Compliance of Financial Disclosure in Corporate Annual Reports of Banking Sector in Bangladesh

Abstract

Our present study on "Compliance of Financial Disclosure in Corporate Annual Reports of Banking Sector in Bangladesh" has been directed towards analyzing and examining the quality and quantity of disclosure as well as evaluating the opinion of the experts' i.e., Financial Analyst, Professional Accountants, Stock Brokers, Accounting Professors and Bank Loan Officers on the qualitative characteristics of corporate financial disclosure. In order to provide a short review of the main literature being relevant to the present study a review of related works has been made. This review has provided a framework for the present study as well as assistance in developing a research methodology. We have also made an attempt to examine the extent of disclosure of the sampled bank under study. The study is an attempt to examine empirically the association between a number of corporate attributes and levels of disclosure in corporate annual reports of listed banking companies in Bangladesh. The association between the extent of disclosure and various corporate characteristics was examined using multiple linear regression models. We have also probed into the causes of time lag for the publication of annual reports by the sample units. Finally, we have suggested ways and means to improve the quality of disclosure, the level of understanding of the financial statements. We have prepared a methodology accordingly for collecting the primary and secondary data. A questionnaire has been developed to collect primary data. Secondary data have been collected mainly from the annual reports of the sample banks. A disclosure index comprising 144 items of information, which are expected to be disclosed in corporate annual reports in the sample companies, has been developed. Un-weighted disclosure index (UDI) was applied to the corporate annual reports for a sample of 12 Bangladeshi banking companies, for the year 2002-2006. We have analyzed the data with certain statistical tools. In order to test whether there are significant differences between the opinion of the respondents, we conducted ;(" test using SPSS software. In order to see whether there is significant difference in disclosure score among the sample firms and among the sample years we conducted t tests choosing 2 samples at a time i.e., using SPSS Software we conducted Paired Sample test. The corporate attributes considered are size peroxide by total assets (TA), gross revenue (GR) and number of branches (NOB), profitability peroxide by EPS, ROA, ROI and net profit margin (NPM), credit deposit ratio (CDR), capital adequacy ratio (CAR), debt equity ratio (DER) and shareholder's risk ratio (SRR). UDI has been arrived at by aggregating the number of disclosed items in each corporate annual report by using a dichotomous approach where a bank will be awarded '1' for disclosing an item and if not, has been awarded 'O'. In order to identify the determinants of disclosure, regression analysis, multiple linear regression techniques have been used. We have analyzed empirically the relationship between the Disclosure Score and the several company characteristics regarding timeliness of the sample banks. We have found that there are significant differences in disclosure score among the sample banks. The results of t test reveals that t values are significant in 44 of the cases out of 66 cases i.e., in 66. 67% of the cases. In case of the opinions of respondents regarding compliance of IASs by the banking companies, the study revealed that a significant difference among the opinions of respondent groups exists. So, the null hypothesis was rejected at 0. 014 level of significance. The study has reported the results of multiple linear regressions to test the association between a number of corporate attributes and the extent of disclosure in corporate annual reports of banking sector in Bangladesh. The results have shown that disclosure levels are associated with some company characteristics. Only two variables those were found to be significant in determining disclosure levels are return on assets and capital adequacy ratio. The return on investment showed significant but relatively weaker association. The other variables were found to be insignificant in explaining disclosure. The result of regression timeliness has revealed significant influence of audit lag on disclosure at 0. 008 level in 2003 and in that the multiple independent variables also have shown significant influence at 0. 035 level. From the results of this study the following conclusions can be drawn. There appears to be an unusual audit delay made by the Bangladeshi listed banking companies soon after the balance sheet date. With regard to timeliness as a qualitative characteristic of financial statements, this evidence can be regarded as unsatisfactory. The findings of this study may be generalized after taking into consideration its limitation. In view of the emerging importance of fair disclosure in financial reporting, we observe that the users are likely to procure decision oriented information from such narrative disclosure. In the concluding word, it is hoped that this thesis has made a contribution to knowledge in the field of overall financial reporting and in particular in understanding of financial accounting issues of banking companies in developing countries. The findings of this study may be generalized after taking into consideration certain limitations. This study considers the annual reports for only five years. This study does not consider non-listed, non-financial companies. This study concentrates on a particular industry type. Further research can be undertaken to measure the extent of disclosure longitudinally to determine whether quality of disclosure has improved over time. Further research can be undertaken taking into consideration both groups of companies (listed and non-listed or financial and non-financial) and can be undertaken based on multi industry types.