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Corporate
Corporate governance and governance
voluntary disclosure: evidence
from India
Rupjyoti Saha and Kailash Chandra Kabra 127
Department of Commerce, North-Eastern Hill University, Shillong, India
Received 28 March 2020
Revised 28 July 2020
4 October 2020
Accepted 29 October 2020
Abstract
Purpose – This study aims to examine the influence of some prominent corporate governance (CG)
mechanisms such as board size (BS), board independence (BI), role duality (RD), board’s gender diversity
(GD), ownership concentration (OC), audit committee independence (ACI), nomination and remuneration
committee (NRC) and risk management committee (RMC) on voluntary disclosure (VD), as well as different
types of VD after controlling the effect of some firm-specific factors for Indian firms.
Design/methodology/approach – The study selects market capitalization-based top 100 non-financial
and non-utility firms listed on the Bombay Stock Exchange as on 31st March 2014. Data are drawn from the
Capitaline Plus database over the period of 2014–2018. Appropriate panel data regression model is applied to
examine the influence of CG on VD.
Findings – The study reveals a significant negative influence of BI on VD while GD and RMC exhibit a
significant positive influence on the same. The remaining CG mechanisms such as BS, RD, OC, ACI and NRC
appear to have no significant influence on VD. Analysis into the relationship between CG mechanisms and
different types of VD reveals that BI, in particular, has a strong negative influence on corporate strategic
disclosure (CSD) and forward looking disclosure (FWLD) while GD and RMC both exhibit a significant
positive influence on CSD, FWLD, CG disclosure and financial and capital market disclosure. Notably, none of
the CG mechanisms under consideration influence human and intellectual capital disclosure.
Research limitations/implications – The study considers annual reports as the only medium of
making VD and ignores all other sources such as websites and press releases. Besides, it mainly emphasizes
on corporate board structure, board committees and OC while other ownership structure-related variables
family ownership, managerial ownership are not covered, which can be analysed in future studies.
Practical implications – The study offers some important theoretical, as well as practical connotations
for regulators and practitioners operating in India, as well as other emerging economies having similar
institutional settings.
Originality/value – The study is the first of its kind in India that examines the influence of various CG
mechanisms on different types of VD and thereby contributes novel findings in the context of an emerging economy.
Keywords India, Corporate governance mechanisms, Types of voluntary disclosure,
Voluntary disclosure index
Paper type Research paper

1. Introduction
In the wake of massive corporate scandals at both international and national levels (Enron,
2001; Tyco, 2002; WorldCom, 2002; Satyam, 2009), market regulators are emphasizing the role
of corporate governance (CG) and voluntary disclosure (VD) to protect the interest of investors
(Blue Ribbon Report, 1999; OECD, 2009, 2015). Theoretically, the agency perspective assert that
owing to the separation of ownership and management information asymmetries arise between Journal of Financial Reporting and
Accounting
Vol. 20 No. 1, 2022
pp. 127-160
© Emerald Publishing Limited
1985-2517
JEL classification – G34, M41 DOI 10.1108/JFRA-03-2020-0079
JFRA managers and owners as the former is considered to have better access to information than
20,1 later, which creates agency conflict between them, whereby both CG and VD can act as
effective tools to mitigate such conflict (Jenson and Meckling, 1976; Fama and Jensen, 1983).
While VD, by reducing information asymmetries lessens the possibility of private benefits to
managers, effective CG mechanisms control their opportunistic behaviour by making them
responsible for the consequences of their acts (Michelon and Parbonetti, 2012). In the matter of
128 monitoring managers, according to rationality assumption (Willamson, 1985), CG mechanisms
sometimes act as complementary and other times act as substitutive to VD (Eng and Mak,
2003; Gul and Leung, 2004; Barako et al., 2006; Allegrini and Greco, 2013; Liu, 2015; Enache and
Hussainey, 2020). Given that CG mechanisms are mandated by regulations and VD is
discretionary in nature, firms make VD after having cost-benefit analysis in the presence of CG
mechanisms (Malone et al., 1993; Rediker and Seth, 1995).
From the managerial perspective, a major cost associated with more VD is restriction on
opportunistic behaviour, as better disclosure makes owners aware about the private benefits
enjoyed by managers, due to which managers do not encourage such kind of disclosure.
However, if managers’ opportunistic behaviour is restricted through existing CG
mechanisms, then VD becomes less costly as they are left with little information to hide.
Based on such rationale, the complementary hypothesis asserts a positive relationship
between CG mechanisms and VD (Leftwich et al., 1981; Cerbioni and Parbonetti, 2007).
Contrary to the above, the substitutive hypothesis offers two alternative explanations. Firstly, it
contends for controlling managers’ opportunistic behaviour through effective CG [1]
mechanisms and in that event owners might not insist for more VD (Eng and Mak, 2003), as
firms need to incur some additional costs while making VD (Verrecchia, 1990; Skinner, 1994;
Healy and Palepu, 2001; Cormier et al., 2005; Hassan and Marston, 2012). Secondly, it also
asserts that if the existing CG mechanisms are ineffective in limiting managers’ opportunistic
behaviour, they derive more benefits from retaining inside information i.e. cost of disclosing
voluntary information for managers increases and consequently they are less inclined to make
such disclosure (Patelli and Prencipe, 2007). Based on the above rationales, substitutive
hypothesis expects that CG mechanisms and VD are negatively associated.
Though numerous studies address this relationship, most of them are confined to
developed economies (Adams and Hossain, 1998; Depoers, 2000; Babío Arcay and Muiño
V
azquez, 2005; Cerbioni and Parbonetti, 2007; Donnelly and Mulcahy, 2008; Michelon and
Parbonetti, 2012; Allegrini and Greco, 2013; Elshandidy and Neri, 2015; Hodgdon and
Hughes, 2016; Cucari et al., 2018) and some to emerging economies (Ho and Shun Wong,
2001; Eng and Mak, 2003; Gul and Leung, 2004; Barako et al., 2006; Akhtaruddin et al., 2009;
Othman et al., 2014; Elfeky, 2017) and provide mix evidence. Especially, a holistic study
encompassing the role of prevailing CG mechanisms in promoting overall VD and different
types of VD in the Indian context is absent probably due to two reasons; firstly, compliance-
driven disclosure trend in India (Raithatha and Bapat, 2012; Haldar, 2017) where firms are
customarily reluctant to make VD; secondly, deeply rooted belief that discretionary
disclosure amounts to competitive disadvantage (FTI Consulting, 2015).
Moreover, the investigation of this relationship in the Indian context is particularly
important because of the following rationales, namely, firstly, the fundamental capital
market reforms in 1991 has brought ample capital investment through foreign institutional
investors (FIIs) and foreign direct investment (Akhtar, 2013) making India one of the fastest
growing economies in Asia (World Bank, 2018). However, parallel to it, the nation witnessed
quite a number of corporate scams (Education World, 2018), despite being closely regulated
[Companies Act (1956), Securities and Exchange Board of India’s (SEBI’s) Clause 49]. This
led regulators to introduce some noteworthy reforms such as Companies Act (2013), SEBI’s
Revised Clause 49; SEBI’s Listing Obligation and Disclosure Requirement Regulation (2015). Corporate
Nevertheless, lessons from past suggest that a combination of the rule-based and the governance
principle-based approaches is vital in regulating firms over time so as to uphold investors’
confidence (Sinha, 2012) and India is no exception to it. While the rule-based approach
concerns framing mandatory regulation, the principle-based approach calls for the setting of
standards for self-governance and thereby yells for CG codes for firms (Arjoon, 2006). Hence,
firms under a principle-based approach enjoy discretion either to comply with these codes or
to explain with reasons why such compliance is considered inappropriate for them under 129
their own situation and circumstances. Thus, to know how the recent rule-based CG reforms
impact firms’ principle-based governance during post-reform period in India, studying the
relationship between prominent CG mechanisms and VD becomes imperative.
Secondly, corporate ownership is closely held in India as a major chunk of shares are
either held by promoters or state, which is in contrast to developed economies. While
advanced countries are characterized by vertical or Type-I agency conflict between owners
and managers, India is faced with horizontal or Type-II agency conflict between majority-
minority shareholders (Balasubramanian and Anand, 2013). Such difference leads to
transformation of the agency problem, and emanates effect on related agency costs. This
calls for re-visiting the above mentioned relationship, as it might change the functional
orientation of CG mechanisms and their complementary/substitutive relationship with VD.
Thirdly, though Indian regulators are constantly striving for world-class governance
standards (Rajagopalan and Zhang, 2008; Singh and Gaur, 2009; Kaur et al., 2016), their
implementation is still lacking (Ganguli and Guha Deb, 2016), which also necessitates
studying whether post-reform CG mechanisms contribute towards improved transparency
in form of VD. Finally, having regard to exceptional features of Indian firms such as highly
concentrated family ownership and general tendency to disclose minimum, it is of interest to
know current practices of VD.
Against this backdrop, the present study aims at examining the influence of some
prominent CG mechanisms such as board size (BS), board independence (BI), role duality
(RD), board’s gender diversity (GD), ownership concentration (OC), audit committee
independence (ACI), nomination and remuneration committee (NRC) and risk management
committee (RMC) on VD and its different components. To this end, the study uses suitable
panel data regression models whereby the findings reveal significant negative influence of
BI on VD while GD and RMC exhibit significant positive influence on the same. The
remaining CG mechanisms such as BS, RD, OC, ACI and NRC appear to have no significant
influence on VD. Analysis into the relationship between CG and different types of VD
reveals that BI, in particular, has a strong negative influence on corporate strategic
disclosure (CSD) and forward looking disclosure (FWLD) while GD and RMC both exhibit
significant positive influence on CSD, FWLD, corporate governance disclosure (CGD) and
financial and capital market disclosure (FCMD). Notably, none of the CG mechanisms under
consideration influence human and intellectual capital disclosure (HICD).
The present study is an extension of progressive research on CG and disclosure in an
emerging economy. To the best of our knowledge, this study is the first of its kind in India that
examines the influence of prominent CG mechanisms on different types of VD and thereby
contributes some novel findings to the extant literature in the context of an emerging economy.
Firstly, the negative influence of board independence on voluntary disclosure is further
substantiated by the fact that board independence particularly discourages disclosure of
futuristic inside business information such as corporate strategy and forward looking
information. Secondly, the study adds new finding with regard to recently introduced CG
mechanisms in India such as board’s gender diversity, nomination and remuneration
JFRA committee and risk management committee wherein the board’s gender diversity and risk
20,1 management committee are observed to have a strong positive influence on all types of VD
except human and intellectual capital disclosure. Finally, the study sheds light on the fact that
though Indian economy has made a significant transformation from physical resources to
knowledge-based resources, yet prevailing CG practices of Indian firms do not significantly
encourage disclosure of voluntary information pertaining to such resources.
130 The rest of the study is presented as follows: Section 2 provides an overview of CG and
disclosure reforms in India and summarizes theoretical and empirical literature to develop
testable hypotheses; Section 3 presents the methodology adopted in the study; Section 4
discusses the empirical findings; and Section 5 concludes the study by giving a summary of
the results obtained and outlines major implications, limitations and potential for future
research.

