Ownership

The Impact of Firm Ownership Structure on Voluntary Disclosure: Empirical Evidence from Czech Annual Reports*

Anil K. Makhija  

The Ohio State University

James M. Patton  

University of Pittsburgh

We investigate the impact of ownership structure on the extent of voluntary financial disclosure by examining the cross‐sectional variation in the extent of disclosure by newly privatized Czech firms. Owners derive benefits directly from the firm (private benefits of control) and from changes in share values in the capital market. Both these benefits are affected by disclosure. Consistent with owners’ attempts to maximize their total benefits, we find that the extent of disclosure is positively related to investment fund ownership at low levels of fund ownership but is negatively related to investment fund ownership at high levels of fund ownership.

The purpose of this article is to examine the impact of ownership structure on the extent of voluntary financial disclosure by firms. Although prior research has investigated the importance of managerial ownership for specific accounting policy choices,1 Marston and Shrives’s review (1996) of the extensive literature on the determinants of disclosure reveals that the impact of ownership on the extent of overall disclosure has not yet been examined empirically. In this article, we investigate the cross‐sectional variation in the extent of disclosure in 1993 annual reports of the newly privatized nonfinancial firms included in the Prague Stock Exchange 50 (PSE 50) index, after controlling for nonownership factors suggested by previous research.

We choose Czech annual reports from 1993 for our analysis because this period permits us to conduct a unique natural experiment for studying the impact of ownership on the extent of voluntary disclosure. First, the ownership structure of Czech firms was largely exogenous in 1993. In contrast, in more developed capital markets such as the United States, where the ownership stakes...