empirical evidence in emerging economies concerning the direct association between ICQ
and voluntary disclosure is limited. However, some studies have reported that ICQ may affect
information environment in general. For instance, Guidara et al. (2016) suggest that internal
control weaknesses may reduce information quality in the Tunisia setting which translates
into higher cost of debt. In China, Tong et al. (2014) document that ICQ affects information
environment through the decrease of unfair related party transactions for private benefits,
which translates into lower cost of capital.
Hence, we formulate the following hypothesis:
H1. There is a positive association between ICQ and voluntary disclosure for firms
operating in the EGX.

2.3 The moderating effect of CEO duality on the association between ICQ and voluntary
disclosure
Combining the power of the CEO and the chairman of the board in one person produces a
strong individual power base, which could erode the board’s ability to exercise effective
JAAR control (Gul and Leung, 2004). Fama and Jensen (1983) suggest that CEO duality signals the
22,2 lack of separation of decision control and decision management and that the board represents
an ineffective tool to limit the discretion of top managers. Therefore, CEO duality may
adversely affect ICQ and disclosure policy.
On the one hand, CEO duality, as proxy of CEO structure power, may compromise the
ability of the board to control and monitor a CEO’s practices, policies and performance
(Hu and Gan, 2017). If the CEO serves also as chairman, he/she can weaken the monitoring
290 effectiveness of the board of directors and audit committee, which translates into lower ICQ
(Hu and Gan, 2017).
On the other hand, CEO duality may also affect voluntary disclosure for two main reasons.
First, CEO duality may constrain the system of checks and balances and compromise board
independence and management oversight (Samaha et al., 2015). Second, duality may reduce
the complete transfer of private information between CEO and board members leading to less
dissemination of voluntary information (Kim et al., 2008). Thus, CEO duality may constrain
internal corporate governance mechanisms, including board of directors and audit
committee, which, in turn, alter firm’s control and information environments leading to
lower ICQ and less voluntary disclosure.
Prior literature in emerging economies suggests that CEO duality reduces the
dissemination of voluntary disclosure (e.g. Chau and Gray, 2010 in Hong Kong) and CEO
power, in general, negatively affects ICQ (e.g. Hu and Gan, 2017 in China).
Accordingly, we expect that CEO duality, as a proxy for CEO structural power, may
mitigate the positive association between ICQ and voluntary disclosure in the Egyptian
setting. Thus, the following hypothesis is tested:
H2. The association between ICQ and voluntary disclosure becomes insignificant for
firms characterised by CEO duality.
Figure 1 illustrates the conceptual framework for the associations examined in this study.

3. Data, models and variables definition

It is generally difficult to identify a single database on internal control and voluntary
disclosure in developing countries like Egypt (Khlif and Samaha, 2014; Khlif et al.,
2019). Accordingly, we rely on various data sources to build our sample. Given the fact
that some governance reforms (ECGC) enacted by the Egyptian government in late
2005, we exclude the first year of application (2006) from the analysis to avoid any bias
linked to it. We eliminate financial and insurance companies since they are considered
as highly regulated sectors. After eliminating listed companies with missing annual
reports, our final sample includes 64 companies listed on the EGX over the period
2007–2014.

(+) Direct effect

H1
ICQ Voluntary disclosure

Moderating
effect
H2

Figure 1. CEO Duality

Conceptual framework
3.1 Models Internal control
To examine the effect of ICQ on voluntary disclosure, the following regression model is quality and
performed. The first model investigates the direct effect of ICQ on voluntary disclosure (H1).
disclosure
DSit ¼ α0 þ α1 ICQit þ α2 CEODit þ α3 MCit þ α4 FFit þ α5 BSit þ α6 BIndit þ α7 Levit
þ α8 ROEit þ α9 INDit þ εit (1)
291
Where,
Dependent variable

DS 5 disclosure score for each firm for firm i in year t;

Test variable

ICQ 5 internal control quality for firm i in year t;

Moderating variable

CEOD 5 CEO duality proxied by a dummy variable: 1 if CEO and chairman is the same
person, 0 otherwise;

Control variables

MC 5 natural logarithm of market capitalisation for firm i in year t;

FF 5 percentage of company shares which are freely traded at the stock exchange and
which are not in permanent ownership, proxied by the percentage of company shares held
by individuals for firm i in year t;
BS 5 board size proxied by the number of board of director members’ firm i in year t;
BInd 5 board independence proxied by the percentage of independent directors on the
board firm i in year t;
Lev 5 leverage ratio calculated as debt-to-equity ratio for firm i in year t;
ROE 5 profitability ratio measured by net income by equity book value for firm i in year t;
IND 5 industry type, a dummy variable that takes the value of 1 if the firm operates in an
industrial sector, and 0 otherwise.
Following Khlif et al. (2019) and to be in line with the US literature which has used a dummy
variable to proxy for ICQ, we transform our ICQ variable into a dummy variable (1 if superior
to the median [1] and 0 otherwise). This alternative model 2 is further used to test for the direct
effect of ICQ on voluntary disclosure (H1) (see Table 1).
DSit ¼ α0 þ α1 ICQDit þ α2 CEODit þ α3 MCit þ α4 FFit þ α5 BSit þ α6 BIndit þ α7 Levit
þ α8 ROEit þ α9 INDit þ εit (2)

