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European Research Studies Journal
2014, Volume 17, Issue 2
1
Internet financial reporting quality and corporate
characteristics: the case of construction companies listed in
Greek and Cypriot stock exchange
Michail Bekiaris*, Chrysoula Psimada, and Stergios Tasios
Business School, University of the Aegean,
8 Michalon str., 82100, Chios, Greece Tel: +30-22710-35170
E-mail: m.bekiaris@aegean.gr, xrysapsimada@yahoo.com, stasios@ba.aegean.gr.
Abstract: This study examines the role of the Internet in the financial reporting practices
of publicly traded Greek and Cypriot construction companies. Its key contribution is the
development of a relevant index that is assessed against key business characteristics:
profitability, leverage, audit firm size, firm size, ownership dispersion, time length of
operations, and market to book value. The association between the proposed index and
firm characteristics was examined with the use of multiple regression analysis. Our
findings indicate, among others, that Internet-related financial disclosure is significantly
associated with profitability, leverage, firm age and ownership dispersion.
Keywords: Internet financial reporting, voluntary disclosure, firm characteristics,
Greece, Cyprus.
JEL: M41, M19, G34.
1. Introduction.
Internet is undoubtedly one of the most significant means of communication in our days.
Its use enables the worldwide dissemination of information and encourages investments
(Aly, Simon & Hussainey, 2010). In addition, it supports better functioning of capital
European Research Studies Journal
2014, Volume 17, Issue 2
2
markets by enhancing companies' ability to provide investors with up to date, timely
information (Abdelasalam, Bryant & Street, 2007). Consequently, its wide use in a
business environment can have a significant impact on business activities and the related
requirements for financial reporting.
According to the International Accounting Standards Board “the objective of financial
reporting is to provide financial information about the reporting entity that is useful to
present and potential equity investors, lenders and other creditors in making decisions in
their capacity as capital providers” (IASB 2008, page 12). In this context, web based
business information is considered helpful in making investment and other business
decisions, (Financial Accounting Standards Board 2000). Companies have several
potential motives to provide financial information on the internet, which among others
include, the reduction of cost and time for the distribution of information, communication
with previously unidentified consumers, supplementation of traditional disclosure
practices, increase of the amount and type of information disclosed and improvement of
access to potential investors for small companies, (FASB 2000).
The objective of this study is twofold. On the one hand, it aims to examine the disclosure
practices of listed construction companies and assess the quality of their financial
reporting provided through the internet. On the other hand, it purports to investigate the
association of selected firm characteristics with the level of internet financial reporting.
For this purpose a disclosure index was constructed consisting of 51 items that cover 4
broad categories: content, technology, user support and timeliness.
Since 2009 and especially 2010, the deep concern on the solvency of European states has
highly affected financial markets. Therefore, the study of internet disclosures in Greece
and Cyprus presents an additional interest due to the specific financial conditions created
by the economic crisis in these countries. Moreover, the financial reporting of Greek
companies provided through the internet is perceived by auditors to be of moderate
quality (Tasios & Bekiaris, 2012).
The findings of the study contribute to existing literature of internet financial reporting by
strengthening the evidence on the relationship between the extent of disclosure and
European Research Studies Journal
2014, Volume 17, Issue 2
3
profitability, leverage, firm age and ownership dispersion. Furthermore, the index of the
study could be a useful tool to the managers of the companies in their effort to improve
the quality of internet reporting by identifying areas with weaknesses and inefficiencies.
The remainder of the paper is organized as follows: part two presents an overview of
relevant research, while part three develops research hypotheses examined in the study.
Research methodology is presented in part four, which includes the construction of the
index and the development of the research model. The results of the study are included in
part five and a summary of conclusions is presented in part six.
Literature review.
Internet financial disclosures are voluntary and as no relevant or common legal
framework that regulates them exists, differences occur in corporate disclosure practices.
Some companies disclose only a part of their financial statements using a low level of
technology, while others disclose a whole set of financial statements using the
technological advancements of the internet such as, multimedia and analytical tools,
(Budisusetyo & Almilia, 2008). As the purpose of financial reporting is to provide
information useful for decision making, timeliness consists another crucial element of
internet financial reporting (Eriotis, 2004; Soltani, 2002). Internet provides financial
information to its users in direct time and assists the transparency of investor relations
(Marston, 2003).
