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2.2. Impact of familiy ownership on voluntary disclosures

In both of Hong Kong and Singapore it seems that family-owned and controlled
companies are more in evidence than in western developed stock markets and that insiders
control a significant proportionof listed companies. In Hong Kong, a survey conducted in
1997 by the HKSA confirmed the widespread view that the extent of control of listed
companies in Hong Kong by one shareholder or a family group of shareholders is significant
(HKSA, 1997). In Singapore, a similiar situation seems to prevail though there is limited
empirical evidence available owing to the difficulty of obtaining relevant data.
Family-controlled firm have little motivation to disclose information in excess of
mandatory requirements because the demand for public disclosure is relatively weak in
comparison with companies that have wider ownership. In the context of the Chinese culture,
with relatively high levels of collectivism and power distance, and strong uncertainty
avoidance, it would also be expected that transparency and information disclosure levels
would be lower compared to the US and UK markets (Gray, 1998). Accordingly, an
alternative hypothesis can be stated thus:
Hyphothesis 2 : There is a negative association between family or concentrated
ownership and the extent of disclosure by Hong Kong companies.
3. Research methods
3.1 Sample
To ensure that samples selected from Hong Kong and Singapore were homogeneous,
only ndustrial companies were selected. These companies fall into industrial sectors such as
food and beverages; shipping and transportation; publishing and printing; electronics and
technology; building materials and construction. A list of all the industrial companies whose
shares were listed on the SEHK as of December 31, 1997, was prepared from the Guide to
the Companies of Hongkong 1998 (Thornton, 1998a). To examine the annual reports of all
respondent companies was selected randomly by using the random number generator
provided by Excel. Annual Reports for 1997 were analyzed. These annual reports
represented the most source of data available at the time of the study. The sample size of 60
represents about 32% of the total population. A similiar procedure was carried out for
Singapore companies based on the Guide to the Companies of Singapore and Malaysia
1998 (Thornton, 1998b) for the financial year 1997. Because of the smaller population, about
one out of every two Singapore industrial companies was selected randomly by using the
random number generator provided by Excel. Hence, 62 companies out of the total
population of 133 were selected, representing about 47% of the total population. Thus, while
the samples were random and represented a significant proportion of the companies listed
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each stock exchange, theydid not comprise the entire population of industrial companies in
Hong Kong and Singapore.
Regarding the industry composition of the samples, the Hong Kong and Singapore
sample companies were similiar in constitution with the vast majority of companies in the
electronics and the technology industry (70% for Hong Kong sample companies and 73% for
Singapore sample companies, respectively) and fewer companies in other industrial sectors
(publishing and printing; food and beverage; and shipping and transportation). Nevertheless,
a control for industry was incorporated in the statistical tests.
3.2 Disclosure index
The voluntary disclosure checklist was based on the one developed in a recent study
by Meek et. Al. (1995), which examined the voluntary disclosures of US, UK and
Continental European companies. The major reason for adopting this checklist is that the
original checklist was compiled based on an analysis of international trends and
observations of standard reporting practice, taking into account the relevant research studies
as well as other comprehensive international surveys of accounting and reporting (Meek et
al., 1995, p. 561). It also provides a useful benchmark for comparison with earlier research.
The items on the checklist were against the mandatory disclosure requirements of Hong Kong
and Singapore in order to arrive at the voluntary disclosure checklist applicable to the sample
companies (see Appendix A). The items on the checklist were categorized into theree
information types: (a) strategic information including (1) general corporate information, (2)
corporate strategy, (3) acquisitions and disposals, (4) reseacrh and development, (5) future
prospects; (b) nonfinancial information including (1) information about directors, (2)
employee information, (3) social policy and value added information; and (c) financial
information including (1) segmental information, (2) financial review, (3) foreign currency
information, and (4) stock price information.
Most of the prior studies related to corporate information disclosure have tended to
treat voluntary disclosure as a whole. Strategic and financial types of information have
decision relevance to investors while nonfinancial information is directed more toward a
corporations sosial accountability and targeted at a wider spectrum of stakeholders than the
owners/investors. As a result, the variables affecting voluntary disclosure choices may also
vary by information type. Thus, following meek et al. (1995), the voluntary disclosure item of
this study are categorized into three Major types of information: strategic, nonfinancial, and
financial.
The voluntary disclosure index for each company becomes TVD/MVD- the number
of total voluntary disclosures (TVD) as a proportion of the maximum voluntary disclosure
possible (MVD). The voluntary disclosure index was compiled based on the addition, and
unweighted scoring approach, of the disclosure items. Such and approach was based on the
assumption that each items of information disclosure is of equal importance in the corporate
information users decision-making process. Assigning weights would bring about a certain

degree of subjectivity and reflect the importance of certain types of information to the
specific grups of information users (firth, 1979). This may not be able to properly reflect
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VIF figures for all the variables were generated by SPSS and well below 10, indicating that
multicollinearity did not exist in the multiple regression model. To test whether the
fundamental assumption of linearity in the multiple regression model is appropriate, an
analysis of the scatterplots should be examined. Analyses of the scatterplots indicated that the
assumption of linearity was approximately met. In addition, the normal probability plot was
also analyzed. The line representing the actual data distribution closely follows the diagonal,
indicating that the data set adheres approximately to the normality assumption.
The regression results on the asociation between ownership structure and the extent of
voluntary disclosure are discussed as follows;
4.2.1 Hong Kong
As shown in Table 2, the coefficients for ownershipstructure of the Hongkong
companies were highly significant (P<.001), not only for total information but also for all of
the information subgroups. These findings are consistent with Hypothesis 1 that there is a
positive association between wider ownership and the extent of Voluntary disclosure.
An analysis of the shareholdings among the family members of the Hong Kong
sample companies for 1997 reveals that more than half (35 firms accounting for 58% of the
sample companies) of the listed companies in Hong Kong are subject to family control. In
order to to analyze the impact of family control on voluntary disclosure, another regression
model was run with the same variables as in Table 2, but with an added indicator variable for
family control. The coefficient on OOWN remains significantly positive, and the coefficient
on the proportion owned by family members was negative and statistically significant
(P<.05), not only for total information but also for all of the information subgroups: strategic,
financial, and nonfinancial. This indicates that while concentrated ownership in general
reduces disclosure, that effect iis particularly pronounced when the firms is family-controlled.
Grays (1988) secrecy hypothesis also argues that where a firms shares are held by familycontrolled firms, there is a preference for confidetiality and restriction of disclosure of
information about the business only to those who are closely involved with its management
and financing. Thus, the findings of thias study support Hypothesis 2 that there is a negative
association between family ownership and voluntary disclosure.
In addition, we tested for the presence of nonlinear relationships. It has been
suggested by Lang and Lundholm (1993) that the nonparametric test (ranked regression) is a
powerful method for dealing with data sets with nonlinear relationships between dependent
and independent variables. The ranked regressions were thus cinducted based on the
procedure suggested by Lang and Lundholm (p.264). the results were similiar to the
regression anlysis based on unranked data. Ranked ownership was a significant predictor of
the ranked disclosure index.
It is also interesting to know the extent to which the relation is nonlinear because high
levels of ownership may be required to exercise the level of control necessary to affect

disclosure policy. Similiarly, at small levels of ownership, block holders may not have the
ability to expropriate from the firm and may be less concerned about disclosure. Thus, the....