Where;
ICQD 5 internal control quality is transformed into a dummy variable that equals 1 if ICQ
is superior to the median, and 0 otherwise;
JAAR Variables Required data Sources of information
22,2
Dependent variable
Disclosure score Annual reports Firm’s web site and financial statements
(DS) (EGID)**
Independent variables
292 Test variable
ICQ Internal control quality and varies A survey is conducted among Egyptian
from 1 to 3 auditors to evaluate firm’s internal control
quality (see Appendix 1)
Moderating variable
CEOD
Control variables
Market Natural logarithm of market Egyptian Stock Exchange Archive*
capitalisation (MC) capitalisation
Free float (FF) Percentage of shares held by Ownership Structure data: EGID**
individual (retail) investors
Board size (BS) Number of board of director Board of Directors data: EGID**
members
Board The percentage of independent Board of Directors data: EGID**
independence directors on the board
(BInd)
Leverage (Lev) Debt-to-equity ratio Financial statements (EGID)**
Profitability (ROE) Net income divided by equity book Financial statements (EGID)**
value
Industry type Dummy variable: 1 if the firm Financial statements (EGID)**
(IND) operates in industrial sector, and
Table 1. 0 otherwise
Data measures and Note(s): *Obtained on a CD by the corresponding author; **Egyptian Company for Information
sources Dissemination (EGID) and data are obtained for a fee

To test the moderating effect of CEO duality on the relationship between ICQ and voluntary
disclosure (H2), we introduce an interaction variable between ICQ and CEO duality. This
variable equals to ICQ under a combined leadership structure (CEO is also the chairman of the
board) and 0 under a separated leadership structure. Accordingly, the following regression is
performed (model 3).
DSit ¼ α0 þ α1 ICQit *CEODit þ α2 MCit þ α3 FFit þ α4 BSit þ α5 BIndit þ α6 Levit þ α7 ROEit
þ α8 INDit þ εit
(3)

3.2 Dependent variable: voluntary disclosure score

The voluntary disclosure score was computed using the content analysis approach of
annual reports. We use the same disclosure index constructed by in the Egyptian setting by
Samaha and Dahawy (2011) in their paper dealing with the determinants corporate
disclosure. The disclosure index includes 80 items dealing with financial information (27
items), strategic information (29 items) and social information (24 items). Each item of
disclosure was scored 1 if the information is communicated in the firm’s annual report, and
0 otherwise. The voluntary disclosure score for each company is computed by calculating
the ratio of the total items disclosed to the maximum possible score appropriate for that
company. This disclosure index was used in several empirical studies dealing with the Internal control
economic consequences of voluntary disclosure in the Egyptian setting (see, for example, quality and
Khlif et al., 2015b, 2019). Appendix 2 displays detailed information about disclosure
score items.
disclosure

3.3 ICQ
Since data on ICQ cannot be directly observed and it is not generally difficult to get direct 293
access to it (Krishnan, 2005), we follow the same methodology adopted by Khlif and Samaha
(2014, 2016) and Khlif et al. (2019). This approach consists of undertaking a survey
methodology among external auditors appointed to certify the regularity of firms’ financial
statements to evaluate the ICQ in Egypt using an internal control checklist developed by
Hwang et al. (2004). This checklist includes 23 items dealing with (1) organisation, roles and
responsibilities, (2) risk management, (3) overall monitoring, (4) IT function and organisation,
(5) system characteristics and (6) IT monitoring control.
The survey was conducted by handing out the questionnaires to external auditors [2]. When
conducting their audit mission, external auditors assess the quality of internal control
procedures to be able to define internal control risk and whether they will adopt a corroborative
approach or a combination between control and substantive tests. Accordingly, external
auditors will have an adequate knowledge about the ICQ of the audited firm.
The examination of audit reports from 2007 to 2014 permits identifying auditors’ names,
their addresses and their telephones to arrange a meeting. During the meetings with auditors, we
asked them to answer to the questionnaire (each item) by scoring (1) if not effective, (2) if
moderately effective and (3) if highly effective. All auditors surveyed have responded to the
survey after five weeks. In their answers to our questionnaire, auditors indicate that the
assessment of firms’ internal control systems was based on the archived audit files for period of
interest [3]. Each item of internal control checklist was scored by firm’s auditor 1 if he/she
perceives that this item is not effective, 2 if he/she perceives that this item is moderately effective
and 3 he/she views the item as highly effective [4]. ICQ score for firm i is calculated as follows:
P23
j¼1 Scoreji
ICQi ¼ (4)
23
Accordingly, ICQ score varies from 1 to 3. The internal control items examined are displayed
in Appendix 1.

3.4 Control variables

We include several control variables that have been hypothesised to influence voluntary
disclosure in the Egyptian disclosure literature (e.g. Samaha and Dahawy, 2011; Samaha et al.,
2012). These variables include corporate size, leverage ratio, profitability, ownership
dispersion, as proxided by free float, board size and board independence. Disclosure meta-
analytic literature has generally documented a positive association between corporate
characteristics (Ahmed and Courtis, 1999), board of directors attributes (Samaha et al., 2015),
ownership dispersion (Khlif et al., 2017) and voluntary disclosure. Finally, voluntary
disclosure practices may vary considerably across different sectors in the Egyptian setting
(Samaha and Dahawy, 2011). Accordingly, we include a dummy variable that equals 1 for
industrial companies, and 0 otherwise.