Corporate financial reporting is mandatory for listed companies in order to provide
shareholders and potential investors with useful information for the company’s past,
present and future (Pattern, 2002). Public use of the internet began in the early nineties
and has evolved in our days as a main means of communication for the presentation of
information in an increasing degree. The wide use of the internet therefore affected
corporate financial disclosure practices and the accounting communication (Spanos &
Mylonakis, 2006).
Corporate disclosures are vital for a company because the provision of value adding
information is useful for the estimation of the firm’s value. In addition, enhanced
corporate disclosures enable the development of a mutually beneficial relationship for all
European Research Studies Journal
2014, Volume 17, Issue 2
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related company parties and especially shareholders, (Cormier, Ledoux & Magnam,
2009). Moreover, the disclosure of corporate information constitutes a valuable source of
information that facilitates the decision making process by the shareholders of the
company.
Several studies have examined corporate internet financial reporting practices both in one
country, as well as in several different countries. Marston and Leow (1999) examined
financial reporting on the internet selecting companies of FTSE 100 index in the United
Kingdom (UK) for the year 1996. Results showed that only 34 of the 45 selected
companies presented detailed annual financial reports, while 11 of them presented a part
or a summary of their annual reports. The level of disclosure was found to be positively
associated with firm size, but not with the industry in which the company belonged.
Ashbaugh, Johnstone and Warfield (1999), examined internet financial reporting on a
sample of 290 companies in the United States of America (USA) finding that the
timeliness of the disclosure of financial information varied significantly. In addition, the
usefulness of information depended on the easiness of the access by the users. Finally,
firm size was found to be a significant variable that affected internet financial reporting.
Pirchegger and Wagenhofer (1999), examined the disclosure practices in the internet of
32 companies in Austria for the years 1997 and 1998. Results showed that the level of
disclosure increased from 57% in 1997, to 64% in 1998, and was positively associated
with firm size and free float. Ettredge, Richardson and Scholz (2002) examined internet
financial disclosure practices on a sample of 220 companies in the USA for the year
1997. Results showed that voluntary disclosure on the internet was associated with firm
size, information asymmetry, demand for external financing and company reputation.
Debreceny, Gray and Rahman (2002) examined the extent of internet financial reporting
and the association with selected firm characteristics in 22 countries, selecting companies
that were included in Dow Jones Index for the year 1998. Results showed that internet
financial disclosure was positively associated with firm size, listing in the USA capital
market and the level of technology, negatively associated with intangible assets and
growth prospects and not associated with leverage. The following year (2003), Allam and
Lymer examined internet financial reporting practices in 5 countries (USA, UK, Canada,
European Research Studies Journal
2014, Volume 17, Issue 2
5
Australia and Hong Kong) and with the exception of Australia, found no association of
internet financial reporting with firm size. In addition, significant differences were found
in the disclosure practices of these countries, with the exception of USA, UK and Canada.
The same year (2003), Marston examined the level of internet financial reporting of 99
companies in Japan and the association with firm size, profitability, industry type and
multiple listing status. The survey did not find an association of the above firm
characteristics with the level of internet financial reporting. On the contrary, a survey
conducted by Oyelere, Laswad and Fisher (2003) on a sample of 229 listed companies in
New Zealand, found a positive association with firm size, liquidity, industry type and
ownership diffusion. No association was found between the level of disclosure and
leverage, profitability and multinationality.
Marston and Polei (2004), examined internet financial reporting in Germany for the years
2000 and 2003. Results showed an association between firm size and the level of
disclosure. Furthermore, an association was found with multiple listing for the year 2003
and with free float for the year 2000. Profitability was not found to be a significant
variable. Xiao, Yang and Chow (2004), examined the use of the internet for the
dissemination of financial information in 300 Chinese listed companies. The survey
found a positive association of the level of disclosure with firm size and a negative
association with profitability. Audit firm size and industry type were also found to be
significant.
