THE IMPACT OF CORPORATE GOVERNANCE ON VOLUNTARY DISCLOSURE: EVIDENCE FROM PAKISTAN

1. THE IMPACT OF CORPORATE GOVERNANCE ON VOLUNTARY
DISCLOSURE: EVIDENCE FROM PAKISTAN
Introduction:
Disclosed of information is very important for the banks and get more attention form the
researcher (for example, see M. Akhtaruddin et al., 2009; Hongxia Li& Ainian Qi, 2008;
Ibrahim, Haron and Ariffin, 2000; Chau and Gray, 2002; Haniffa and Cooke, 2002; Eng and
Mark, 2003) and disclose of information is express in many theories such as stakeholder theory,
agency theory, legitimacy theory and political economy theory. The agency theory implies that
companies increase disclosure in order to reduce the conflicts between shareholders and
managers. And companies enhance their firm value by increased disclosure (Lobo & Zhou,
2001).
The corporate governance has a strong impact on the disclosure of information. Corporate
governance is the system in which business corporations are directed and controlled. The
corporate governance structure specifies the distribution of rights and responsibilities among
different participants in the corporation, such as the board, managers, shareholders and other
stakeholders, and also provide the rules and procedures for making decisions and it also provides
the structure through which the company objectives are set and the means of attaining those
objectives ”(OECD, 2004). .
Disclosure is an important element of CG. Disclosed of information in annual reports can be
divided into two type is accounting and voluntary disclosure. Accounting disclosure is
mandatory and required to disclose in the annual report of bank and voluntary disclosures is
information that banks not forced to disclose according to Meek et al.(1995) voluntary
disclosure is the “disclosure in excess of requirements – represents free choices on the part of
company managements to provide accounting and other information deemed relevant to the
decision needs of users of their annual reports”. Users the investor to take right decision. This
benefits not only the investor but also the banks’ profits increase.
According to Hossain et al. (1994) there is a positive relation between firm size and VDI he
suggest that large firms disclose more information as it creates more demand for their securities
in the market. Lang and Lundholm (1993) argue that the more profitable firms disclose more
information, financial performance and disclosure has positive relation, Yermack (1996) stated
that large boards increase the expertise and diversity in organization, Graham et al (2005)
confirmed that the extent of voluntary disclosure depends on the age of firm and Institutional
investors also has positive relationship according to Healy et al (1999) negative relationship
between voluntary disclosure and block holders ownership have found by(McKinnon &
Dalimunthe, 1993). Board composition is the proportion of non executive directors to the total
number of directors in a company’s board. Fama (1983a) suggested that non executive directors

2. act as reliable sources to minimize agency problems between ownership and management.
Higher proportion of non executive directors leads to higher voluntary disclosures
Objective
 The objective of this study is to examines the impact of corporate governance on
voluntary disclosure of commercial banks listed on Pakistan Stock Exchange.
 Is there a relationship between CG and VDI?
Total 22 commercial banks are listed in Pakistan stock exchange. For this research a sample of
10 commercial banks is selected for the research.the time period of the research is (2011-2018).
This research used a regression analysis to examines the impact of CG on VID difference
variable such as firm size, ROA, BC, age, BS, are used in the this research
RESEARCH METHODOLOG
Research Design
The casual correlation technique is used in this research which is most effective to examine the
influence of corporate governance on the voluntary disclosure of commercial banks in Pakistan.
Target Population, Sample Size and Sampling Techniques
The target population this study is the all commercial banks listed in Pakistan stock exchange
form 2011-2018.
Sources of Data Total 22 commercial banks are listed in Pakistan stock exchange. Using random
sampling technique, a sample of 10 commercial banks is selected for the research.
Data have been collected form the annual reports of commercial banks form the official website
of PSX and SECP.
Regression model
The regression equation of the study is
VDI=a+B1ROA+B2bc+B3bs+B4fs+B5age+B6bkh+B7ac+B8int+B9bm+B10mc
a is the intercept
B is the slop
VDI is the dependent variable

3. Scoring of the Disclosure Index
We have to choose the unweight disclosure index methodology. In which the key fact is whether
or not a company discloses an item of information in the annual report. If a banking company
discloses an item of information in its annual report, then ‘1’ will be awarded and if the item is
not disclosed, then ‘0’ will be awarded. Thus, the unweight disclosure method measures the total
disclosure (TD) score of a banking company (suggested by Cooke, 1992)
Conceptual framework
Dependent viable:
Voluntary Disclosure =Voluntary Disclosure Index, VDI= The score obtained by firm divided
by maximum Score
Firm Performance
Firm Size
BHK
Board composition
Voluntary Disclosure Index
INT
Auditcommittee
Board Size
ForeignOwnership
Foreign
Ownership
FirmLeverage
Age of firm

4. Independent variable:
Sign Variable Measurement Source of
data
FSIZ Firm size Natural log of total assets of firm Annual
report
ROA Firm
Performance
Return on Assets Annual
report
BC Board
composition
Total number of outside directors divided by
number of total directors
Annual
report
BS Board size Total number of directors Annual
report
AGE Age of firm Number of years since listed on Pakistan Stock
Exchange (PSX)
Annual
report
BKH Block holders
ownership
Proportion of common shares held by shareholders
with equity of 5 percent or above.
Annual
report
INT Institutional
ownership
Percentage of ownership held by institutional
shareholders
Annual
report
AC Audit committee AC number of audit committee members Annual
report
FO Foreign
Ownership
Dummy variable with one value if the commercial
bank‟s shares are totally or partly foreign-owned, or
zero if not
Annual
report
Leverage LEV Debt ratio Annual
report