3.5 Descriptive statistics

Table 2 presents the descriptive statistics of variables included in the analysis. Voluntary
disclosure score has a mean of 0.116 and varies between 0.040 and 0.610. ICQ has an average
JAAR Variable Observations Mean Standard deviation Minimum Maximum
22,2
DS 512 0.116 0.102 0.040 0.610
ICQ 512 2.053 0.488 1.040 3.000
CEO duality 512 0.625 0.484 0 1
MC 512 17.279 3.196 9.350 24.234
FF 512 0.277 0.260 0.020 0.990
294 BS 512 10.375 5.568 3 31
BInd 512 0.113 0.144 0.03 0.620
Lev 512 0.333 0.930 0.004 1.419
ROE 512 0.324 0.935
0.153 8.003
IND 512 0.703 0.457 0 1
Note(s): DS: voluntary disclosure score; ICQ: internal control quality; CEOD: CEO duality proxied by a
dummy variable: 1 if CEO is also the chairman of the board, and 0 otherwise; MC: natural logarithm of market
capitalisation; FF: percentage of shares held by individual (retail) investors; BS: board size; BInd: board
independence defined as the percentage of independent directors on the board; Lev: leverage ratio calculated as
debt-to-equity ratio for firm i in year t; MC: natural logarithm of market capitalisation for firm i in year t; ROE:
Table 2. measured by net income by equity book value for firm i in year t; IND: industry type (1 if the firm operates in an
Descriptive statistics industrial sector, and 0 otherwise)

of 2.053 and varies from 1.040 to 3. CEO duality represents a widespread characteristic in the
Egyptian setting as 62.500% of the observations have this feature. Finally, leverage ratio,
measured by debt-to-equity ratio, has an average of 0.333, while the average of profitability
ratio, as proxied by ROE, amounts to 0.324. Table 2 displays more details about the remaining
control variables examined in our study.

4. Results
4.1 Univariate analysis
Table 3 A presents bivariate correlations between continuous variables. The analysis
shows that voluntary disclosure is positively and significantly associated with ICQ
(0.395; p 5 0.001). This result provides preliminary support for H1, suggesting that
higher ICQ improves disclosure environment in the Egyptian setting. Furthermore, free
float is also positively and significantly associated with voluntary disclosure (0.361;
p 5 0.001), and this result is in line with Samaha and Dahawy (2011) and Samaha
et al. (2012).
Table 3 B reports the results of the test of equality of means for voluntary disclosure for
CEO duality and other dummy control variables in our analysis. The mean of voluntary
disclosure score under combined leadership structure (CEO duality) accounts for 0.116, while
it amounts for 0.115 under separated leadership structure. The difference between these two
types of leadership structure is not statistically significant. Similarly, firms operating in
industrial sector have a mean of voluntary disclosure score of 0.119, while others operating
within commercial industry have a mean of disclosure sore of 0.108, and the difference is not
statistically significant.

4.2 Multivariate analysis: the association between ICQ and voluntary disclosure
Table 4 presents multivariate regression results. Model 1 shows that ICQ is positively and
significantly associated with voluntary disclosure (Coef 5 0.089; t 5 8.690) in the Egyptian
setting, and thus our first hypothesis H1 is supported. This finding suggests that higher ICQ
may create a favourable environment for managers to communicate more voluntary
information about the firm’s operations since they will receive better internal signals about
Correlation matrix
Internal control
DS ICQ MC FF BS BIn Lev ROE quality and
disclosure
DS 1.000
ICQ 0.395*** 1.000
MC
0.096 0.161* 1.000
FF 0.361*** 0.057
0.188 1.000
BS
0.136*
0.054 0.146*
0.205** 1.000 295
BIn 0.139* 0.139*
0.038
0.007 0.133* 1.000
Lev
0.074 0.008 0.050
0.094
0.090 0.131* 1.000
ROE
0.002 0.033 0.125* 0.031
0.124 0.214** 0.639*** 1.000

Test of equality of means of disclosure level

Number of Standard T-statistic
Category observations Mean deviation (p-value)

CEO duality 0 192 0.115 0.110 0.634 (0.526)

1 320 0.116 0.096
IND: 1 for industrial and 0 152 0.108 0.104
0.102 (0.918)
0 otherwise 1 360 0.119 0.101
Note(s): Dependent variable: DS: voluntary disclosure score; ICQ: internal control quality; CEOD: CEO duality
proxied by a dummy variable: 1 if CEO is also the chairman of the board, and 0 otherwise; MC: natural
logarithm of market capitalisation; FF: percentage of shares held by individual (retail) investors; BS: board size;
BInd: board independence defined as the percentage of independent directors on the board; Lev: leverage ratio
calculated as debt-to-equity ratio for firm i in year t; MC: natural logarithm of market capitalisation for firm i in
year t; ROE: measured by net income by equity book value for firm i in year t; IND: industry type (1 if the firm
operates in an industrial sector, and 0 otherwise); *, ** and *** denote significance at the 10%, 5% and 1 % Table 3.
significance level, respectively Univariate analysis