Spanos and Mylonakis (2006) examined internet financial disclosure practices in Greece,
on a sample of 141 companies. The survey concluded that larger, long established and
well known companies had a significantly higher level of disclosure for both financial
and non financial information. Al-Shammari (2007) studied the association of internet
financial reporting with selected firm characteristics in Kuwait. The study found that firm
size, liquidity, audit firm and industry were decisive factors for the voluntary adoption of
internet financial reporting. Similarly, Gandia (2008) examined the association of the
level of internet financial disclosure with firm characteristics of listed companies in
Spain. Results showed that the level of disclosure was associated with age, analysts
following, listing status and industry.
European Research Studies Journal
2014, Volume 17, Issue 2
6
In Greece, Anargyridou and Papadopoulos (2009), examined internet disclosure practices
of 302 companies listed in Athens Stock Exchange and the association of industry and
capitalization with the extent of disclosure. Results showed a positive relationship of
industry type and capitalization with the level of internet disclosure. Accordingly,
Andrikopoulos, Diakidis and Samitas (2009) examined the factors that impact on internet
financial reporting of companies listed in the Cyprus stock exchange. The study
concluded that firm size affects significantly the extent of internet financial reporting, in
contrary to factors like profitability and leverage.
Aly, Simon and Hussainey (2010) studied the factors that affect the level of corporate
internet reporting on a sample of 62 Egyptian listed companies. Profitability, foreign
listing and industrial type were significantly associated with the amount and presentation
of the disclosed information. Corporate characteristics like firm, size, leverage, liquidity
and auditor size did not explain the level of internet corporate reporting. Bozcuk (2012)
explored internet financial reporting and firm specific drivers of Turkish listed
companies. Firm size, auditor and corporate governance effects were found to affect the
sophistication of internet financial reporting. Evidence also supported industry effect.
Boubaker, Lakhal and Nekhili (2012) examined internet corporate reporting on sample of
529 listed firms in France. Results showed that French firms used the internet to
disseminate existing information, rather than timely information. In addition, large firms,
firms with dispersed ownership, those who issued bonds and equity, as well as
information technology firms made an extensive use of internet disclosures. Finally,
Andrikopoulos, Merika, Triantafyllou and Merikas (2013) examined the relationship
between internet disclosure, profitability and financial structure on a sample of websites
of 171 international shipping companies. Results showed a positive association between
firm size, profitability, leverage and ownership dispersion with the extent of financial
disclosure on corporate websites.
The literature review shows that the association between internet financial disclosures
and firm characteristics has been examined by various researchers, either in one country
or in different countries. The most frequently firm characteristics examined include firm
size, audit firm size, industry type, leverage, and profitability. The results of the
European Research Studies Journal
2014, Volume 17, Issue 2
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relationship between the level of internet disclosures and various firm characteristics are
mixed with other studies identifying a significant relationship and others not. As far as
Greek and Cypriot companies are concerned research is limited (Papadeas, 2007) with
few studies conducted in each country.
2. Research hypotheses.
Based on the literature review of previous research the following firm characteristics
were selected and research hypotheses were formulated.
2.1. Profitability.
Agency theory suggests that managers of profitable companies disclose more extensive
information in order to obtain personal advantages like maintenance of their position and
justify their compensations, (Haniffa & Cooke, 2002; Wallace, Naser & Mora, 1994). On
the other hand, less profitable companies could disclose more information in order to
explain the negative performance and assure market about future growth (Leventis &
Weetman, 2004). Prior studies provide mixed results regarding the impact of profitability
on disclosure. Several studies (Μarston, 2003; Marston & Polei, 2004; Oyelere, Laswad
& Fisher, 2003; Xiao, Yang & Chow, 2004) found that profitability was not significant
for internet financial disclosures. Other studies however, identified a positive relationship
between profitability and internet financial disclosures (Ashbaugh, Johnstone & Warfield,
1999; Debreceny & Rahman, 2005). Profitability in this study is measured by the
profit/loss per share. As the results of prior research are mixed no specific expectation
regarding the association of disclosure with profitability can be made. Therefore the
following hypothesis is formulated:
H1: The level of disclosure is associated with profitability.
2.2. Leverage.
Agency theory provides also insights in the relationship between leverage and disclosure.