2. Background and hypothesis formulation

2.1 Corporate governance and disclosure reforms in India
As the study concerns examining the nexus between CG mechanisms and VD, it calls for
understanding of various reforms pertaining to governance and disclosure introduced in
India during the past two and half decades. The economy has undergone a major
transformation with the introduction of liberalization, privatization and globalization policy
in 1991 that lifted many restrictions on businesses such as industrial de-licensing, dilution of
The Monopolies and Restrictive Trade Practices Act and relaxation of foreign investment
norms (Basant, 2011). One key aspect of the policy is revoking government control over the
pricing of capital issues (Mukherjee, 2002). However, the initial impact of such deregulation
was quite destructive as securities scams unveiled in 1992 that brought to light the urgent
need for an independent regulatory body (Saha and Kabra, 2018; Ahluwalia, 2019). As a
result, SEBI is empowered with statutory powers under SEBI Act, 1992 to regulate the stock
market. Subsequently, SEBI constituted several committees from time to time for raising the bar
of CG in line with international standards. The first one was Kumar Mangalam Birla Committee
(Birla, 1999), which suggested for board’s independence i.e. induction of independent directors
(IDs) on board, audit committee’s independence i.e. induction of majority independent members in
audit committee and better transparency and disclosure i.e. insertion of a section “management
discussion and analysis” (MD&A) in annual reports (Sarkar, 2009). These recommendations of
the Birla Committee are formally implemented in 2000 under “SEBI’s Clause 49 of Listing
Agreement”. Subsequently, to review the performance of “Clause 49”, SEBI formed Narayana
Murthy Committee (Murthy, 2003), which suggested for strengthening the definition of IDs by
way of implementing some rule-based structural changes such as excluding some persons from
the category of IDs [nominee directors of government, relatives of promoter or management at
board level, executives of the firm in the preceding three years, shareholders (owning
2% of
firms’ capital), etc.] for the purpose of delineating the role of insiders such as family groups, state
on Indian boards that lead to the revision of Clause 49 in 2004.
Despite of tighter CG norms, the Indian corporate sector experienced the biggest
accounting fraud committed by information technology giant Satyam Computer Services
Ltd (2009) popularly known as “India’s Enron”, where the chairman admitted before the
board members that the books of accounts have been cooked up over the years. This has
raised a big question on the CG mechanisms in practice i.e. IDs and auditors as it was almost
impossible to commit such accounting irregularities without their support (Bhasin, 2013). In
the wake of such fraud, the Government of India on 29th August, 2013, replaced the existing
Companies Act (1956) with the new Companies Act (2013). From the perspectives of CG, the
new act, apart from focusing on conventional control mechanisms such as defining auditors’
responsibility, fixing IDs’ accountability and prescribing better disclosure norms; Corporate
introduced a number of additional measures such as mandating a minimum of one women governance
director on board, separation of role duality, constitution of board’s sub-committees on
matters related to risk management and nomination and remuneration and raising the limit
for maximum board size, so as to ensure transparent functioning of the corporate world
(Saggar and Singh, 2017). Further, to ensure better compliance with regulations and to align
with the provision of the new Companies Act (2013), SEBI has replaced its listing agreement
in October, 2014 with Listing Obligations and Disclosure Requirement (LODR) Regulations, 131
2015.
From the disclosure perspective, the new CG codes have reshaped the corporate information
environment in India. Some key measures in this regard include insertion of MD&A in annual
reports, preparation of separate CG report, disclosure on subsidiaries and related party
transactions, etc. were added through “SEBI’s Clause 49” in 2000. Additional disclosures such
as performance evaluation of IDs and whistle blower policy were included through “SEBI’s
Revised Clause 49” in 2004. Similarly, for catering to the non-financial informational needs of
stakeholders, SEBI introduced Business Responsibility Report (2012) in 2012, which requires
the top 500 listed Indian entities to report about their environmental, social and governance
initiatives. Further, to increase the acceptability of annual reports of Indian firms on the global
platform, Indian Accounting Standards (Ind AS) have been converged with International
Financial Reporting Standards in 2011, which were formally implemented in a phased manner
by the Ministry of Corporate Affairs, Government of India from 1st April, 2016.
The foregoing discussion indicates that CG and disclosure requirements in India are
gradually evolving so as to direct corporate affairs in line with the core principles of
governance i.e. fairness, transparency, accountability and responsibility. However, in ranking
12 Asia Pacific markets basing on their CG quality as performed by Asian Corporate
Governance Association (ACGA), India ranked third (2007), seventh (2010 and 2012), sixth
(2014), eighth (2016) and seventh (2018) (ACGA, 2018). It is apparent from India’s ranking that
even after undertaking a plethora of reforms, yet effectiveness of CG is quite poor as compared
to other emerging markets such as Hongkong, Singapore, Malaysia. Thus, it is important to
know whether the compliance-based CG reforms introduced over the past few years truly
uphold the core principle of transparency in Indian firms. To this end, the present study uses
some prominent CG mechanisms as probable explanatory variables of VD so as to extend
empirical validation to such reforms in enhancing transparency.

