Corporate Structure

Demand for revealing has been spurred by info asymmetry and agency conflict amongst focussing and investors. Good inembodied structure principles are the foundation upon which trust of investors and lenders is built, corporate regime is a philosophy and mechanism that entails putting in orient better structures and processes by means of which the affairs of a partnership are direct and managed to enhance long condition shareholders prise through transparency and accountability.previous empirical studies on the association mingled with bell of paleness bully and instinctive divine revelation have documented confusing results, Botosan and Plumlee (2002) found a positive association exists between spontaneous divine revelation and greet of uprightness keen while Gietzmann and Ireland (2005) found a negative relationship between revealing and be of bang-up letter.Increased application of corporate institution every(prenominal) over the world has risen after ma jor corporate s standdals repayable to lack or improper corporate divine revelation, this has resulted to investors and lenders lose confidence in the traditional financial reporting. Transparency and disclosure creates and sustains confidence of investors, stakeholders and the winder edict and provides opportunity for continuous improvement of business structure and processes this has resulted to re-examination and scrutiny of the brisk corporate disclosure thus spurring the need for expanding the existing disclosure policy.Voluntary disclosure, being nonpareil key pillar of corporate governance is regarded as an external mechanism for the control of the concern, protection of the shareholders and a diminish of the agency hails resulting from information asymmetry between the management and shareholders. Botosan (2002) observed that firms which disclose more information in their annual reports enthral the attain of lower cost of capital.The current growing trend toward s gaind corporate disclosure will soon transform into a veritable river of surplus information.Although the purpose of disclosure is to provide adequate and sufficient information to the variant stakeholders, managers may choose not to disclosure certain information in orders to protect competitive advantage Kavitha and Nandagopal,(2011).Studies have shown that public firms are elaborated astir(predicate) disclosing information that might lead to competitive disadvantage, example, information intimately technological innovations, strategic and specific operation data Elliott and Jacobson (1994). The finale on the optimal train of disclosure is thus affected by the interplay between the costs and the earns of disclosure.1.2 Voluntary Disclosure Elements of voluntary disclosure will be classified into four classes of information disclosure as modernistic, financial, corporate amicable responsibility and bestride surface. Voluntary disclosure is regarded as an important scotch tool that aids communicating information to different market players in an industry with an aim of providing clear view about businesss long full term sustainability.Information disclosure conveys companys information to the owners, stakeholders and general public about the tone of voice and value of the company Hamrouni et al.,(2015).Corporate disclosure falls into 2 categories, mandatory disclosure and voluntary disclosure covering all types of information, both of financial and non-financial in nature.Laws, regulations and accounting standards stipulate mandatory information disclosure whereas voluntary disclosure is the information reported beyond the statutory requirements. Meek el al, (1995) defines voluntary disclosure as the free option on the part of the company management to provide accounting and other information deemed pertinent to the decision needs of users of their annual reports.The extent and type of voluntary disclosure is interdependent of the industry , size of it, governance structure, ownership structure and geographic region. Boesso and Kumar (2007) claimed that one of the determinants that led to the progeny of voluntary disclosure was the inadequacy of financial reporting as claimed by investors and shareholders .Investors increasingly demanded openness and disclosure of information relating to performance and strategies. Organizations get tos some benefit by virtue of disclosing sustainably over and above the statutory required information. Li and McConomy (1999) found that firms in better financial conditions are more seeming to voluntarily adopt new International Financial Reporting Standards (IRFS) on environmental disclosure and hence become more profitable and lessen the cost of compliance.Spanheimer and Koch (2000) noteworthy the primary motive for adopting informative accounting as the access to global funding, worldwide comparability of financial statements, increased transparency and pressure from capital mar kets. Ross (1997) found that companies that provide more information disclosures cut back the occurrence of information asymmetry between the owners and manager, subsequently get to enjoy low cost of capital.The benefits of disclosure are for example, increased share impairment will lower cost of capital resulting from a firms full disclosure Nayak, (2012). Investors and creditors are better informed with a postgraduate level of disclosure making them understand the economic risk of the enthronement Elliott and Jacobsom, (1994).Disclosure is generally done in the company annual report either through the statements or notes accompanying the statements. The disclosure elements in the study for measuring the level of voluntary disclosure will include forward-looking information, financial and capital information, corporate social responsibility information and be on size information. forward-looking information represents one form of corporate disclosure. It provides a confidence house power to the stakeholder in the management capability to foresee the future prospects of the business. correspond to Celik et al. (2006) forward-looking information helps to predict the future of a company in terms of performance and strength of the management.Management credibility is gained by accurately predicting company future forecast over and over. Even though the shareholders frequently question the management about what is sack to happen to the company in future, the management cannot predict or gives a certain answer to what is going to happen but they observe market trends and then present the shareholders with explanations about what the company future prospects.Companies that wish to access external sources of finance may tend to disclose more forward-looking information to enable them gain investors confidence Clarkson, Kao and Richardson (1994). Jenkins Report (AICPA, 1994) formulated a number of key recommendations to increase the quality of corporate repo