According to the agency theory highly leveraged companies have the incentive to provide
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2014, Volume 17, Issue 2
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more disclosures to related parties. This is due to the fact that the higher the ratio of debt
to the capital of a company, the higher the agency costs, because a higher proportion of
debt results to greater potential transfer of wealth from debt holders to shareholders
(Depoers, 2000). Financial disclosures can contribute to the solving of monitoring
problems between creditors and shareholders that are more likely to arise in companies
that make a large use of debt (Raffournier, 1995). Highly leveraged companies therefore
are motivated to increase the extent of voluntary disclosure to related parties through the
financial statements, as well as through other means of communication like the internet,
(Οyelere, Laswad & Fisher, 2003). Several studies have examined the association of
leverage with internet financial disclosures, with mixed results. Some studies found no
significant association (Debreceny, Gray & Rahman, 2002; Oyelere, Laswad & Fisher
2003; Bollen, Hassink & Bozic, 2006), while other studies identified the existence of a
significant relationship (Ismail, 2002; Xiao, Yang & Chow, 2004). Leverage is calculated
as the ratio of debt to total assets. Taking into account that the results of prior research
regarding leverage are mixed, with other studies identifying a significant relationship and
others not, the following hypothesis is stated:
H2: The level of disclosure is associated with leverage.
2.3. Audit firm size.
Audit firms are classified into two categories: large audit firms, that consist of the “big4”
(PricewaterhouseCoopers, Ernst and Young, KPMG and Deloitte) and small audit firms
which consist of all the others. According to Michael Jensen and William Meckling
(1976) large audit firms act as mechanism that reduces agency cost and monitors the
opportunistic behavior of management. Large audit firms are concerned more with their
reputation and consequently are more willing to associate with companies which disclose
more information in their published financial reports (Alsaeed, 2006). Results on the
relationship between the audit firm size and disclosure are mixed. Several studies
identified a significant and positive relationship between disclosure and audit firm size,
(Raffournier 1995; Nasser, Al-Khatib & Karbhari, 2002), others found a positive but
insignificant relationship (John Forker, 1992) and others (Wallace and Naser, 1995) a
negative and significant relationship. Firm size is a dichotomous variable that takes the
European Research Studies Journal
2014, Volume 17, Issue 2
9
value 1 if the company is a member of the big 4 audit firms and 0 otherwise. Based on the
above mixed results an expected association (positive or negative) between audit firm
size and disclosure cannot be predicted and therefore the following hypothesis is
formulated:
H3: The level of disclosure is associated with audit firm size.
2.4. Firm size.
Several studies have examined the impact of firm size on financial disclosures. Most of
prior research provide sufficient evidence that there is a positive relationship between
company size and financial disclosure (Rafournier, 1995; Owusu-Ansah, 1998; Depoers,
2000). Larger firms may disclose more information compared to smaller firms for several
reasons:
larger firms are more exposed to public scrutiny and hence it is more probable to
disclose more information (AlSaeed, 2006)
collection, generation and dissemination of data are costly activities that small
companies may not be able to afford from their resources, (Owusu, 1998)
smaller firms may be reluctant to full disclosure of their activities which could
lead to a competitive disadvantage (Raffournier, 1995).
Various measures have been used in prior research for the measurement of firm size
which include turnover, sales, revenue and total assets. In this study, the value of total
assets is used as firm size variable. Since most of prior research and theory support a
positive relationship the following hypothesis is formulated:
H4: The level of disclosure is positively associated with firm size.
2.5. Ownership dispersion.
Agency theory suggests that managers of companies with dispersed ownership have the
incentive to disclosure more information in order to assist shareholder’s decisions and
reduce agency costs. Research on the relationship between ownership dispersion and
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2014, Volume 17, Issue 2
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disclosure has produced mixed results. Gerald Chau and Sidney Gray (2002) found a
significant relationship between outside ownership and disclosure, while other
researchers like Eng and Yuen Mak (2003) found a negative relationship with director
ownership. Wallace, Naser and Mora (1994) and Naser, Al-Khatib and Karbhari (2002)
concluded that no significant association between ownership dispersion and disclosure
exists. Ownership dispersion is measured by the percentage of common shares owned by
individuals that exceed 5% of total share capital. Based on the above mixed results of
prior research an expected association (positive/negative) between ownership dispersion
and disclosure cannot be predicted and therefore the following hypothesis is formulated:
H5: The level of disclosure is associated with the proportion of shares held by
individual investors.
