An evaluation of the extent and determinants of corporate disclosure and transparency practices in Zimbabwean firms

Abstract

This study evaluated the extent and determinants of disclosure and transparency in the annual reports of Zimbabwean firms by using the National Code on Corporate Governance of Zimbabwe (NCCGZ) guidelines as a benchmark for developing and applying a comprehensive disclosure and transparency index. The study aimed to: (i) contextualise corporate disclosure and transparency; (ii) develop a sustainability oriented, composite disclosure and transparency (D&T) index based on the NCCGZ; (iii) determine the current approaches to corporate reporting after the release of the NCCGZ; (iv) analyse and evaluate the level of corporate disclosure and transparency (D&T) in annual reports of firms listed in the ZSE during the recent years; (v) examine the extent to which the corporate disclosure and transparency (D&T) practices in the annual reports is associated with the company specific characteristics including corporate governance mechanisms of ZSE listed firms during the recent years; (vi) correlate the corporate disclosure and transparency (D&T) practices and firm performance (measured by ROCE, ROE & ROA); (vii) analyse the connection between corporate governance and company performance; and (viii) proffer recommendations for improvements in corporate regulation, securities regulation, and corporate disclosure and transparency practices in Zimbabwe. With regard to the first two objectives outlined above, a broad and up-to-date review of literature was carried out, which informed the research on the development of a disclosure and transparency index. The research used a double-step content analysis (qualitative and quantitative) of annual reports in order to achieve the third, fourth, fifth, sixth and seventh objectives. The study applied the embedded concurrent and sequential qualitative dominant (QUAL(quant) design to integrate the mixed research designs, drawing insights from a multiple-theoretical framework of the three overarching theories (agency, legitimacy and stakeholder) of this study. The ATLAS.ti 7.5 qualitative analysis software was used to enhance both the qualitative and quantitative approaches. Furthermore, the study also surveyed balanced panel data of 35 ZSE listed corporations from 2014 to 2016. The quantitative analysis approach enabled the generation of a total of 105 firm-year observations using SPSS and Stata statistical packages. Overally, the study discovered that, firstly the number of firms producing an annual report incorporating a sustainability report or corporate social responsibility report has been very low but gradually increasing over the 2014 to 2016 financial years. Secondly the quality of D&T in most of the ZSE listed companies' annual reports was relatively low during the sample period. Thirdly, the constructed index (NCCGZDTI) confirmed that the launch of the NCCGZ significantly helped to improve disclosure and transparency practices among Zimbabwe listed firms. Fourthly, this study found out that director share ownership has a positive and significant impact on the degree of disclosure and transparency and conformity with the NCCGZ. The study also found out that company age and liquidity have a positive and significant link with the extent of disclosure and transparency and compliance with the NCCGZ. Fifthly, the findings from the Model 3 imply that corporate disclosure and transparency practices, represented by the NCCGZDTI, are negatively but significantly linked to return on assets (ROA) and return on capital employed (ROCE). However, the findings drawn from the Model 2 were mixed. Board size and director ownership have a negative and significant influence on firm performance as measured by ROA. Furthermore, board size has a negative and significant influence on firm performance as measured by ROE.