2.2 Hypotheses formulation

The agency perspective particularly uses information asymmetry to explain the relationship
between CG and VD. In the presence of information, asymmetry managers undertake some
private opportunistic activities that are detrimental to the interest of shareholders, which
leads to agency conflicts between them. The theory considers both CG and VD as controlling
tools to limit such conflicts, which also leads to complementary or substitutive relationship
between them (Jenson and Meckling, 1976; Willamson, 1985). However, the nature of agency
conflicts that the control mechanisms try to resolve varies for firms depending on their
ownership structure whether diffused or concentrated. In the case of diffused ownership that
is most prevalent in developed economies such as the UK and US, the control mechanisms
seek to reduce Type-I (vertical) agency problem that entails minimizing managerial
opportunism (Roe, 2004). Contrary to it, in concentrated ownership where few shareholders
control everything that is mostly experienced in emerging economies such as Asian
countries, the control mechanisms strive to limit Type-II (horizontal) agency problem
(Shleifer and Vishny, 1997) between majority and minority shareholders by preventing of
JFRA expropriation of later by the former (Sarkar, 2009). The theory propounds that both Type-I
20,1 and Type-II agency problems have their own effect on the complementary/substitutive
relationship between CG and VD. For instance, in Type-I agency, setting monitoring cost
faced by firms are quite high because of diffused ownership structure and attempts are
generally made to minimize such costs through better VD (Fama and Jensen, 1983), while in
the case of Type-II agency setting/concentrated ownership structure, controlling owners
132 have better access to information by virtue of their representation on board, and thus, VD
are generally not encouraged (Jackling and Johl, 2009). Hence, this study considers some
prominent CG mechanisms in the context of India having a Type-II agency setting (Singh
and Gaur, 2009), so as to know how firms use CG mechanism and VD in reducing their
agency costs associated with information asymmetries.
Besides this, the study considers the resource dependency perspective in explaining the
relationship between CG and VD because such perspective contends that different CG
mechanisms act as a link between firms and key resources required by them, which, in turn,
also determines their operational efficiency, and hence, the said mechanisms can be expected
to promote transparency and disclosure (Pfeffer, 1972; Hillman et al., 2000). The study
particularly focuses on some board characteristics and ownership structure such as BS, BI,
RD, GD, OC, ACI, NRC and RMC, as both theoretically, as well as practically these
mechanisms are considered as central to the development of good CG practices, which, in
turn, can be expected to promote corporate transparency in form of VD.
Theoretically, multiple views are placed with regard to different CG mechanisms and
VD. For instance, agency theory is based on the premise that the number of members on
board determines its monitoring capacity (Klein, 1998; Adams and Mehran, 2003) argues for
conventional forms of CG i.e. large board with majority of IDs (Fama, 1980), as such board
are less likely to be influenced by management (Hussainey and Wang, 2010). Nevertheless,
the role of IDs varies under different agency settings. They are supposed to protect
shareholders from management’s self-interest under vertical agency setting while they are
expected to deal with the opportunistic behaviour of dominant shareholders under
horizontal agency settings (Shleifer and Vishny, 1997). Interestingly, IDs under horizontal
agency context are generally appointed by substantial shareholders that create the “risk of
collusion” (Patelli and Prencipe, 2007), and hence, to alleviate such risk, they are legally
bounded to act as independent monitors (Fama, 1980). Moreover, they have an in-built
incentive to monitor effectively in a transparent manner so to build their reputational capital
in the market (Lim et al., 2007). Similarly, resource dependency theory also advocates in
favour of a “large board with majority of IDs” so as to develop a diversified pool of human
capital required by firms (Pfeffer, 1972; Hillman et al., 2000).
Agency theory also deals with the leadership issue and purports for separation of both the
positions of CEO and chairman as combined role (RD) leads to concentration of decision-
making power and consequently hinders the monitoring ability of the board and also increases
the propensity of withholding information (Fama and Jensen, 1983). Further, agency theory
contends that the monitoring behaviour of the board gets better with the inclusion of women
directors in it (Adams and Ferreira, 2009). Resource-based perspective also suggests for GD as
women add diverse perspectives to leadership, bring cohesiveness to boardroom, which lays
inevitable influence on firms’ disclosure decision (Srinidhi et al., 2011). With regard to
ownership concentration, the agency theory asserts a negative relationship between
concentrated ownership and VD because such conditions reduce the demand for corporate
disclosure (Adelopo, 2011). The theory also emphasizes on the relevance of having the majority
of IDs on the audit committee, as the quality of corporate disclosure depends on the integrity of
the audit committee and to maintain such integrity its independence from internal management
is necessary (Chung et al., 2004). As agency perspective considers the board as central to the Corporate
governance system under different agency settings (Carter et al., 2010), where the constitution governance
of some sub-committees within the board becomes imperative to enable it to discharge its
responsibilities effectively (Agyemang-Mintah, 2016). Particularly, the constitution of some
specific committees on matters related to nomination and remuneration and risk management
is expected to reduce insiders’ benefit of retaining information (Jensen, 1993; Vafeas, 2000; Tao
and Hutchinson, 2013). Based on the theoretical framework and regulator’s pronouncements,
the study develops hypotheses pertaining to the expected relationship between CG
133
mechanisms and VD as presented below.
2.2.1 Board size. Some of the early theoretical works such as Lipton and Lorsch (1992)
and Jensen (1993) advocate in favour of a small board stating that a large board makes it
difficult to coordinate and communicate within the limited time available. Cerbioni and
Parbonetti (2007) empirically found a significant negative association between BS and VD
for European firms stating that large boards lose their effectiveness in monitoring. However,
empirical studies from emerging economies such as Bangladesh, Malaysia and Singapore
provide the contrary result of a significant positive association between BS and VD
(Akhtaruddin et al., 2009; Rouf, 2011; Nahar et al., 2016) suggesting that firms operating
under such context mostly exhibits closely held ownership structure and accordingly
dominant shareholders are often appointed in the executive management positions, which
hampered boards’ monitoring activities. To counter such an issue, boards were advised to
increase their maximum size by adding proportionate outside members and such large
boards are observed as effective monitors and promoted VD. In the Indian context, Jackling
and Johl (2009), Nandi and Ghosh (2013) also extend support to such reasoning by
documenting the significant positive influence of BS on firm value and corporate disclosure,
respectively. Considering the closely held ownership pattern of Indian firms, Companies Act
(2013) raised the maximum limit of directors to 15 from the existing 12, and also simplified
the procedure for further increase, if needed. Hence, based on the extant literature and
prevailing CG regulation, the following hypothesis is framed:

H1. There is a significant positive influence of board size on voluntary disclosure.

2.2.2 Board independence. In the context of the present study, IDs are expected to mitigate
agency conflicts between controlling and minority shareholders (Singh and Gaur, 2009).
Empirically, studies from developed economies mostly reveal the positive influence of BI on VD
suggesting that under dispersed ownership, IDs act effectively in reducing agency conflicts
between managers and shareholders, and thereby BI exhibits a complementary effect on VD
(Adams and Hossain, 1998; Cerbioni and Parbonetti, 2007; Donnelly and Mulcahy, 2008;
Elshandidy and Neri, 2015; Kaymak and Bektas, 2017; Cucari et al., 2018; Alkurdi et al., 2019). On
the contrary, evidence from emerging economies report negative influence of BI on VD (Eng and
Mak, 2003; Gul and Leung, 2004; Barako et al., 2006; Rouf, 2011; Damagum and Chima, 2013;
Elgammal et al., 2018) implying that under concentrated ownership, that IDs act as substitute of
VD, as VD is associated with some additional costs (Verrecchia, 1990; Skinner, 1994; Cormier et al.,
2005; Hassan and Marston, 2012). In the Indian context, Singh and Gaur (2009), Arora and Sharma
(2016) find a significant negative impact of BI on market value of firms and this implies that
monitoring role of IDs are ineffective, as they work under the dominance of controlling
shareholders. Nevertheless, the Companies Act (2013); and SEBI’s LODR, Regulation, 2015
predominantly emphasize the role of IDs in promoting fair and transparent business practices.
Recently, with the purpose of making IDs truly independent of management in India, the very
definition of the term has undergone significant changes through recent CG reforms. Considering
JFRA the theoretical perspectives and assuming the recent CG reforms to be effective, it is hypothesized
20,1 that:

H2. There is a significant positive influence of board independence on voluntary

disclosure.
2.2.3 Role duality. The extant literature widely recognizes the importance of leadership in
134 managerial decisions. Consistent with the agency perspective, empirical studies mostly
reveal significant negative influence of RD on VD (Gul and Leung, 2004; Cerbioni and
Parbonetti, 2007; Huafang and Jianguo, 2007; Samaha et al., 2012; Allegrini and Greco, 2013;
Neifar and Jarboui, 2018; Alkurdi et al., 2019), while few studies report a positive association
between the two (Rouf, 2011; Depoers and Jeanjean, 2012) suggesting that combined
leadership confer autonomy to managers that enable them to take superior decisions.
Nevertheless, some studies report no significant influence of RD on VD (Ho and Shun Wong,
2001; Barako et al., 2006; Donnelly and Mulcahy, 2008; Kaymak and Bektas, 2017) implying
that leadership structure does not necessarily influence VD. With regard to RD, previous CG
regulations in India such as Companies Act (1956); and SEBI’s Clause 49 of Listing
Agreement were silent. However, in view of the apparent dominance of family ownership in
India, recent CG regulations such as Companies Act (2013), SEBI’s Revised Clause 49
recommend for separation between CEO and chairman to facilitate better scrutiny of
managerial behaviour in decision-making (Saggar and Singh, 2017) and accordingly the
following hypothesis is framed:

H3. There is a significant negative influence of role duality on voluntary disclosure.

2.2.4 Gender diversity. Composition of the board with a diverse profile of its members
including gender, age, experience, etc. might influence its ability of taking strategic
decisions (Van der Walt and Ingley, 2003). Among these, GD is, perhaps, one of the widely
discussed aspects of board composition (Tejedo-Romero et al., 2017) as there is a strong
assertion that the inclusion of women on board improve firms’ performance due to their
superior multi-tasking skills and better risk management as they generally exhibit more risk
averse attitude as compared to their male counterparts (Schubert, 2006; Lucas-Pérez et al.,
2015). Evidence on the relationship between GD and VD mostly reveals a positive association
between the two implying that some basic traits of women such as interpersonally sensitive,
kindness, affectionate, helpful, sympathetic and nurturing help them developing more
trustworthy leadership behaviour as compared to their male counterparts, which potentially lead
to better information intermediation (Barako and Brown, 2008; Nalikka, 2009; Srinidhi et al., 2011;
Rupley et al., 2012; Jizi, 2017; Tejedo-Romero et al., 2017). However, few studies suggest that
inactive participation of women on corporate boards due to lack of experience leads to negative
influence of GD on VD (Shamil et al., 2014; Cucari et al., 2018). In Indian context, Saggar and
Singh (2017) reveals that board’s GD promotes risk disclosure indicating that basic personality
traits of women assist in better monitoring of firms. Recent CG regulations in India such as
Companies Act (2013) and SEBI’s Revised Clause 49 mandated listed entities to have a minimum
one women director on board so as to promote equality and also to reap the benefits of gender
diverse board. Hence, based on the extant literature and prevailing regulation, it is expected that:

H4. There is a significant positive influence of gender diversity on voluntary disclosure.