rting, which included increasing the attention for and provision of forward-looking information.Financial information disclosure helps stakeholders to evaluate company performance ahead making any investiture decisions about the company. Improved information disclosure does not only bridge the information asymmetry between management and shareholders but also facilitate the functioning of the financial and economic systems. capable disclosure is used as a mean of attracting new investors in addition to supporting and building company written report.To reduce vulnerability, information disclosure should be comprehensive, timely, informative and credible in nature. Financial information is derived from the financial reports prepared from the books of accounts and analyzed in various categories such as the income statements, vestibular sense sheet, statement of cash flows and statements of changes in blondness. Corporate Social Responsibility (CSR) see as the way firms integrate its social, environmental and economic concerns into their value, culture, operations and strategies.Carroll, (1999) noted CSR as an evolving concept. Centre for corporate governance (2005) issued guidelines which encouraged companies to disclose information on CSR, ownership structure and board size (Barako, 2007). CSR efforts translate into improvements in firms financial performance. Corporate social reporting disclosure enhances company reputation by gaining trust and support from the stakeholders (Woodwar, Edwards and Birkin, 1996), additionally it helps assess congruence between the social value and social norms (Dowling and Pfeffer, 1975).CSR enables firms to access huge sum of finance that might unvoiced to obtain. control panel size is the total number of directors on a corporate board. The board of directors is the apex organ of a company whose cardinal role being the formulation of polices and strategies to be followed by managers in managing firms operations. Board pl ays an important role in maintaining potent corporate governance. It is the Board that determines the count of information disclosure by making strategic decision on the level of voluntary disclosure.Chen and Jaggi (2000) noted that greater number of directors on the board may reduce the likelihood of information asymmetry. It is believed that the size of the board affects the ability of the board to monitor and evaluate management. Increase of directors in the board will consequently increase directors ability to control and promote value creating activities.Larger board bring with them a collection of experience and expertise, wherefore expanding the need for higher(prenominal) information disclosure, it is also argued that larger board size may find difficulty in arriving at a consensus in decision which can ultimately affect the quality corporate governance while small board size encourages faster information touch on .Brudbury (1992). 1.3 Cost of Equity CapitalThe cost of e quity is the return that an investor expects to receive from an investment in a business. This cost represents the amount the market expects as allowance in exchange for owing the gillyflower of the business, it consist of dividends and capital gains.From an investors perspective, cost of equity capital is the return he expects for a share of stock he keeps in his portfolio. Fama and French (1993) found risk growth and size as the factors that influence the required rate of return by investors. When making decisions which affect the firm, Cost of equity plays a crucial role because it affects the bank discount rate at which evaluate future cash flows are valued. In archiving an effective strategic decision making and performance e rating, the cost of equity should be estimated with accuracy.According to Beneda (2003) the cost of equity is a vital mean(a) of comparing investment opportunities. Invertors use the concept of cost of equity as an investment opportunity in a company. Cost of equity is one of the methods used to evaluate investment decisions, example capital budgeting analysis, choice of capital structure and firm valuation.Larger firms are associated with lower cost of capital when compared with the smaller firms since they are in a better position to nip and tuck funds from external sources on favorable terms. Equity capital plays a fundamental role in the development of a firm referable to its advantages when compared to other financing forms.The cost of equity capital is an important fixings with significant input in calculating the cost of capital Cotner and Fletcher (2000). It is unwholesome to apply less appropriate model to estimate cost of capital, this can result to underestimation or overestimation. Underestimation may result in value destructive investments while overestimation may lead to rejection of hopeful investment opportunities.The cost of equity capital is a key forefinger of operations in the financial markets and is us ed by managers and financial preference providers. Clear financial statements reduce uncertainties associated with shareholders equity lending to decrease in the cost of equity while incomplete and unclear financial statements increases irresolution hence causing information risk to shareholders who hence demand higher return.The cost of equity capital is of importance in two folds securities valuation models are ground on the cost of equity capital and without cost of equity capital it is impractible to invest company money as it is difficult to determine capital structure hence unable to determine investment priority (Ahmend, 2007). Manager being agents of the shareholders try minimize the cost of equity hence maximizing shareholders wealth at this same time alter the value of the company.In most financial decisions, cost of equity is an effective determinant factor. Cost of equity is used in capital budgeting decisions, lay optimal structure and working capital management. I mplementing corporate governance practice, the high cost of equity capital problem is overcome.The higher level of voluntary disclosure the lower investor uncertainty, with lower uncertainty investors will be instinctive to accept lower dividend payouts. A lower dividend stream would decrease the cost of equity capital because of a lower risk premium expected by the investors. Lower risk premium demanded by investors translate into a lower cost of equity capital of the firm.Voluntary disclosure reduces the cost of equity capital in two ways which are based on enhanced stock market liquidity and on the cut down non-diversifiable estimation risk. More voluntary disclosure reduces investor uncertainty and attracts long term investments. Determinants of the cost of equity capital can be categorized into two variables measured on accounting information only (accounting based) and variables measured on relations between market data and accounting data (market based).