RESEARCH DESIGN Theoretical Background and Hypotheses Development

1825 Structure CS, Liquidity LIQ and Cash Flow CF ratios. Earning per share EPS is excluded since it is the sole financial ratio required to be disclosed by the AASB AASB 2006. Each voluntarily item disclosed is scored as one 1 if present in the annual report for each company; otherwise zero 0. The EFRD scores is computed by summing up all items disclosed divided by maximum possible number of financial ratios that could be disclosed 43. The strength of corporate governance structure is measured as a composite measure of thirteen key items recommended by the ASX Corporate Governance Council 2003. These thirteen items are aggregated and utilised by Taylor et al. 2008. These items incorporate the concept of independence of the chairman; duality; independence of directors on the board; audit committee characteristics; code of conduct; nomination policy; remuneration policy; risk management policy and written continuous disclosure policy refer Appendix. A score of one 1 is allocated against each of the corporate governance items present; otherwise zero 0. A composite score comprising thirteen corporate governance items is then computed for each company. Capital management initiatives comprise capital raising activities, takeover or merger activities, overseas listing and international operations. Thus, CM is a composite measure of these four items which relates to capital management activity of the company refer Appendix. A score of one 1 is allocated against each of the capital management items present; otherwise zero 0. The composite score of CM is then computed for each company. 1826 The ownership concentration OC score is measured as a total shareholding of Top 20 shareholders. OC is treated as a continuous variable by dividing number of shares owned by top twenty shareholders by the total number of shares issues. For this study, firm size is measured as natural log of total assets. As suggested by Hossain et al. 1994, natural logarithmic transformation reduces the skewness setoff the raw data. Five control variables are employed: There are: Leverage LEV - Ratio of total debt to total assets; Non-audit fess NAF - Ratio of non-audit related fees to total audit fees; Industry IND - Dummy variable for four major categories of industry Resources, Manufacturing, Services and Financials; Audit type AUDTYPE - Dichotomous variable for type of auditor 1 for Big4, 0 for Non-Big4 and Profit Loss firm PLF - 1 for profit firm and 0 for loss firm.

4.0 DESCRIPTIVE AND STATISTICAL ANALYSIS

4.1 Descriptive Statistics

As shown in Table 1, on average sample companies only disclose 5.3 of the 43 ratios investigated in this study. The maximum level of disclosure is 30.2. Analysis on each major category reveals that the Share Market Measure scored the highest 9, followed by Capital Structure and Profitability ratio with a mean of 7.9 and 7.4 respectively. However, the sample firms comm. unicated less than 1 of Liquidity and Cash Flow ratios in their annual reports. 1827 Table 1: Descriptive Statistics for EFRD Extent of financial ratio disclosure Share Market Measure Profitability Capital Structure Liquidity Cash Flow Mean 5.3 9.0 7.4 7.9 0.9 0.2 Median 2.3 9.1 SD 5.6 9.6 10.8 12.5 4.6 1.7 Min. Max. 30.2 36.4 55.6 57.1 42.9 22.2 Legend: SD is standard deviation; n=300. Table 2 displays the percentage disclosure scores for each of the 43 ratios for the 300 Australian firms. The most reported ratios are ‗Total Shareholder Return‘ β7, ‗Gearing‘ β6.7, ‗Net Tangible Assets per Share‘ β5.7, ‗Return on Equities‘ β1.7 and ‗Dividend Payout‘ β0.7. Further, ‗Dividend Yield‘, ‗Times Interest Earned‘ and ‘EBITDARevenue‘ ratios were being disclosed between 15 to 18 of the sample firms. However, 11 out of 43 individual ratios are not communicated within the annual report by any companies. Table 2: Extent of Financial Ratio Disclosures by Specific Ratio Five Key Sub-categories disclosure score Specific ratio disclosure score 1. Share Market Measure 9.0 1.Total shareholder return TSR 27.0 2.Net tangible assets per share NTAB 25.7 3. Dividend payout 20.7 4.Dividend yield 18.3 5.Net assets per share NAB 3.7 6.Market capitalisation 1.7 7.Price-to-earnings PE 1.0 8.Earnings yield 1.0 9.Price-to-book 10.Book value per ordinary share 11.Market-to-book ratio 2. Capital Structure 7.9 1.Gearing 26.7 2.Times interest earned 15.3 3.Total debtequity 7.0 4.Capitalisation ratio 2.7 5.Equity ratio 2.0 6.Liabilities Assets 1.3 7.Long Term debtequity 3. Profitability 7.4 1.Return on equities ROE 21.7 2.EBITDA Revenue 15.0