2.6. Firm age.
Older and well established companies are likely to disclose more information in their
annual reports for three reasons (Owusu, 1998):
younger companies may have a competitive disadvantage if they disclose certain
information
the cost of gathering, processing and disseminating the required information is
more onerous for younger companies compared to older ones
younger companies may lack a “track record” on which to rely on for their public
disclosure, while new companies would not have any past operating history and
may have less incentive to disclose more information.
Firm age is calculated in a six month basis from the date of listing in the stock exchange
until the first quarter of 2011. Based on the above the following hypothesis is formulated
for firm age:
H6: The level of disclosure is positively associated with firm age.
2.7. Market value to book value.
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2014, Volume 17, Issue 2
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During the last twenty years, the construction industry was a major developmental pillar
for both Greek and Cypriot economies. Therefore, it is expected that the construction
industry could be indicative of market-wide prospects of these national economies. It is
also expected that such economic prospects to be mirrored in the fluctuations of the stock
market. It is also estimated that stock market valuations will deviate from accounting
values that cannot fully account for the dynamics of the construction industry. Moreover,
Greek and Cypriot stock markets are not always efficient and (therefore) information
asymmetries may affect stock market valuations and investor behavior; the efforts of
listed companies to dissolve such asymmetries, through extensive communication with
stakeholders could also be observed. Web disclosures are such communication tools. The
literature has already indicated that Greek and Cypriot listed companies tend to disclose
larger amounts of information online, depending on the deviation of the market value
from the book value of equity (Andrikopoulos, Diakidis & Samitas 2009; Anargyridou &
Papadopoulos 2009); the larger the deviation the greater the need to "explain" it through
extensive disclosure. Therefore, a positive relation between the extent of internet
disclosure and the divergence between the book value and the market value of equity is
expected.
H7: The level of disclosure is positively associated with market value to book
value.
3. Research methodology
3.1. Disclosure index
For the measurement of the quality of internet financial reporting (i.e. the level of
disclosure) an index was developed consisting of 51 items. These items were categorized
in four categories (content, timeliness, technology, user support) based on the study of
Davey and Homkajohn (2004). The above index of Davey and Homkajohn (2004) was
enhanced with the addition of 10 new items derived from the corporate and financial
reporting literature (Boechler, 2001; Crandall & Phillips, 2002; Beattie & Pratt, 2003;
Gowthorpe, 2004; Khadaroo, 2005).
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2014, Volume 17, Issue 2
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These items were the following: analysts essays/presentations, financial statement chart,
“in content” category, financial data in usable format, links to relevant web pages through
hyperlinks in the category of “technology” and e-mail of investor relations department,
mailing list/e-mail alert, option to the investor to order financial data and appearance of
hyperlink in the first page of the website regarding news alert, in the category of “user
support”.
Content category includes 23 financial information components. Financial information
disclosed in html format (Hypertext Mark-Up Language) takes the higher value (2),
compared to pdf format (1), based on the assumption that user access to html format is
more convenient and effective.
Timeliness category consists of 10 items. Timeliness is one of the enhancing qualitative
characteristics of financial information. Taking into account that internet provides
information in real time, it is important to find out to what extent it is utilized. Real time
data includes elements such as press releases, unaudited quarterly financial statements
and profit forecasts. Items in this category take the value 1 if they exist and 0 for non
existence.
Technology consists of 7 items. The items of this category refer to enhancements that
cannot be provided in printed format. These elements are download, plug-in on spot,
online feedback, use of presentation slides, use of multimedia technologies, analysis
tools.
User Support contains 11 items. Since computer skills are different among users it is
important that a company uses tools which facilitate the use of internet financial reporting
irrespective of the level of expertise. Such tools used in the index are links, site map, site
search etc. Items of this category take a value from 0 to 3 depending to the nature of each
item. Total score (Qi) equals to the sum of the score of each category of items. Qi is an
index which takes values between 1 to n:
, where Ci represents each category of the index.
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2014, Volume 17, Issue 2
13
3.2. Data
The web sites of construction companies were selected for the application of the
disclosure index. Prior research (Cooke, 1989 & 1992) suggests that companies
belonging to the construction industry tend to disclose more information in comparison to
companies of other industries. In addition the construction industry presents an increased
interest as it was heavily impacted by the economic crisis in Greece, which at the time of
the study (2011) had not yet affected the Cypriot economy. Moreover the construction
industry is one of the most important industries in the Greek economy and an important
industry in Cyprus.