firm’s current situation and future opportunities. This finding is in line with the prediction of
Hu and Gan (2017) who suggest that high ICQ will encourage management to release more
information to outside investors and it supports previous results reported by Feng et al. (2009)
who have documented that higher ICQ has a significant positive impact on voluntary
disclosure in the US setting.
With respect to the remaining variables, only free float has a positive and significant effect
on voluntary disclosure (Coef 5 0.123; t 5 7.750), while the remaining variables, including
CEO duality, have an insignificant impact on voluntary disclosure.
In order to capture the incremental effect of ICQ in explaining voluntary disclosure, we
remove ICQ from the second regression. We notice that the adjusted R-square moves from
27.880% in model 1 to 17.030%, implying that ICQ plays an important role in explaining
voluntary disclosure practices in the Egyptian setting. In this model, free float conserves its
positive effect on voluntary disclosure (Coef 5 0.130; t 5 7.620). The insignificant association
between board independence and voluntary disclosure reported in model 1 becomes positive
and significant (Coef 5 0.117; t 5 3.810) after removing ICQ. This finding implies that ICQ
acts as a substitute for board independence, as an internal governance mechanism, in
improving voluntary disclosure.
Using ICQ dummy variable (model 2), results show that ICQ conserves its positive and
significant effect on voluntary disclosure (Coef 5 0.054; t 5 5.740). Thus, hypothesis H1 is
further confirmed using this alternative proxy for ICQ. As for model 1, free float conserves its
positive and significant effect on voluntary disclosure (Coef 5 0.131; t 5 7.930). Finally, board
independence has a positive and significant effect on voluntary disclosure in model 2
(Coef 5 0.090; t 5 3.010).
 22,2

296
JAAR

Table 4.

relationship
Multivariate

disclosure and the

ICQ and voluntary
association between

moderating effect of
CEO duality on such
regression analysis: the
Model 1 Model 1 (Without ICQ) Model 2 (ICQD) Model 3 (Excluding ICQ and CEOD) Model 3 (Including ICQ)

Intercept
0.069 (
1.290) 0.121 (2.410)** 0.095 (1.910)* 0.126 (3.400)***
0.031 (
0.820)
ICQ 0.089 (8.690)*** 0.090 (8.630)***
ICQD 0.053 (5.740)***
CEOD 0.006 (0.730) 0.003 (0.420) 0.007 (0.830)
ICQ*CEOD 0.004 (1.030)
0.002 (
0.620)
MC
0.001 (
0.840)
0.002 (
1.280)
0.001 (
0.670)
0.002 (
1.260)
0.001 (
0.840)
FF 0.123 (7.750)*** 0.130 (7.620)*** 0.131 (7.930)*** 0.128 (7.460)*** 0.125 (7.810)***
BS
0.001 (
1.290)
0.001 (
1.960)*
0.001 (
1.550)
0.001 (
1.940)*
0.001 (
1.380)
BInd
0.048 (1.610) 0.117 (3.810)*** 0.090 (3.010)*** 0.117 (3.920)*** 0.040 (1.360)
Lev
0.005 (
1.070)
0.005 (
1.000)
0.005 (
1.000)
0.006 (
1.020)
0.005 (
1.050)
ROE
0.000 (
0.150)
0.002 (
0.390)
0.002 (
0.470)
0.002 (
0.360)
0.001 (
0.240)
IND
0.010 (
0.130)
0.000 (
0.001)
0.007 (
0.850)
0.000 (
0.000)
0.010 (
1.180)
YearDum Included Included Included Included Included
No. of observations 512 512 512 512 512
Adj-R-square 27.880 17.030 22.040 17.180 27.860
F (p-value) 13.350 (0.000)*** 7.990 (0.000)*** 10.030 (0.000)*** 8.070 (0.000) *** 13.330 (0.000) ***
Max VIF 3.380 3.300 3.340 3.300 3.380
Note(s): Dependent variable: DS: voluntary disclosure score; ICQ: internal control quality; ICQD: dummy variable (1 if ICQ superior to the median, and 0 otherwise);
CEOD: CEO duality proxied by a dummy variable: 1 if CEO is also the chairman of the board, and 0 otherwise; MC: natural logarithm of market capitalisation; FF:
percentage of shares held by individual (retail) investors; BS: board size; BInd: board independence defined as the percentage of independent directors on the board; Lev:
leverage ratio calculated as debt-to-equity ratio for firm i in year t; MC: natural logarithm of market capitalisation for firm i in year t; ROE: measured by net income by
equity book value for firm i in year t; IND: industry type (1 if the firm operates in an industrial sector, and 0 otherwise). t-statistics are between parentheses; *, ** and ***
denote significance at the 10%, 5% and 1 % significance level, respectively
4.3 Multivariate analysis: the moderating effect of CEO duality on the association between Internal control
ICQ and voluntary disclosure quality and
In order to test the moderating effect of CEO duality on the relationship between ICQ and
voluntary disclosure, we introduce an interaction variable between CEO duality and ICQ.
disclosure
This interaction variable captures the effect of ICQ on voluntary disclosure only under CEO
duality, and it equals to 0 under separated leadership structure. Results reported in model 3
show that the positive and significant association between ICQ and voluntary disclosure in
model 1 becomes insignificant under CEO duality since the association between the 297
interaction variable (ICQ*CEO duality) and voluntary disclosure is insignificant
(Coef 5 0.004; t 5 1.030). As an alternative check for this model [5], we perform another
regression that includes both the interaction term and ICQ. In this new regression, the
reported results corroborate the previous findings since ICQ conserves its positive and
significant effect on voluntary disclosure (Coef 5 0.090; t 5 8.630), while the interaction term
(ICQ*CEO duality) has an insignificant effect on the same variable (Coef 5
0.002;
t 5
0.620).
Thus, H2 is supported, and CEO duality, as a proxy for CEO structural power,
mitigates the positive association between ICQ and voluntary disclosure in the Egyptian
setting. This result implies that CEO duality weakens the monitoring effectiveness of
internal governance mechanisms which, in turn, reduces the incremental effect of
internal control procedures on information environment and voluntary disclosure. Our
findings corroborate previous studies that have reported that CEO duality has an
adverse effect on information environment. For instance, Samaha et al. (2015) have
reported in their meta-analysis that CEO duality is negatively associated with voluntary
disclosure, while Hu and Gan (2017), in China, documented that CEO power, in general,
negatively affects ICQ.
Overall, our results provide evidence that ICQ plays an important role in improving
corporate transparency through increased voluntary disclosure in the EGX. Thus, ICQ acts
as a substitute for some governance mechanisms (e.g. board independence and board size)
in the Egyptian setting considered as a low disclosure environment. Furthermore, CEO
duality mitigates the positive effect of ICQ on voluntary disclosure. Given the important
role played by internal control and the adverse effect of CEO duality on corporate
transparency in Egypt, Egyptian regulators may adopt legislations, obliging firms in the
Egyptian setting to disclose information about ICQ or charging auditors to report
information about firm’s ICQ in their reports, on the one hand. On the other hand,
Egyptian regulators may also enact rules that limit the discretionary power of CEO
especially under combined leadership structure.