2.2.5 Ownership concentration. OC has been widely considered as a key factor in
determining VD (Gelb, 2000). In the context of the present study, information asymmetry arise
particularly for minority shareholders, as controlling shareholders such as the founders of
business who are popularly known as promoters in the local parlance (Chakrabarti et al., 2008) or Corporate
the state in case of state-owned firms generally have better access to inside information, thereby governance
such firms tend to disclose less information (Sheikh et al., 2013). Nevertheless, the presence of a
strong CG system creates an incentive for disclosing more information under such a setting
(Dyck and Zingales, 2004). Hence, CG regulations of countries characterized by closely held
ownership including India have been strengthened to protect minority shareholders’ interests.
Empirically, some studies suggest that concentrated owners (blockholders) owing to their
substantial investment at stake are inclined to make better disclosure (Huafang and Jianguo, 135
2007; Allegrini and Greco, 2013), as VD improves the information environment and reduces the
uncertainty that, in turn, leads to a positive impact on firms’ stock prices (Luo et al., 2006). On the
contrary, some studies state a negative relationship (Tsamenyi et al., 2007; Samaha et al., 2012;
Wachira, 2019) and insignificant relationship (Eng and Mak, 2003; Donnelly and Mulcahy, 2008)
between the two implying that, as controlling shareholders possess inside business information,
they either discourage or remain indifferent with regard to VD. However, considering the fact that
the negative impact of OC can be offset by a good CG system (Gisbert et al., 2014), a positive
relationship between OC and VD can be expected in the Indian context too, as most of the recent
reforms attempted to create a strong regulatory framework aimed at protecting minority
shareholders’ interest and accordingly, the following hypothesis is framed:

H5. There is a significant positive influence of ownership concentration on voluntary

disclosure.
2.2.6 Audit committee independence. Some major accounting scandals at the global and
national level over the past two decades have raised concerns about firms’ financial
reporting process and the role of the audit committee in it. As the rationale for the
constitution of the audit committee is to reveal the authenticity of the firm’s information to
external auditors and also to convey external auditors’ observation to the board, thus, its
independence from internal management is a must to maintain the integrity of such
reporting process (Abdullah and Nasir, 2004). Accordingly, empirical literature mostly
reveals the significant positive influence of ACI on VD (Haniffa and Cooke, 2005;
Akhtaruddin and Haron, 2010; Rupley et al., 2012; Al-Najjar and Abed, 2014; Madi et al.,
2014) implying that IDs on audit committee act as an effective monitor for corporate
reporting process, thereby restrain managerial opportunism and promotes VD. In the case of
India, the idea of the formation of the audit committee with the majority of IDs is not new as
one of the early CG codes “SEBI’s Clause 49” mandated it. However, the role of audit
committee was basically confined to ensuring compliance with the existing standards and
regulations, which made it ineffective in boosting overall transparency (Al-Mudhaki and
Joshi, 2004). Thus, Companies Act (2013), expanded its role to some additional areas such as
oversight and evaluation of internal financial control, related party transactions, vigil
mechanism and monitoring the end use of funds raised through public offer (Deloitte, 2013)
to enable such committee to undertake intensive monitoring of internal affairs, whereby it
can be expected to promote transparency in form of VD. Accordingly, the following
hypothesis is framed:

H6. There is a significant positive influence of audit committee independence on

voluntary disclosure.
2.2.7 Nomination and remuneration committee. With the mounting evidence of CEO’s
dominance over the selection of board members and their performance evaluation and
remuneration, CG codes around the world have recommended for constitution of a separate
JFRA NRC as sub-committee of the board (Cadbury, 1992; The Combined Code, 2000). The rational
20,1 lies in: firstly, creation of NRC is likely to make better demarcation of ownership and
management (Shivdasani and Yermack, 1999); and secondly, the members of NRC are
inclined towards maintaining their own reputation by recruiting directors who will prove to
be effective monitors (Eminet and Guedri, 2010). Moreover, presence of NRC also assist the
board in making better disclosure of information pertaining to human resources as it makes
136 periodical presentation of such information to the board (Conyon and Peck, 1998; Vafeas,
2000). Accordingly, evidences mostly reveals positive impact of NRC on VD (Laksmana,
2008; Abeysekera, 2012; Tao and Hutchinson, 2013; Kanapathippillai et al., 2016) implying
that it not only improves the selection process of board members but also effectiveness in
linking their performance with remuneration, which, in turn, assists in promoting
transparency and disclosure. However, Allegrini and Greco (2013) reveal no relation
between the two. Unlike developed countries, the formation of NRC in India is recently
prescribed under Section 178 of Companies Act (2013) and Regulation 19 of the SEBI’s
LODR, Regulations, 2015. Thereby, firms might take some time to comply with it especially
during transition period (Abraham et al., 2015), and hence, the present study considers only
presence or absence of such committee to examine its influence on VD. Based on the
theoretical support and prior empirical studies, it is hypothesized that:

H7. There is a significant positive influence of nomination and remuneration committee

on voluntary disclosure.
2.2.8 Risk management committee. In view of the uncertain business environment, risk
management has become one of the crucial functions of CG wherein, audit committee was
initially delegated with this task. Afterwards, it became apparent that audit committees are
already burdened with numerous responsibilities; and it is unlikely to expect from them to
participate effectively in the risk management process (Fraser and Henry, 2007).
Accordingly, CG regulations globally required companies to setup a separate RMC (King III,
2009) comprising of some board members having mastery in handling complex information
for undertaking risk management activities (Deloitte, 2014), which, in turn, also assists the
board in providing more information voluntarily (Brown et al., 2009; Abdullah et al., 2017).
Similar to NRC, constitution of RMC in India is also one of the recent CG mechanism
introduced under regulation 21 of the SEBI’s LODR, Regulation, 2015, which is presently
mandatory for market capitalization-based top 100 listed firms only. Hence, the formation of
RMC by sample firms in India can be better captured by considering its presence or absence
rather than considering any other aspect of it. Based on the prevailing CG regulations and
extant literature, it is expected that:

H8. There is a significant positive influence of risk management committee on

voluntary disclosure.

3. Methodology
3.1 Selection of sample and source of data
The sample used in this study includes market capitalization-based top 100 non-financial
and non-utility firms listed at Bombay Stock Exchange (BSE) as on 31st March, 2014.
Financial and utility firms are excluded from the sample as additional regulations and
reporting requirements are applicable to them (Banking Regulation Act, 1949; Electricity
Act, 2003). The rationale for selecting top 100 non-financial and non-utility firms lies in the
fact that such firms constitute 76.06% of BSE’s [2] total market capitalization. Moreover,
good governance and better disclosure practices are more likely to be adopted by large firms Corporate
because of better availability of resources (Meek et al., 1995; Ahmed and Courtis, 1999), governance
selection of such sample can better serve the purpose of the study. Table 1 presents the
industrial composition of sample firms based on National Industrial Classification (NIC)
(2008), which shows that number of manufacturing firms (60) is highest followed by
information and communication (12) and mining and quarrying (11), while the remaining
(17) belongs to other diverse industrial sectors. The study has covered five years period from 137
2013–2014 to 2017–2018 because major CG reforms in India such as Companies Act (2013);
SEBI’s Revised Clause 49 (2014); SEBI’s LODR, Regulation, 2015 were put in place during
this period. The information relating to CG and VD were obtained undertaking content
analysis of sample firms’ annual reports over the study period and the information relating
to control variables were drawn from a corporate database called Capitaline plus.

3.2 Measurement of dependent variable

To measure the dependent variable i.e. VD, a voluntary disclosure index (VDI) is used as a
surrogate measure to capture the information voluntarily disclosed by firms in their annual
reports during the study period. In developing VDI, the following steps have been
undertaken:
 An extensive review of literature on VD was undertaken to prepare a comprehensive
list of items, which resulted in the accumulation of 131 items (Meek et al., 1995; Botosan,
1997; Eng and Mak, 2003; Gul and Leung, 2004; Lim et al., 2007; Patelli and Prencipe,
2007; Akhtaruddin et al., 2009; Rouf, 2011; Charumathi and Ramesh, 2015).
 For the purpose of excluding mandatory items in Indian context, the comprehensive
list as prepared in Step (i) was checked against the prevailing regulations
influencing the disclosure of sample firms over the study period. Accordingly, 67
mandatory items: 52 under SEBI’s LODR Regulation, 2015 [No. 31A (1), 31(2)(e), 34
(2)(f), 36(3) and 43A(1)]; and 15 under the Companies Act (2013) [Section 133] and
Converged Indian Accounting Standards (2015) [Ind AS: 1, 107, 108 and 109] were
dropped. Further, 5 items of discretionary nature from SEBI’s LODR Regulation,
2015 [No. 27(1)] were added.

Percentage of firms in the

Industry No. of firms sample

Mining and quarrying 11 11

Manufacturing 60 60
Construction 4 4
Transportation and storage 3 3
Accommodation and food service 1 1
Information and communication 12 12
Real estate 2 2
Professional, scientific and technical service 2 2
Public administration and defence; compulsory social security 1 1
Arts, entertainment and recreation 2 2
Human health and social work 2 2
Table 1.
Total 100 100 Industry wise
composition of
Source: Compiled by Authors following National Industry Classification (NIC): 2008 sample
JFRA  Consistent with the prior literature (Adams and Hossain, 1998; Barako et al., 2006),
20,1 assistance from three practicing Chartered Accountants was taken for verifying the
items included in VDI as these persons are well-versed with the dynamic disclosure
regulations in India.

