Interpretation and Writing Up of Table 6
The regression results show that there is indeed some correlation between a company’s characteristics and its willingness to accept and employ the new ED (8) standards. The ED standards serve as the dependent variable, with the organizational characteristics such as inside ownership, abnormal profits, number of segments, size, financial leverage, overseas listings, as well as firm’s location, being taken as independent and control variables. The table in addition to these variables has columns labeled as “PRED”, “A”, “B” and “C”. Other sapects of the table include the Herfindahl index denoted as “H”.
The column “PRED” contains the expected or predicted relationship between the given independent variable and the dependent variable (ED 8 standards acceptance). The potential results are either a negative correlation, denoted as – or a positive correlation denoted as +. The researchers’ predictions according to this table, was that inside ownership, denoted by “INSIDE” would be negatively correlated to acceptance of ED 8 standards, such that firms with higher inside ownership would find utilization of these new standards difficult. This assertion is confirmed by the findings which show that as the levels of inside ownership reduce, the willingness to adopt the new standards increase. This was also in line with hypothesis 1 (H1) which predicted as much.
The second independent variable according to the researchers was predicted to also be negatively correlated to the dependent variable. Firms with higher abnormal profits would be according to them, less reluctant to embrace more widespread declaration of their documents. As such, the results across the table show that the lower the abnormal profits, the lower the resistance towards greater reporting of their financial situation. These firms all however held a negative view of ED 8 standards which encourage more disclosure. This was also in line with the second hypothesis (H2a), which predicted that firms which had higher abnormal profits would find it harder to support ED 8. This however did not mean that those with lower profits would support disclosure, but just that they would exhibit less resistance. This according to Hayes and Lundholm (1996) is due to an attempt by these firms to protect their competitive advantage.
The third row with results on number of segments shows that there was a negative correlation between having less than 2 segments, and the willingness to fully disclose the number of segments. This could be seen across the columns A, B and C, with the correlation under column A being found to be -3.72, -6.09 under column B and -3.63 under the final column. This also serves to confirm hypothesis 2b, as these firms with few segments found it harder to comply with ED 8 standards on disclosure, as they unlike larger companies do not really have the same level of incentives to increase their level of disclosure, if anything it results in greater agency costs. The findings therefore serve to highlight as much, reaffirming findings of previous studies such as the one carried out by Berger and Hann in 2003.
Even though the researchers predict a positive correlation between firm size and a willingness to comply with the newly set ED 8 standards, the findings as shown by Table 6 are inconclusive, as only one set of results are displayed, although the result does show a positive correlation of 1.69 at a significance level greater than 0.01. Even though this result does tally with hypothesis 3 (H3) that larger firms would be more supportive of ED 8 standards, it is inconclusive, as unlike in the other scenarios, it only takes one situation into account. This is therefore not a sufficient premise upon which to confirm the hypothesis. The same could be said about financial leverage, as even though one of the results shows a positive correlation (Column B) at 1.10, the table also shows a negative correlation of -5.11 at a significance level of 0.067. This fails to support the assertion that higher debt is likely to translate into greater support for ED 8 standards, as the results could be said to be inconclusive, providing room for further research. This could also be attributed to the aforementioned collinearity issues, with further developments required when it comes to the measurement tools in order to eliminate these issues and come up with more accurate results.
A positive correlation does indeed exist between overseas listings and ED 8 compliance or willingness to comply with these standards. This is clearly displayed by the table, which shows a positive correlation in all three columns. Even though both overseas listings and location within the EU are considered to be control variables, they do serve their purpose as they eliminate the possibility of making assumptions that do not apply across the board. In the case of the EU variable, a negative correlation is found to exist in two out of the three scenarios, perhaps an indication that certain countries would find it hard to comply with the new standards in a holistic manner and may therefore request for exemption on certain areas, similar to the findings of Larsson and Kenny (2007), which highlights the exclusion of certain areas in the adoption of IFRIC 3 and IAS 39.
Berger, P., G., & Hann, R. (2003). The Impact of SFAS No 131 on Information and Monitoring. Journal of Accounting Research. Vol. 41: 163-223.
Hayes, R., & Lundholm, R. (1996). Segment Reporting to the Capital Market in the Presence of a Competitor. Journal of Accounting Research. Vol. 34 (2): 261-279.
Larson, R., Kenny, S. (2007). An Empirical Analysis of International Accounting Standards, Equity Markets, and Economic Growth in Developing Countries. Journal of International Financial Management & Accounting. Vol 6 (2): 130-157.