4.4 Endogeneity test (self-selection problem)

Khlif et al. (2019) suggest that the use of survey among external auditors may cause self-
selection problem, since it is not based on the disclosure by the company but is based on
the result of a survey from auditors that have direct experience with the firm’s internal
control during their audit engagement. Khlif et al. (2019) posit that due to the fact that
“the construct for ICQ is unobservable, surveyed auditors may respond to the
questionnaire only for companies having a good ICQ”. Therefore, a self-selection
problem may arise since we can only observe the outcomes of the reported
questionnaires, but not those of the ones that were not filled out by auditors (Khlif
et al., 2019). This self-selection bias, which is one form of endogeneity, can lead to
inappropriate inferences (Tucker, 2010). To correct for this form of endogeneity, we use
the Heckman two-stage error correction which represents the most popular and widely
used approach for controlling for self-selection bias.
JAAR After transforming ICQ into a dummy variable, the first-stage probit model takes the
22,2 following form, and we control for some firm characteristics based on prior literature dealing
with internal control in the Egyptian setting (e.g. Khlif and Samaha, 2016).
ICQDit ¼ γ 0 þ γ 1 AudSit þ γ 2 AudCmit þ γ 3 BSit þ γ 4 BIndit þ γ 5 Lossit þ γ 6 INDit þ εit (5)

Where;
298 Dependent variable

ICQD 5 internal control quality dummy (dummy variable: 1 if superior to the median, and
0 otherwise) for firm i in year t;

Control variables

AudS 5 external auditor’s size (dummy variable; 1 for Big Four firms, and 0 otherwise);
AudCm 5 number of audit committee meetings;
BS 5 board size proxied by the number of board of director members;
BInd 5 board independence proxied by the percentage of independent directors on the
board;
Loss 5 a dummy variable: 1 if a firm reports negative earnings, 0 otherwise;
IND 5 a dummy variable: 1 if a firm belongs to industrial sector, and 0 otherwise.
Table 5 presents the first and second stages estimation models. In the first stage, probit
regression shows that ICQD is positively and significantly related to board independence
(Coef 5 2.101; Z 5 4.440) and industrial sector (Coef 5 0.525; Z 5 3.770), while board size is
negatively associated with ICQD (Coef 5
0.029; Z 5
2.510). We compute the inverse of
Mills’ ratio (IMR) from the first stage probit model and include it as an additional independent
variable in the second stage regression models for the association between ICQ and voluntary
disclosure (model 1) and the interaction between ICQD and CEO duality (model 3). The results
reported in Table 5 remain stable as compared to Table 4, since ICQ conserves its positive
impact on voluntary disclosure (Coef 5 0.192; Z 5 7.460) and the interactive variable between
ICQ and CEO duality (ICQD*CEOD) does not have also a significant effect on voluntary
disclosure as reported in model 3, Table 4 (Coef 5
0.009; Z 5
1.530). The coefficients on
IMR are insignificant for both models, suggesting that self-selection problem does not
confound the findings.