The purpose of the study is to examine the internet financial reporting of construction
companies in Greece and Cyprus. As such, the whole population of construction
companies listed in the stock exchanges of Greece and Cyprus was selected. In total 36
construction companies were examined, 25 listed in the Greek stock exchange and 11 in
Cypriot exchange.
3.3. Research model.
Multiple regression was applied in order to test the above hypotheses of the study. The
estimated multiple regression model employed in the study is presented below:
Suppose that Yi is the index level (score) and is explained by seven factorial variables Χ1
to Χ7 where Χ1: profitability, X2: leverage, X3: audit firm size, X4: firm size, Χ5:
ownership dispersion, Χ6: firm age, X7: market value to book value. Multiple regression
was applied in order to estimate the significance of each of the seven explanatory
variables Χ1, Χ2 …., Χ7.
Dependent variable Y can be also written as following:
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Where j is an index of explanatory variables with cardinality to 7, xj are the explanatory
variables, bj are i the regression coefficients associated with xj variables, (some of these
coefficients could be zero indicating that there is no relationship among Yi and xj), β0 : is
the constant term and ε is the error term.
4. Results
4.1. Descriptive statistics.
Table 1 below illustrates the descriptive statistics of the dependent and continuous
independent variables:
Table 1: Descriptive statistics.
Score Firm sizea Leverage Profitability Ownership Firm ageb MVBV
Mean 0.096 442.641 0.553 0.032 0.580 42.330 0.401
Median 0.103 119.758 0.591 0.029 0.620 31.000 0.352
Min 0.004 7.122 0.113 -1.533 0.200 8.000 0.049
Max. 0.216 4,095.551 0.921 1.516 0.890 198.000 1.162
Std. Dev. 0.044 871.871 0.203 0.448 0.182 41.422 0.271
Skewness -0.275 3.133 -0.253 -0.246 -0.364 2.805 0.953
Kurtosis 0.694 10.072 -0.399 6.834 -0.782 8.186 0.490
Note: a. in million €, b. semesters from initial listing
Source: Authors’ estimations
As shown in table 1 mean value of total assets amounted to 442 million euro, with a
maximum observed value of 4,095 million euro and a minimum value of 7 million euro.
Mean profit per share was 0.03 euro indicating a low profitability for the companies of
the study. A low mean value of leverage was also observed (0.55). Mean ownership
concentration amounted to 58% and shows a moderate degree of diffusion in the share
capital. Finally, the companies of the study had a mean listing age of 21 years. As far as
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the size of the audit firm is concerned 11% of the companies was audited by one of the
big4 audit firms and the remaining companies by small audit firms.
The mean index score for the companies of the study was low and amounted to 9.6%.The
higher observed score was 21.6% and the lower score 0.4%. The items with the higher
score were mainly items relating to financial reporting (financial statements, annual and
interim reports, independent auditor’s report). On the other hand the items of the index
with low score were mainly items of the categories of technology (download plug in on
spot, use of multimedia, financial data in processable format, advanced features etc.) and
user support (help, site search, link to top). The continuous independent variables of the
model (size, leverage, profitability, ownership, age and market value to book value) were
subjected to logarithmic transformation prior to regression analysis.
4.2. Assessment of the validity of the model.
Multicollinearity is a situation in which two or more independent variables are highly
correlated, having thus damaging effects on the results of multiple regression.
Multicollinearity can be assessed through correlation matrix and through variation
inflation factor (VIF). Although no strict rule exists a value less than 10 is considered
adequate to draw the conclusion that no multicollinearity exists. Average VIF value is
less than 2 and thus no multicollinearity problem exists. Normality of residuals was tested
through Shapiro Wilk and the predicted dependent variable scores were found to be
normally distributed (p=0.062>0.05).
In conclusion, the aforementioned tests indicate that the model was valid and reliable. In
our analysis we used the backward method which rejects at each stage the variable that
has the less significant impact on R2, thus defining the optimal model.
4.3. Multiple regression results.
We analyzed the data using SPSS, and used the Backward Likelihood method for
calculating the beta coefficients βj. According to the Backward Likelihood Method the
analysis begins with a model which includes all variables and then removes them one by
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one if they do not contribute enough to regression equation based on the criterion of the
p-value. The cut-off point for significance is 0.10.