After deciding the VD items to be included in the index, the next step is scoring of VD items
that are widely debated across disclosure literature. Majority of the studies followed the
138 unweighted approach of scoring wherein only the presence or absence of particular item is
captured without looking into the quality of information provided (Meek et al., 1995; Lim et al.,
2007; Akhtaruddin et al., 2009; Charumathi and Ramesh, 2015). In some studies where the
weighted index is used, their scoring technique basically followed two approaches, namely,
firstly, items disclosed in a comprehensive manner were assigned more score based on the
amount of information disclosed (Wallace and Naser, 1995; Eng and Mak, 2003; Gul and Leung,
2004) and secondly, items disclosed in quantitative terms were assigned more score because of
their precise nature (Botosan, 1997; Patelli and Prencipe, 2007). However, in the case of VD, as it
covers both financial and non-financial items, and hence, it is unlikely for firms to express all
information in quantitative terms as certain non-financial items such as corporate outlook,
policy and strategy cannot be expressed in quantitative terms, yet the importance of those
information cannot be undermined. Accordingly, to assess disclosure quality, this study used a
weighted index wherein a combination of both the prior approaches of scoring have been used
and a score of “0” is assigned for absence of information, “1” for partial disclosure of
information and “2” for extensive disclosure [3]. Then, each firm’s VDI score is calculated as the
percentage of actual disclosure score obtained against the maximum score.
Xn
Xijt
VDIit ¼ i¼1
 100
Nj

where Nj is the maximum expected score, j refers to company, i stands for VD items and t
refers to time. To capture VD quality Xij assumes the score of “0–2”.
For further empirical analysis, sub-index scores corresponding to five components of VD,
namely, CSDI, FWLDI, HICDI, CGDI and FCMDI (Appendix) have been considered. The
sub-index scores are computed as the ratio of scores obtained under a particular category of
VD divided by the maximum obtainable scores under that particular category. These sub-
index scores have been used as dependent variables for further analysis.
The validity of VDI score obtained in the present study can be accessed from the
following points, namely, firstly, the construct validity of VDI is theoretically justified from
its broad dimensions used i.e. CSDI, FWLDI, HICDI, CGDI and FCMDI (Embretson, 2007), as
these are largely adopted from some scholarly works from disclosure literature (Meek et al.,
1995; Botosan, 1997; Eng and Mak, 2003; Gul and Leung, 2004; Lim et al., 2007; Ho and
Taylor, 2013). Secondly, the content validity of VDI is also justified from the fact that it is not
only based on some prominent works on VD from both developed and developing
economies (Meek et al., 1995; Botosan, 1997; Ho and Shun Wong, 2001; Eng and Mak, 2003;
Gul and Leung, 2004; Lim et al., 2007; Patelli and Prencipe, 2007; Akhtaruddin et al., 2009;
Al-Shammari and Al-Sultan, 2010; Ho and Taylor, 2013), but all the possible items have been
included after due consideration to the prevailing regulations and prior studies in Indian
context (Hossain and Reaz, 2007; Charumathi and Ramesh, 2015). Finally, the criterion-
related validity of VDI score is evident from the outcome of Pearson’s correlation matrix
comprising of CG mechanisms and firm specific variables with VDI score (Odon and
Morrow, 2009), which is parallel with extant literature [presented under correlation Corporate
analysis]. governance
3.3 Measurement of independent variables
To capture independent variables i.e. CG mechanisms, some of the widely adopted measures
from the literature have been used and are presented in Table 2.
The measurement of BS as a total number of directors on board is adopted from Donnelly and
Mulcahy (2008), Singh and Gaur (2009); Shamil et al. (2014), Nahar et al. (2016); Enache and
139
Hussainey (2020), while BI is measured as the percentage of independent non-executive directors
(INDs) to total number of directors on board, which is consistent with Adams and Hossain (1998),
Ho and Shun Wong (2001); Barako et al. (2006), Jackling and Johl (2009); Kao et al. (2019), Saha
and Kabra (2019) and the definition prescribed by corporate regulations in India (Companies Act,
2013; SEBI’s LODR, Regulations, 2015). RD has been measured in line with Ho and Shun Wong
(2001), Gul and Leung (2004); Sheikh et al. (2013), Elshandidy and Neri (2015); Jizi (2017); Alkurdi
et al.,(2019), while measurement of GD is parallel with Singh et al. (2001), Rose (2007); Adams and
Ferreira (2009). OC has been measured as the highest percentage of shareholding in the total
equity capital of a firm by single/few shareholders. Such majority shareholders may belong to
any category of blockholders such as promoter, state and FIIs. This way of measuring OC is
adopted from Singh and Gaur (2009), Sheikh et al. (2013); Saggar and Singh (2017), Kao et al.
(2019). The measurement of ACI is consistent with Akhtaruddin and Haron (2010), Allegrini and
Greco (2013), Saha and Kabra (2019), while measurement of NRC and RMC is parallel with
O’Sullivan et al. (2008); Brick and Chidambaran (2010), Lam and Lee (2012); Kanapathippillai et al.
(2016), Abdullah et al. (2017).

3.4 Measurement of control variables

The measurement and the key rationales for using some of the firm specific characteristics
such as firm size (Ln_FSIZE), financial leverage (LEV), profitability (PROF) and auditor
type (BIG4) as control variables is presented in Table 3.

Acronym Variables Measurement

BS Board size Total number of directors on board

BI Board independence Percentage of INDs to total number of
directors on board
RD Role duality Assigned “1”, if CEO is also the chairman of
board, otherwise “0”
GD Gender diversity Percentage of female directors to total
number of directors on board
OC Ownership concentration Highest percentage of shareholding in the
total equity capital of firm by single/few
shareholders
ACI Audit committee independence Percentage of independent non-executive
directors to total number of directors in
audit committee
NRC Nomination and remuneration committee Assigned “1”, for presence of a nomination
and remuneration committee, otherwise “0”
RMC Risk management committee Assigned “1”, for presence of a risk
Table 2.
management committee, otherwise “0” Measurement of
independent
Source: Adopted from literature variables
JFRA Variables Measurement Key rationale
20,1
Firm Size Natural logarithm of total sales There are some motivating factors for large
(Ln_FSIZE) firms to make more VD such as to condense
the information gap as big firms are
predominantly encountered with such
problem (Jenson and Meckling, 1976). In
140 addition, they are more prone to political
(Watts and Zimmerman, 1978) and
litigation (Skinner, 1994) costs
Financial leverage Ratio of total debt by equity share capital As firms with substantial debt faces high
(LEV) plus reserve monitoring costs, they attempt to reduce
such costs through VD (Gul and Leung,
2004; Barako et al., 2006)
Profitability Ratio of earnings before interest and tax to Profitability motivate managers to provide
(PROF) equity share capital more information voluntarily so as to get
the benefits associated with stock price
compensation together with signalling the
market (Cerbioni and Parbonetti, 2007;
Kaur et al., 2016)
Auditor type Assigned “1” for companies audited by Companies audited by big4 audit firms are
(BIG4) BIG4 audit firms otherwise “0” expected to make superior disclosure as the
reputation of BIG4 are primarily associated
with the reporting practices of their clients
Table 3. (Liu, 2015; Nahar et al., 2016)
Measurement of
control variables Source: Complied from literature

3.5 Empirical model

The most common approach for analysing the relationship between CG and VD is to estimate
pooled ordinary least square (POLS) regression model. However, in POLS, all the observations
are pooled and an ordinary least square regression model is run on panel data, and thus, the
unique characteristics of cross-sectional units is not retained, which, in turn, might cause
omitted variable biahe/sheterogeneity for firm-specific factors related to VD (Green, 2003).
Further, to know about the suitability of POLS model, a formal test called “Breush-Pegan
Lagrange Multiplier” (LM) is performed and its result [ x 2(chi-square) value = 417.02, p-value =
0.000] indicate that the said model is not applicable for the present data set. Furthermore, to
check the endogeneity in the relationship between CG mechanisms and VD, “Durbin–Wu–
Hausman” test is applied (Chmelarova and Hill, 2010), wherein the insignificant values of
Durbin chi-square ( x 2 = 4.98, p-value = 0.54) and Wu-Hausman F-statistic (8.01, p-value = 0.56)
suggest that endogeneity is not a cause of concern in the present study. Accordingly, the study
performs “Hausman Specification” test to select between fixed effect model (FEM) and random
effect model (REM), wherein the outcome suggests that FEM is appropriate for the present data
set. FEM eliminates bias in dependent variables caused by unique cross-sectional
characteristics as it allows all cross-sectional units to have their own intercept value, thereby
controls the influence of time-invariant factors from regressors so as to obtain their net
influence on dependent variables over time. The functional form of FEM is:

Yit ¼ b Xit þ ai þ uit

where ai is the unknown intercept for each firm and uit denotes the error term.
 The following model is used to test the eight hypotheses developed after controlling the Corporate
influence of related firm specific characteristics. governance
VDIit ¼ b 1 BSit þ b 2 BIit þ b 3 RDit þ b 4 GDit þ b 5 OCit

þ b 6 ACIit þ b 7 NRCit þ b 8 RMCit þ b 9 Ln_FSIZEit

þ b 10 LEVit þ b 11 PROFit þ b 12 BIG4it þ ai þ uit . . . :ðModel 1Þ: 141

where b 1. . .. b 12 are the slopes of CG attributes and firm characteristics, ai is the intercept
for each firm, uit is the error term, “i”= 1, . . .., 100 sample firms; t = 2014–2018.