4.5 Additional analyses for political instability and industry characteristics

In this subsection, we undertake two additional analyses to examine whether political
instability caused by Egyptian revolution or industry characteristics affect the association
between ICQ and voluntary disclosure (Table 6).
On the one hand, Khlif et al. (2019) suggest that the Egyptian revolution (February 2011)
may influence the stability of Egyptian financial market. Therefore, we follow their testing
strategy by examining the moderating effect of revolution pre- (2007–2010) and post-periods
(2011–2014) on the relationship between ICQ and voluntary disclosure. Findings suggest that
the relationship remains significant for the pre-revolution period (Coef 5 0.089; t 5 6.330) and
the post-revolution period (Coef 5 0.088; t 5 5.830). Thus, we conclude that political
instability caused by the Egyptian revolution has not affected the stability of the positive
association between ICQ and voluntary disclosure.
 Heckman two-stage procedure
Internal control
First-stage probit quality and
model Second-stage Second-stage disclosure
Dependent variable: Dependent variable: Dependent variable:
ICQD voluntary disclosure voluntary disclosure

Intercept 0.838 (3.080)***
0.396 (
3.200)*** 0.049 (0.410)

AudS 0.043 (0.270) 299
AudCm 0.023 (0.390)
BSize
0.029 (
2.510)***
BInd 2.101 (4.440)***
Loss 0.361 (1.850)*
ICQD 0.192 (7.460)***
CEOD 0.014 (1.180)
ICQD*CEOD
0.009 (1.530)
FF 0.122 (5.090)*** 0.156 (5.480)***
BS
0.003 (
2.330)**
0.004 (
2.800)***
BInd 0.172 (2.340)* 0.264 (3.240)***
Lev
0.008 (
0.920)
0.011 (
1.130)
ROE 0.003 (0.420) 0.000 (0.000)
IND 0.525 (3.770)*** 0.008(0.360) 0.020 (0.790)
YearDum Included Included Included
IMR (inverse of 0.075 (1.210) 0.092 (1.330)
mills ratio)
No. of observations 512 512 512
Wald chi-square 237.740 (0.000)**** 168.330 (0.000)***
(p-value)
Note(s): Dependent variable: DS: voluntary disclosure score; ICQ: internal control quality; CEOD: CEO duality
proxied by a dummy variable: 1 if CEO is also the chairman of the board, and 0 otherwise; MC: natural
logarithm of market capitalisation; FF: percentage of shares held by individual (retail) investors; BS: board size;
BInd: board independence defined as the percentage of independent directors on the board; Lev: leverage ratio
calculated as debt-to-equity ratio for firm i in year t; MC: natural logarithm of market capitalisation for firm i in
year t; ROE: measured by net income by equity book value for firm i in year t; IND: industry type (1 if the firm
operates in an industrial sector, and 0 otherwise); AudS: external auditor’s size (dummy variable; 1 for Big Four Table 5.
firms, and 0 otherwise); AudCm: number of audit committee meetings; Loss: a dummy variable: 1 if a firm Endogeneity test for
reports negative earning, 0 otherwise; ICQD: dummy variable (1 if ICQ superior to the median, and 0 otherwise); ICQ and voluntary
*, ** and *** denote significance at the 10%, 5% and 1 % significance level, respectively disclosure

On the other hand, disclosure practices may vary across industry (Samaha and Dahawy,
2011). Accordingly, we conduct additional analysis to examine whether the positive
association between ICQ and voluntary disclosure is stable across sectors. Findings show
that the association is positive and significant either for industrial sector (Coef 5 0.084;
t 5 7.250) or commercial industry (Coef 5 0.102; t 5 4.220).

5. Discussion, conclusion and future research

This paper examines the relationship between ICQ and voluntary disclosure and tests for the
moderating effect of CEO duality on such a relationship in the Egyptian setting. Based on a
sample of 512 company-year observations over the period of 2007–2014, we find a significant
positive association between ICQ and voluntary disclosure. We document also that CEO
structural power, as proxied by CEO duality, mitigates the positive association between ICQ
and voluntary disclosure. These findings remain stable after controlling for endogeneity.
Our study contributes to the extant literature dealing with the economic consequences of
ICQ in an emerging market characterised by an unregulated disclosure regime with respect to
internal control. These findings are particularly interesting from a management perspective
JAAR Pre-revolution Post-revolution
22,2 (2007–2010) (2011–2014) Industrial sector Commercial sector
Model 1 Model 1 Model 1 Model 1

Intercept
0.077 (
1.110)
0.063 (
0.810)
0.058 (
1.340)
0.122 (
1.320)