Examination of the variables’ p-value leads to the conclusion that 3 steps are necessary in
order to remove all variables that don’t significantly improve the model and identify the
significant variables that contribute to the regression equation.
Table 2 presents βj and the changes of the βj coefficients, due to the stepwise method we
used. The values of the βj coefficient that we will use in the regression equation are those
resulting from step 3.
Table 2: Regression results.
Model 1 Model 2 Model 3
β t VIF β t VIF β T VIF
Constant -0.088 -0.567 -0.051 -0.916 -0.066 -1.298
Profitabilit
y
-0.011 -2.060 1.820 -0.011 -2.142 1.646 -0.011 -
2.131**
1.641
Leverage 0.042 2.746 1.314 0.044 3.332 1.028 0.045 3.460* 1.019
Audit firm 0.015 0.439 2.861 0.020 0.738 1.909 - - -
Firm size 0.002 0.255 2.780 - - - - - -
Ownership -0.060 -2.449 1.216 -0.061 -2.572 1.197 -0.062 -
2.660**
1.192
Firm age 0.039 2.643 2.286 0.039 2.713 2.284 0.044 3.781* 1.595
MVBV 0.019 1.586 1.211 0.018 1.624 1.113 0.020 1.830**
*
1.069
R
2= 0.705, adj.R2=0.576
F=5.472, sig.=0.002
R2= 0.704, adj.R2=0.600
F=6.744, sig.=0.001
R2= 0.695, adj.R2=0.610
F=8.190, sig.=0.000
Note: *significant at the 0.01 level, **significant at the 0.05 level, ***significant at the 0.10 level
Source: Authors’ estimations.
The final multiple regression model according to the table above is the following:
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Adjusted R2 for the final regression model indicates that 61% of the variation in the
disclosure index is explained by the characteristics of profitability, leverage, ownership,
firm age and market value to book value. The results of hypothesis testing are the
following:
Profitability: Profit/loss per share is statistically significant at the 0.05 level of
significance. The negative sign of the regression coefficient indicates that profitability is
negatively associated with the score of the index.
Leverage: Debt to assets ratio is significant at the 0.01 level of significance and is
positively associated with the score of the index.
Audit firm: Audit firm variable is not included in the final regression model and is not a
significant factor for internet reporting.
Firm size: Firm size is not included in the final regression model, which means that it is
also not a significant factor for internet reporting.
Ownership: Ownership diffusion is a significant factor at the 0.05 level of significance
and is negatively associated with the score of the index.
Firm age: Firm age is significant at the 0.01 level of significance and is positively
associated with the score of the index.
Market value to book value: Market value to book value is significant at the 0.10 level
of significance and is also positively associated with the score of the index.
The results per hypothesis are summarized in following table:
5. Table 3: results per hypothesis.
Hypothesis Result Hypothesis Result
H1 Accepted H5 Accepted
H2 Accepted H6 Accepted
H3 Rejected H7 Accepted
H4 Rejected
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2014, Volume 17, Issue 2
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Source: Authors’ estimations.
6. Summary and conclusions.
The objective of this study was to examine the disclosure practices of construction
companies listed in the Greek and Cypriot stock exchange and the association with
selected firm characteristics. For this purpose a disclosure index was constructed
consisting of 51 items that examine elements of disclosure of 4 categories: content,
technology, user support, and timeliness. Consequently, seven hypotheses were
developed and tested regarding the characteristics of profitability, leverage, audit firm
size, firm size, ownership dispersion, firm age and market value to book value.
The score of the index was found to be significantly and positively associated with
leverage and firm age. A significant negative association of the score of the index with
profitability and ownership dispersion was observed. Furthermore, a slightly significant
association of the index score with market value to book value was found. On the other
hand the characteristics of firm size and the size of the audit firm were not found to be
significant factors for the internet reporting of the Greek and Cypriot companies.
Future research could include the application of the index to other industries of the stock
exchanges of Greece and Cyprus, as well as to more countries. In addition, more elements
can be included in the disclosure index in order to examine other areas and dimensions of
corporate reporting on the internet. For instance corporate social reporting elements could
be included in the index.
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