4. Results and discussion

4.1 Descriptive statistics and correlation analysis
Table 4 presents the descriptive statistics for all variables. The VDI score reveals an average
of 34.15% with a range of 11.53% to 67.69% indicating wide variation among sample firms
in terms of VD. Though, VD made by Indian firms is relatively poor as compared to
developed (Allegrini and Greco, 2013) and other emerging economies (Akhtaruddin et al.,
2009; Raithatha and Bapat, 2012), yet considering the year-wise VDI score for sample firms
over the study period (Figure 1), the trend is increasing, and thus, suggests their proactive
response towards high demand for VD by international investors. Regarding CG
mechanisms, BS and BI indicate mean values of 10.93 and 50.68%, respectively, which
suggest a considerable increase in average size, as well as independence of board as
compared to the past decade (Garg, 2007; Singh and Gaur, 2009). Such mean values of the
sample firms are also in compliance with SEBI’s LODR, Regulation, 2015. With regard to
RD, though regulatory authorities are constantly recommending for separation of dual role
for top listed firms, yet 32% of sample firms still continue with role duality as compared to
35% in 2006 (Jackling and Johl, 2009). GD shows a mean value of 12.43%, implying an

Variables Mean Median SD Minimum Maximum

VDI_Score 34.15 33.07 8.86 11.53 67.69

BS 10.93 11 2.56 5 20
BI 50.68 50 12.17 0 85.71
RD 32.2 46.77 0 100
GD 12.43 10 7.76 0 40
OC 91.85 93.14 5.99 66.28 99.78
ACI 84.68 83.33 16.67 0 100
NRC 93.4 – 24.85 0 100
RMC 72.8 – 44.54 0 100
Ln_FSIZE 3.95 3.86 0.58 2.31 5.68
LEV 31.26 11 43.72 0 230
PROF 19.57 15.60 18.26 27.68 130.01
BIG4 35.8 47.98 0 100

Notes: (i) The dummy variables such as RD, NRC, RMC and BIG4, as well as the ratios used in the study
such as PROF and LEV are expressed in terms of percentage for the purpose of maintaining uniformity;
and (ii) Tables 2 and 3 provides full definition of the independent and control variables, respectively. Table 4.
Source: Computed by Authors using SPSS Descriptive statistics
JFRA 45

20,1 40
35
30
VDI SCORE % 25
20
142 15
10
5
Figure 1.
0
Year wise voluntary
2013-14 2014-15 2015-16 2016-17 2017-18
disclosure level
Year

upward trend in women participation on corporate board, as it was 5.3% in 2009

(Balasubramanian and Anand, 2013). Consistent with the prior evidence in Indian context
and other emerging economies (Singh and Gaur, 2009; Sheikh et al., 2013; Saggar and Singh,
2017), the sample firms exhibit highly concentrated ownership (91.85%). Majority of audit
committees of the sample firms (84.68%) are composed of INDs, which is also in conformity
with SEBI’s LODR, Regulation, 2015. With regard to NRC and RMC, as these are recently
mandated in India and thereby some firms are yet to comply with such regulations as
indicated by their mean values of 93.4% and 72.8%, respectively. Regarding firm specific
characteristics, Ln_FSIZE has less variation as indicated by its standard deviation value
(0.58), while sample firms’ variation in terms of PROF and LEV is quite high. Regarding
auditor type, only 36% of the sample firms’ financial statements are being audited by BIG4
audit firms.
The outcome of Pearson’s correlation analysis for all variables is presented in Table 5.
The correlation matrix suggests that VDI_Score has significant positive correlation with
some CG mechanisms such as BS, BI and GD, as well as some firm specific characteristics
such as Ln_FSIZE, LEV and BIG4 while it exhibits a significant negative correlation with
RD, NRC. Such correlation statistics are largely consistent with the extant literature (Ahmed
and Courtis, 1999; Barako et al., 2006; Donnelly and Mulcahy, 2008; Allegrini and Greco,
2013; Liu, 2015), which also extends support to the criterion validity of the VDI used in the
study (Odon and Morrow, 2009). It is also evident from the correlation matrix that the
highest correlation coefficient among independent variables is 0.41 (p < 0.01) suggesting
that multicollinearity is not an issue in the present data set. In addition, the variance
inflation factor (VIF) for all the variables is calculated and the highest VIF value obtained is
1.40, which is far below the threshold limit of 10 (Neter et al., 1989).

4.2 Regression analysis of corporate governance mechanisms and voluntary disclosure

The regression results obtained from Model-1 are presented in Table 6. Following the
outcome of Hausman test, the interpretation made in this section is based on the results of
FEM. Nonetheless, results of REM are also presented in Table 6 as it exhibits somewhat
similar findings, which further support for robustness of overall results.
The value of R2 (0.1928) and highly significant value of F-statistic [14.33 (p = 0.000)]
purport in favour of goodness of fit for Model-1. Regarding CG mechanisms such as BI, GD
and RMC are observed to have a significant influence on VD. In particular, BI exhibits a
significant negative influence on VD, which is contrary to the expectation in H2. However, it
supports the substitutive hypothesis in the context of horizontal agency setting (Eng and
Variables VDI BS BI RD GD OC ACI NRC RMC FSIZE LEV PROF BIG4

VDI 1
BS 0.165*** 1
BI 0.077* 0.059 1
*
RD 0.076 0.124*** 0.002 1
**
GD 0.102 0.188*** 0.102*** 0.099*** 1
OC 0.039 0.036 0.097*** 0.098*** 0.051 1
***
ACI 0.051 0.126*** 0.481 0.032 0.099** 0.049 1
*** ***
NRC 0.155 0.065 0.072 0.114 0.007 0.077* 0.092** 1
RMC 0.016 0.006 0.052 0.017 0.199*** 0.021 0.031 0.416*** 1
FSIZE 0.447*** 0.219*** 0.004 0.044 0.103*** 0.030 0.050 0.104** 0.162*** 1
***
LEV 0.123 0.087** 0.039 0.054 0.103*** 0.076 0.022 0.029 0.038 0.246*** 1
*
PROF 0.011 0.103** 0.043 0.032 0.030 0.090** 0.092 0.013 0.089 0.129**  0.351*** 1
BIG4 0.170*** 0.030 0.137*** 0.220*** 0.020 0.039 0.122*** 0.070 0.043 0.213*** 0.022 0.015 1
*** ** *
Notes: (i) , and indicates significance at 1%, 5% and 10% level, respectively; (ii). Table 2 and 3 provides full definition of the independent and control
variables, respectively
Source: Computed by Authors using STATA

matrix
Pearson’s correlation
Table 5.
143
Corporate
governance
JFRA Fixed effect regression Random effect regression
20,1 Variables Co-efficient t-statistic Co-efficient t-statistic

BS 0.0213 0.15 0.1005 0.74

BI 0.0669 2.06** 0.042 1.38
RD 0.0051 0.47 0.0097 1.08
GD 0.206 5.14*** 0.2211 5.70***
144 OC 0.043 0.35 0.0428 0.49
ACI 0.0139 0.69 0.0127 0.65
NRC 0.0077 0.75 0.0001 0.02
RMC 0.0287 4.93*** 0.0270 4.65***
Ln_FSIZE 13.06 5.89*** 7.611 7.20***
LEV 0.0034 0.27 0.0017 0.17
PROF 0.0504 1.71* 0.0218 0.88
BIG4 0.0065 0.86 0.0099 1.40
Constant 15.74 1.08 3.54 0.38

Notes: R2 Overall = 0.1928 R2 Overall= 0.1966; F-statistic = 14.33*** Wald chi2 ( x 2) = 169.03***.Hausman
test result: Chi2 (ᵡ2) value= 42.82 (p = 0.000); (i). ***, **and *indicates significance at 1%, 5% and 10% level,
Table 6. respectively; (ii) Jarque-Bera test (Greene, 1993) was performed to examine whether the error terms are
2 2
Regression results of normally distributed or not, wherein the result suggests that chi (ᵡ ) statistic of [26.2 (p-value= 2.06) and
36.59 (p-value = 1.10)] are insignificant in case of both FEM and REM, respectively, and thus, the null
corporate governance hypothesis of normality of error term cannot be disproved; (iii) Tables 2 and 3 provides full definition of the
mechanisms and independent and control variables, respectively
voluntary disclosure Source: Computed by Authors using STATA