ICQ 0.089 (6.330)*** 0.088 (5.830)*** 0.084 (7.250)*** 0.102 (4.220)***
CEOD 0.005 (0.500) 0.006 (0.520) 0.005 (0.550)
0.001 (
0.040)
300 FF 0.123 (5.440)*** 0.123 (5.400)*** 0.090 (5.120)*** 0.210 (4.930)***
BS
0.001 (
0.091)
0.001 (
0.890)
0.013 (
1.730)*
0.001 (
0.290)
BInd 0.045 (1.080) 0.050 (1.170) 0.120 (3.450)***
0.047 (
0.660)
Lev
0.007 (
0.870)
0.004 (
0.650)
0.003 (
0.290)
0.003 (
0.380)
ROE 0.000 (0.040)
0.001 (
0.220) 0.014 (1.610)
0.002 (
0.200)
IND
0.010 (
0.860)
0.009(-0.740)
YearDum Included Included Included Included
No. of 256 256 360 152
observations
Adj-R-square 27.580 % 25.850 % 32.840 % 20.280%
F (p-value) 9.090 (0.000)*** 8.410 (0.000)*** 12.710 (0.000)*** 3.580 (0.000)***
Max VIF 2.140 3.360 3.320 3.580
Note(s): Dependent variable: DS: voluntary disclosure score; ICQ: internal control quality; CEOD: CEO duality
proxied by a dummy variable: 1 if CEO is also the chairman of the board, and 0 otherwise; MC: natural
logarithm of market capitalisation; FF: percentage of shares held by individual (retail) investors; BS: board size;
Table 6. BInd: board independence defined as the percentage of independent directors on the board; Lev: leverage ratio
Additional analyses for calculated as debt-to-equity ratio for firm i in year t; MC: natural logarithm of market capitalisation for firm i in
political instability and year t; ROE: measured by net income by equity book value for firm i in year t; IND: industry type (1 if the firm
industry operates in an industrial sector, and 0 otherwise); t-statistics are between parentheses; *, ** and *** denote
characteristics significance at the 10%, 5% and 1% significance level, respectively

since they imply that the presence of a quality internal control system contributes to the
improvement of corporate reporting policy. Furthermore, given the fact that choosing
between combined board leadership structure and separated leadership structure remains an
entire voluntary decision in the Egyptian setting (Khlif and Samaha, 2019), these results may
encourage top management to separate between the role of CEO and the chair of the board of
directors to enhance transparency through disclosure and ICQ. From policy makers’
perspective, our paper’s findings may give incentives to Egyptian standard-setters to (1)
enact specific disclosure regulations dealing with internal control system like SOX that
imposes the dissemination of internal control weaknesses in the annual reports and (2) adopt
legislations that may limit the discretionary power of CEO under combined leadership
structure.
Nevertheless, our study may suffer from some limitations including those dealing with the
approach used to measure disclosure level and ICQ. On the one hand, self-constructed
disclosure checklist has the disadvantages to be difficult to replicate since the researcher may
generally use his/her judgement during the coding process which can also bias the overall
results (Khlif et al., 2015a, b). However, our disclosure score has been used in several studies
conducted in the Egyptian setting to assess disclosure level. Furthermore, ICQ is proxied
from only an auditors’ perspective, and this measurement approach does not take into
account internal auditors’ views concerning the ICQ of their firms (Khlif et al., 2019). However,
collecting information about ICQ based on external auditors’ survey may represent relevant
approach in an emergent economy as they may have more objectivity in their answers as
compared to internal auditors (Khlif et al., 2019).
Our findings provide preliminary evidence on the association between ICQ and voluntary
disclosure, and how CEO structural power may moderate this association in an emerging
economy. Future research may deepen the analysis by exploring other aspects of CEO power
including expert power (e.g. the tenure of CEO in the position) and ownership power (e.g. Internal control
percentage of shares owned). Future empirical enquiries, in such a context, may also consider quality and
the relationship between ICQ and other attributes of corporate transparency including
earnings quality and accounting conservatism.
disclosure
Notes
1. The median for ICQ score in our sample accounts for 2.038.
2. Our choice to survey external auditors instead of internal auditors is mainly justified by the results 301
reported by Ebaid (2011) concerning the status of internal audit function in the Egyptian setting. In
his study, Ebaid (2011) documents that (i) internal audit departments are not adequately developed
and lack organisational independence, management support and qualified staff, all of which
negatively impact independence and objectivity, (ii) the role of internal auditors in Egyptian firms
was limited to the traditional services dealing with financial audit and (iii) internal auditors are
unable to assume new responsibilities due to unqualified staff. Accordingly, it seems that the internal
audit profession is not sufficiently developed in Egypt and internal auditors do not enjoy the
required independence to assess and disclose information about their firm’s ICQ.
3. Auditors responded to our questionnaire as follows: “We have the pleasure to provide you with our
assessment to the internal control system of Company ‘X’ listed on EGX for the years 2007–2014. We
would like to indicate that our assessment provided in this document was obtained from our archived
audit files for the years required, however, we will not be able to provide the basis of our assessment for
confidentiality reasons. According to the scaling theme that you sent us, we provide you in the following
tables our assessment for each item in the questionnaire on a scale from 1 (less effective) to 3 (highly
effective).”
4. The assessment of firms’ annual reports in the Egyptian setting reveals that no disclosures are made
concerning ICQ or internal control weaknesses.
5. We perform two other regressions including the interaction term (ICQ*CEO duality), CEO duality
and ICQ and the interaction term (ICQ*CEO duality) and CEO duality. We do not report the findings
of these two regressions, although they corroborate previous findings, since they suffer from serious
problems of multicollinearity mainly caused by CEO duality variable and the interaction term with
reported VIFs exceeding 10 (ranging from 11.520 to 25.110).

