OWNERSHIP STRUCTURE AND INTERACTION EFFECTS OF FIRM PERFORMANCE ON MANAGEMENT COMMENTARY DISCLOSURES

A rich empirical research suggests that corporate disclosures are important means for management to communicate firm performance and governance to outside investors. (e.g. Chau & Gray, 2002; Mohd Ghazali & Weetman, 2006). In the last few years, there is an increasing attention regarding non-financial information disclosure in companies' annual reports. An important development in relation to this is the discussion paper and subsequently statement practice on Management Commentary (MC) issued by the International Accounting Standard Board (IASB). However, differences in institutional characteristics affecting financial reporting incentives across countries adopting various pronouncements issued by IASB are expected to have an effect on the extent of non financial disclosure in MC (Soderstrom & Sun, 2007). Using the annual reports of 210 Malaysian listed companies, this study aims to investigate the effects of ownership structure on the extent of management commentary information in two disclosure periods (2006 and 2008). The two-year window period enables an examination of MC disclosure practices in the year before and after the revision of Malaysian Code on Corporate Governance in 2007. Results of this study provide evidence that family owned companies are associated with lower incentives to disclose more comprehensive MC disclosures. This result contradicts the relationships revealed by goverment owned companies. The interaction effects of firm performance on the relationships between ownership structure and the extent of MC disclosures only provide significant relationships for government owned companies. The insignificant effect on family owned companies suggest that managers in these companies avoid detailed disclosure of MC information in order to evade close monitoring by outside investors (Shleifer & Vishny, 1997). In addition, the results also indicate that the corporate governance revision has not resulted in the desired level of monitoring in influencing managers to disclose more comprehensive voluntary information. Alternatively, these results provide support to the view that mandatory requirements provide a vehicle through which countries characterized with concentrated ownership structure can enhance their financial reporting infrastructure and improve investor protection (Hope et al., 2006). Overall, the findings provide useful information to IASB, standard setters and other regulatory bodies in promoting transparency and convergence of corporate disclosures.Management Commentary Disclosure, Ownership Structure, Firm Performance, Voluntary Disclosur