Mak, 2003; Gul and Leung, 2004; Barako et al., 2006) indicating that BI acts as an alternate
mechanism to VD. This finding is also consistent with Singh and Gaur (2009), Arora and
Sharma (2016) suggesting that owing to highly concentrated ownership in India, IDs
actually work under the dominance of substantial shareholders, which limits their
monitoring ability that, in turn, encourages opportunistic behaviour of insiders and reduces
the propensity of VD. Further, it highlights the fact that though, regulatory measures were
implemented with regard to more strict definition of the term IDs, such measures are not
sufficient enough to enable IDs to perform their monitoring function independently.
Corresponding to the expectation of H4, GD reveals a highly significant positive
influence on VD, which is in congruence with both theoretical, as well as empirical literature
(Barako and Brown, 2008; Nalikka, 2009; Srinidhi et al., 2011; Rupley et al., 2012; Jizi, 2017;
Tejedo-Romero et al., 2017) implying that basic personality traits of women persuade strong
monitoring behaviour of board and emphasize in sharing more information to gain
investors’ confidence. Moreover, the analysis does not provide sufficient evidence to reject
H8, as the existence of RMC exhibits highly significant positive influence on VD implying
that continuous review of risk management restrict the self-serving behaviour of managers
(Brown et al., 2009; Abdullah et al., 2017), which, in turn, facilitates better VD.
The remaining CG mechanisms such as BS, RD, OC, ACI and NRC do not bear any
significant impact on VD. Specifically, the co-efficient of BS though reveals positive
influence but it is statistically insignificant at conventional levels, and thus, does not extend
support to H1. This finding is contrary to prior literature in the Indian context (Jackling and
Johl, 2009; Nandi and Ghosh, 2013) plausibly for additional increase in BS under the
Companies Act (2013), which is indicative of the fact that an increase in BS beyond a certain
limit renders it ineffective due to free rider issue that may arise under such condition
(Eisenberg et al., 1998). The co-efficient of RD is analogous with the hypothesized
relationship in H3, but lacks statistical significance and supports the finding of Ho and Shun Corporate
Wong (2001), Barako et al. (2006); Liu (2015) implying that separation of CEO and governance
chairman’s position might not necessarily influence VD. Regarding OC, its co-efficient is not
statistically significant, thereby H5 stands rejected, implying indifferent approach of
dominant shareholders towards VD, as they have more efficient and timely channels of
obtaining information (Eng and Mak, 2003; Donnelly and Mulcahy, 2008). This finding also
brings to light that, despite of considerable reforms in Indian CG system over the past few
decades, still the system fails to provide sufficient incentives to block holders to work for 145
better transparency and disclosure. The analysis also reveals that ACI is an insignificant
factor in influencing VD, thus, H6 gets rejected, yet supports the findings of Ho and Shun
Wong (2001), Allegrini and Greco (2013); Moumen et al. (2015). This finding implies that
though the role of the audit committee has been expanded beyond its traditional scope to
improve the overall information environment, yet such a committee is ineffective in doing
so. The possible reason for it can be the dominance of substantial owners in the Indian
context who are already in possession of inside business information and thereby the
presence of an independent audit committee also does not significantly encourage VD of
information in the public domain. Existence of NRC appears to have no significant impact
on VD; hence, H7 is also rejected. This finding highlights that formation of NRC under the
recent corporate regulation remain as mere compliance in India, as it is not effective in
reducing the influence of insiders in the selection and remuneration of directors and KMPs
(Bhattacharya and Mohanty, 2018); thereby such committee also does not make any
significant contribution towards VD of the firm. A summary of results on hypotheses
testing is presented in Table 7.
Regarding control variables, Ln_FSIZE reveal a significant positive impact on VD,
and thus, upholding agency theory argument, while PROF exhibits significant negative
influence on the same implying that high profit making firms are reluctant to make VD
as they feel that their reported profitability reduce the need for VD (Wallace and Naser,
1995).

Hypotheses Outcome of the

no. Statement of hypothesis study

H1 There is a significant positive influence of board size on voluntary disclosure Rejected

H2 There is a significant positive influence of board independence on voluntary Rejected
disclosure
H3 There is a significant negative influence of role duality on voluntary disclosure Rejected
H4 There is a significant positive influence of gender diversity on voluntary Accepted
disclosure
H5 There is a significant positive influence of ownership concentration on Rejected
voluntary disclosure
H6 There is a significant positive influence of audit committee independence on Rejected
voluntary disclosure
H7 There is a significant positive influence of nomination and remuneration Rejected
committee on voluntary disclosure
H8 There is a significant positive influence of risk management committee on Accepted
voluntary disclosure Table 7.
Summary of results
Source: Compiled by Authors based on empirical analysis as to hypotheses
JFRA 4.3 Further analysis of corporate governance mechanisms and types of voluntary disclosure
20,1 To get a deeper insight into the relationship between CG and VD, further investigation is
made to know the influence of CG mechanisms on different types/components of VD. To this
end, VDI is divided into five sub-indices, namely, CSDI, FWLDI, HICDI, CGDI and FCMDI
and the mean scores of the same over the study period are presented in Figure 2 to reflect
sample firms’ choices when it comes to disclosing information voluntarily. Figure 2 reveals
146 that sample firms disclose the highest information under CGDI possibly due to the fact that
withholding information on few (five) discretionary items under SEBI’s (LODR) Regulation,
2015 [No. 27(1), Schedule: II (Part-E)] does not seem render any furtive benefit to them. It
may be noted that the rest of CGD forming part of CG report are mandatory for top listed
firms since 2013–2014 and are kept outside the purview of this study. CGDI is followed by
CSDI indicating that firms use corporate strategic information as the bedrock for corporate
disclosure to boost firms’ image and to attract strategy specific investment (Ho and Shun
Wong, 2004; Ferreira and Rezende, 2007). As FCMDI and FWLDI are concerned with
historical and futuristic information, respectively (Lim et al., 2007), where entities opt to
disclose somewhat equal level of information under both the components so as to enable
investors to make precise forecast for firms’ earnings and also to strengthen their belief
about value of firms (Hassanein and Hussainey, 2015; Bozanic et al., 2018). Consistent with
Joshi et al. (2012), sample firms are observed to disclose least information under HICDI
probably to avoid proprietary costs, as disclosing such knowledge-based information might
endanger their competitive position (Dye, 1986; Verrecchia, 1990).
To examine the influence of CG mechanisms on different types of VD, five new models [4]
are estimated by using the same independent variables as that of Model-1 and five VD sub-
indices scores as dependent variable. The outcome of this additional analysis is presented in
Table 8 suggests that three CG mechanisms, namely, BI, GD and RMC significantly influence
different types of VD. Particularly, BI reveals strong negative influence on CSDI and FWLDI
possibly due to the fact that IDs in horizontal agency setting such as India are hardly aware of
inside business information such as strategic and forward looking information (Nicholson and
Kiel, 2007; Kumar and Singh, 2012) and consequently, they do not encourage such kind of VD.
On the contrary, GD and RMC reveal highly significant positive influence on all types of VD
except HICD. This finding can be attributed to the basic characteristics of such mechanisms (as
discussed above) which reduce managerial opportunism and boost transparency in the form of
different types of VD (Brown et al., 2009; Lucas-Pérez et al., 2015). The remaining CG
mechanisms such as BS, RD, OC, ACI and NRC exhibit no significant influence on any

50
M 45
e
40
a
35
n
30
S 25
c 20
o 15
Figure 2. r 10
Mean score of e 5
different components/
(

% 0
types of voluntary
)

CSDI FWLDI HICDI CGDI FCMDI

disclosure
Components/Types of Voluntary Disclosure
Variables CSDI FWLDI HICDI CGDI FCMDI
Coeff t-statt Coeff t-statt Coeff t-statt Coeff t-statt Coeff t-statt

BS 0.098 0.42 0.287 1.44 0.201 1.37 0.201 0.35 0.260 1.15
BI 0.146 2.79*** 0.094 2.09*** 0.015 0.46 0.182 1.40 0.020 0.40
RD 0.004 0.25 0.007  0.53 0.003 0.13 0.093 2.13** 0.008 0.50
GD 0.196 3.05*** 0.132 2.40*** 0.013 0.33 0.696 4.37*** 0.317 5.11***
OC 0.029 0.15 0.072 0.42 0.026 0.21 0.234 0.47 0.040 0.21
ACI 0.041 1.28 0.022 0.79 0.15 0.74 0.001 0.02 0.011 0.38
NRC 0.007 0.41 0.002 0.18 0.018 1.72 0.044 1.00 0.014 0.83
RMC 0.046 5.03*** 0.014 1.82*** 0.006 0.11 0.093 4.03*** 0.031 3.52***
Ln_FSIZE 17.68 4.96*** 11.19 3.68*** 2.71 1.27* 21.48 2.43*** 13.54 3.94***
LEV 0.008 0.47 0.030 1.71 0.003 0.28 0.045 0.88 0.026 1.33
PROF 0.079 1.79 0.015 0.42 0.019 0.70 0.304 2.77*** 0.027 0.60
BIG4 0.011 0.95 0.011 1.14 0.015 2.09** 0.034 1.13 0.12 1.04
CONS 23.11 0.99 31.42 5.49 1.02 0.07 7.85 0.14 30.38 1.35
R2 overall = 0.1387 R2 overall = 0.0885 R2 overall = 0.1409 R2 overall = 0.0454 R2 Overall = 0.0913
F-statistic = 10.68*** F-statistic = 4.16*** F-statistic = 8.81*** F-statistic = 8.01*** F-statistic = 8.79***

Notes: (i). ***, **and *indicates significance at 1%, 5% and 10% level, respectively; (ii) Tables 2 and 3 provides full definition of the independent and control
variables, respectively
Source: Computed by Authors using STATA

voluntary disclosure
different types of
corporate governance
Regression result of
Table 8.