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pp. 153-162.
JAAR Appendix 1
22,2

Moderately Highly
Internal control checklist Hwang et al. (2004) Not effective effective effective

304 1. Control environment factors

(1) Organisation, roles and
responsibilities
 Role of the board of directors
 Effectiveness of the organisation
and key management
 Human resource policies and
procedures
(2) Risk management
 Management’s risk assessment
process
 Awareness of compliance with
laws and regulations
(3) Overall monitoring
 Reasonableness of management’s
plans and budgetary controls
 Reliability of financial reporting
and management’s estimates
 Role of the audit committee and
internal audit
2. Systems and IT environment and monitoring factors
(4) IT function and organisation
 IT strategy
 Management and user satisfaction
 IT organisation
 IT people
(5) System characteristics
 Technical architecture
 Usage of emerging technologies
 Key application background
(general accounting)
 Significant changes to system and
IT environment
 Known problems with systems
(6) IT monitoring control
 IT performance measures
 System development and
implementation
 Application maintenance
 IT security
 Computer operation
 Business continuity and disaster
recovery plan
Internal control scoring Hitzig and Jacoby
Table A1. (1995)
Internal control
checklist (continued )
 Moderately Highly
Internal control
Internal control checklist Hwang et al. (2004) Not effective effective effective quality and
disclosure
Control effectiveness Control conditions Assessed Score
control risk
Highly effective Controls exist. No deviations Low 3
disclosed in tests of controls
Moderately effective Controls exist. Deviations Below 2 305
detected, but unlikely to exceed maximum
tolerable rate
Not effective (a) Key controls absent Maximum 1
(b) Controls exist. Deviations
detected, but with a high risk of
exceeding tolerable rate Table A1.

Appendix 2

Items and categories of voluntary disclosure Classification

1. Brief history of company/company profile Strategic

2. Corporate vision and mission Strategic
3. Corporate structure Strategic
4. Statement of strategy/objectives: general Strategic
5. Statement of strategy/objectives: financial Strategic
6. Statement of strategy/objectives: marketing Strategic
7. Statement of strategy/objectives: social Strategic
8. Significant events calendar Strategic
9. Impact of strategy on current results Strategic
10. Impact of strategy on future results Strategic
11. Statement of future prospects: qualitative Strategic
12. Qualitative forecasts of sales Financial
13. Quantitative forecasts of sales Financial
14. Qualitative forecasts of profits Financial
15. Quantitative forecasts of profits Financial
16. Qualitative forecasts of cash flows Financial
17. Quantitative forecasts of cash flows Financial
18. Assumption underlying the forecast Financial
19. Age of directors Strategic
20. Educational qualifications of directors Strategic
21. Commercial experience of the non-executive directors Strategic
22. Commercial experience of the executive directors Strategic
23. Other directorships held by the non-executive directors Strategic
24. Other directorships held by the executive directors Strategic
25. Position or office held by executive directors Strategic
26. Review of operations by divisions – turnover Financial
27. Review of operations by divisions – operating profit Financial
28. Review of operations – productivity Financial
29. Discussion of major types of products/services /projects Strategic
30. Improvement in product quality Strategic
31. Improvement in customer service Strategic
32. Distribution of marketing network for finished products Strategic
33. Customer awards/ratings received Strategic
34. Geographical production –quantitative Financial
35. Line of business production-quantitative Financial
36. Competitor analysis – qualitative Strategic
37. Competitor analysis – quantitative Financial
38. Market share analysis – qualitative Strategic Table A2.
The voluntary
(continued ) disclosure checklist
JAAR Items and categories of voluntary disclosure Classification
22,2
39. Market share analysis – quantitative Financial
40. Discussion of company’s R&D activities Strategic
41. Corporate policy on R&D Strategic
42. Location of R&D activities Strategic
43. Number employed in R&D Strategic
44. Breakdown of employees by line of business Social
306 45. Breakdown of employees by level of qualification/exec vs. non-execs Social
46. Breakdown of employees by ethnic origin Social
47. Employees appreciation Social
48. Employees training Social
49. Amount spent on training Social
50. Nature of Training Social
51. Policy on Training Social
52. Number of employees trained Social
53. Discussion of employee welfare Social
54. Safety policy Social
55. Information on accidents Social
56. Cost of safety measures Social
57. Policy on communication Social
58. Equal opportunity policy statement Social
59. Recruitment problems and policy statements Social
60. Statement of internal control Social
61. Value added statement Social
62. Product safety Social
63. Environmental protection programs: qualitative Social
64. Environmental protection programs: quantitative Social
65. Charitable donations/sponsorships Social
66. Participation in government social campaigns Social
67. Community programs (health education) Social
68. Profitability ratios Financial
69. Gearing ratios Financial
70. Liquidity ratios Financial
71. Cash Flow ratios Financial
72. Financial history or summary (3 or more years) Financial
73. Stock exchanges where shares are traded Financial
74. Volume of shares traded (trend) Financial
75. Volume of shares traded (year-end) Financial
76. Share price information (trend) Financial
77. Share price information (year-end) Financial
78. Market capitalisation (year-end) Financial
79. Domestic and foreign shareholdings Financial
80. Distribution of share holdings (types) Financial
Strategic information sub-index 29 items
Financial information sub-index 27 items
Table A2. Social information sub-index 24 items

Corresponding author
Hichem Khlif can be contacted at: hichemkhlif@gmail.com

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