mechanisms and
147
Corporate
governance
JFRA components of VD, thereby consistent with the findings obtained in case of overall VD.
20,1 Notably, HICDI is not influenced by any of the CG mechanism under consideration, hence
implying that despite of considerable shift in the economic base of the country from physical
resources to knowledge-based resources (Bose and Oh, 2004); yet Indian firms are reluctant to
disclose information about such resources due to the fear of losing their competitive edge in the
market.
148
5. Conclusion
The present study examines the influence of some prominent corporate governance
mechanisms on voluntary disclosure and its different types/components after controlling
the influence of firm specific characteristics. Eight hypotheses pertaining to the expected
relationship between different corporate governance mechanisms and voluntary disclosure
are tested based on a comprehensive data set of market capitalization-based top 100 non-
financial and non-utility firms listed on BSE [5] over a period of five years (2014–2018). The
findings reveal a significant negative influence of board independence on voluntary
disclosure, while board’s gender diversity and risk management committee exhibit a
significant positive influence on the same. The other corporate governance mechanisms
included in the study such as board size, role duality, ownership concentration, audit
committee independence and nomination and remuneration committee reveals no
significant influence on voluntary disclosure.
Further analysis is made to know the influence of same CG mechanisms on different
components of voluntary disclosure wherein the findings indicate significant negative
influence of board independence on corporate strategic disclosure and forward looking
disclosure while board’s gender diversity and risk management committee exhibit
significant positive influence on all components of voluntary disclosure except human and
intellectual capital disclosure. Notably, none of the corporate governance mechanisms under
consideration influence voluntary disclosure of human and intellectual capital information.
Overall the findings suggest that in the Indian context one of the key conventional mechanism
of corporate governance i.e. IDs are ineffective in controlling opportunistic behaviour of
managers, which considerably raises managers’ benefit of retaining inside business information
such as corporate strategic and forward looking information, and thereby, substitutive
hypothesis gets support under such circumstances. On the contrary, some recently introduced
corporate governance mechanism such as board’s gender diversity and risk management
committee act as effective monitors of managers’ self-serving behaviour, thereby benefits of
withholding information get reduced and consequently, these mechanisms depict complementary
effect on overall voluntary disclosure, as well as different types of voluntary disclosure.
The findings of the present study have some important academic connotations and
practical implications. Firstly, the outcome ratifies the prediction of horizontal agency and
resource dependency perspectives for board independence and board’s gender diversity,
respectively, in context of an emerging economy. In addition, the study add to the scarce
literature on the relationship between individual corporate governance mechanisms and
different types of voluntary disclosure (Ho and Taylor, 2013), by documenting how
individual corporate governance mechanisms influences different components/types of
voluntary disclosure in an emerging market. Secondly, the negative influence of board
independence on overall voluntary disclosure and especially on corporate strategic and
forward looking disclosure imply regulators that the true essence of board independence is
not retained as there exist some lacunas in present CG framework. For instance, considering
the supremacy of blockholders in form of family groups in India, though many rule-based
changes were made in the definition of “IDs”, such regulations does not prevent dominant
shareholders to appoint their friends or acquaintances as IDs. Under such circumstance, Corporate
those directors are independent from regulatory perspective only but owing to their sense of governance
indebtedness towards the persons who bought them into the firm, they are not in a position
to control opportunistic behaviour executive management/dominant shareholders. The
present study recommends that appointment and functioning of IDs should be rigorously
evaluated by the regulators in terms of the requisite professional service of firm rather than
merely complying with the numerical targets of IDs.
Thirdly, the positive influence of board’s gender diversity and risk management
149
committee on overall voluntary disclosure, as well as on its different components extends empirical
validation to the recent regulatory regime of mandating such mechanisms and thereby suggests
practitioners to effectively comply with such regulations to promote better transparency in the form
of different types of voluntary disclosure. Fourthly, the poor disclosure with regard to human and
intellectual capital has implications for business practices because the crucial role it plays in
organizational success particularly in an economy such as India, which is rapidly moving from
physical resources to knowledge-based resources to mark its presence in a globalized environment.
Finally, the insignificant influence of other corporate governance mechanisms such as board size,
ownership concentration, audit committee independence and nomination and remuneration
committee on voluntary disclosure including its different components signal the regulators about
the gap between conformance of existing regulation and its real implementation under horizontal
agency setting. Given the inseparable dominance of controlling shareholders in Indian firms, the
regulators should now not only frame new regulations, but should also strongly emphasize
enforcement of the existing regulations in letter and spirit to ensure better investor protection.
The present study is not free from limitations as it has considered annual reports as the
only medium of voluntary disclosure without taking into account the other sources of
information such as websites, press releases etc. In addition, the study primarily emphasizes
on board-related factors and ownership concentration while the other ownership structure-
related variables such as family ownership, managerial ownership are not covered, and
thus, can be analysed in future studies.

Notes
1. Effectiveness of CG mechanisms indicate adherence to ethical principles rather than mere
compliance with the regulatory norms (Arjoon, 2006).
2. Calculated as a percentage of market capitalization of sample firms by total market capitalization
of BSE as on 31st March 2014.
3. Extensive disclosure indicates information given in a comprehensive (clear and precise) manner
based on the amount of information disclosed mostly in case of non-financial items where it is not
possible to disclose information in quantitative terms such as corporate outlook, policy and
strategy and the information disclosed in quantitative terms mostly in case of financial items.
4. FEM is extended in all the five cases as the results obtained from Breuch-Pegan LM test and
Hausman test advocates in favour of the same.
5. As on 31st March 2014.

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Appendix
Subsequent of undertaking the above steps, a list of 69 VD items are derived, that are further divided
into five sub categories such as corporate and strategic disclosure (CSD), forward looking disclosure
(FWLD), human and intellectual capital disclosure (HICD), corporate governance disclosure (CGD)
and financial and capital market disclosure (FCMD) as presented in List of items included in VDI:
(1) A. Corporate and Strategic Disclosure Index (CSDI) (40).
 Brief history of the company (0–2).
 Organization structure (0–2).
 Corporate Mission and vision (0–2).
 Objectives (0–2).
 Description of marketing network for finished goods (0–2).
 Physical output and capacity utilization (0–2).
 Strategy–General (0–2).
 Strategy–Financial (0–2).
 Strategy–Marketing (0–2).
 Strategy–Social (0–2).
 Strategy–HR (0–2).
 Impact of strategy on current results (0–2).
 Impact of strategy on future results (0–2).
 Multi-language presentation (0–2).
 Actions taken during the year to achieve the corporate goals (0–2).
 Actions to be taken in the future year discussed (0–2).
 Discussion about major regional economic development (0–2).
 Reasons for Acquisitions (0–2).
 Reasons for disposals (0–2).
 Future capital expenditure (0–2).
(2) B. Forward-Looking Disclosure Index (FWDI) (20). Corporate
 Forecast of cash flow (0–2). governance
 Forecast of profits (0–2).
 Forecast of sales (0–2).
 Forecast of market share (0–2).
 Assumptions underlying the forecast (0–2).
 Expected rate of return on project (0–2). 159
 Order book or backlog information (0–2).
 Political influences on future profit (0–2).
 Economical influences on future profit (0–2).
 Technological influences on future profit (0–2).
(3) C. Human and Intellectual Capital Disclosure Index (HICDI) (28).
 Geographical distribution of employees (0–2).
 Line of business distribution of employees (0–2).
 Number of employees for two or more years (0–2).
 Reason for changes in the employee’s numbers or categories (0–2).
 Redundancy information (0–2).
 Recruitment policy (0–2).
 Marketing innovation (0–2).
 Value of customer relationship (0–2).
 No. of employees engaged in R&D (0–2).
 R&D focus areas (0–2).
 Discussion of new product development (0–2).
 Forecast of R and D expenditure (0–2).
 Human resources accounting (0–2).
 Valued added statement (0–2).
(4) D. CG Disclosure Index (CGDI) (5).
 Reimbursement of maintenance expenses by non-executive chairperson (0–1).
 Interim financial report sent to each household of shareholders (0–1).
 Separate position for CEO and chairman (0–1).
 Unmodified audit opinion with declaration (0–1).
 Reporting by internal auditor directly to the audit committee (0–1).
(5) E. Financial and Capital Market Disclosure Index (FCMDI) (37).
 Cash flow ratio (0–2).
 Disclosure of intangible asset valuations (except goodwill and brands) (0–2).
 Index of selling price (0–2).
 Advertisement information- Qualitative (0–2).
 Financial history of five years or more (0–2).
 Effect of inflation on assets (0–2).
 Effects of inflation on profits (0–2).
 Inflation-adjusted financial statements (0–1).
JFRA  Effects of fluctuating interest rate on results (0–2).
20,1  Cost of capital (0–2).
 Economic value added (0–2).
 Fund flow statement (0–2).
 Bankers’ details (0–1).
 Transfer Pricing Policy (0–2).
160
 Market capitalization trend (0–2).
 Share price trend (0–2).
 Volume of shares traded (0–2).
 Effects of foreign currency fluctuations on future operations (0–2).
 Foreign currency exposure management description (0–2).
 Debt currency (0–1).

About the authors

Rupjyoti Saha (rupjyoti.1122@rediffmail.com) is a UGC Senior Research Fellow under the UGC NET
JRF scheme in the Department of Commerce, North-Eastern Hill University (NEHU), Shillong. She is
working in the area of Corporate Governance and Voluntary Disclosure of Indian Firms for her
Doctoral Programme. She has published five research papers in various national and international
journals indexed in scopus and Web of Science and presented her research work in many national
and international conferences as well. Rupjyoti Saha is the corresponding author and can be
contacted at: rupjyoti.1122@rediffmail.com
Professor Kailash Chandra Kabra is the present Head of the Department of Commerce, NEHU,
Shillong. He has more than two decades of teaching and research experience in the field of
Accounting, Finance and Taxation. His current research areas include capital structure, corporate
governance, environmental disclosure and dividend policy. He has numerous research papers to his
credit in various journals of international repute and presented several papers in many national and
international conferences.

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