towards excellence: an indexed refereed journal of higher

Towards Excellence: An Indexed Refereed Journal of Higher Education / Ms. Ruchi Joshi / 48-164

March, 2016. VOL.8. ISSUE NO. 1 www.ascgujarat.org Page | 148

VOLUNTARY DISCLOSURE PRACTICES IN INDIAN

AUTOMOBILE SECTOR

Ruchi. S. Joshi

ABSTRACT

The concept of disclosure is great significance to the accomplishment of objectives of financial

reporting. Corporate disclosure is an important issue now-a-days. Financial reporting is the

communication of financial information of an enterprise to the external world. Corporate

annual report is considered as the most effective means of communication to various users

groups which bring out relevant financial and non-financial information about corporate

performance. As a medium for communicating information, annual reports generally include

two types – mandatory and voluntary disclosures. In India mandatory disclosures are required

as per the provisions of companies Act 2013. Voluntary disclosures are those which are

voluntarily disclosed by companies in their annual reports without any compulsion from the

any statute to make report complete. The Full disclosure practice along with transparency in

financial reporting can build climate of trust and boost confidence of investors’ community.

This paper has been made an attempt to examine the voluntary disclosure pattern of selected

company from automobile sector.

ISSN No. 0974-035X An Indexed Refereed Journal of Higher Education

Towards Excellence UGC-ACADEMIC STAFF COLLEGE, GUJARAT UNIVERSITY, AHMEDABAD, INDIA

Towards Excellence: An Indexed Refereed Journal of Higher Education / Ms. Ruchi Joshi / Page 148-164


Introduction:

Disclosure word is closely linked with corporate annual report. In non-corporate forms of

business annual report has limited users and legal provision except following of accounting

norms, principles, and other professional requirement. But the scope preparation and presentation

of accounts in corporate forms of business is all to gather different. Due interest of several stake

holders a number of legal and professional provision are made for preparation and presentation of

annual account. . Enterprise which falling in the scope of these regulation are bound to follow give

norms of preparation and presentation of financial statements. This presentation is known as

disclosure of accounts. It is mandatory for corporate form of business to follow them. The

deviation from this provision is treated as punishable offence. Sometimes very high penalty is to

be paid for non- complain of these requirements. As a medium for communicating information,

annual reports generally include two types – mandatory and voluntary disclosures.

In mandatory disclosure subjectivity in preparation and presentation does not exists.

Everything is predetermined and legally well defined. But voluntary disclosure provides

comprehensive freedom to accounts preparers. It can be presented in innovative form. Preparation

and presentation differs entity to entity. No legal binding exits. At global and domestic level this

inclusion enhances image of the company. The importance of voluntary disclosure can be viewed

from two sides i.e. one from the side of the company and other from the side of the users of the

reports. The development of voluntary disclosure is highly influenced by several factors. Cut

throat competition, users’ awareness; object to perform social responsibilities, liberalization,

recent trades in global reporting- are important factor which have got significant impact on the

development of voluntary disclosure.

Literature Review:

In the research paper on “Accounting Disclosure in Companies Listed on the Egyptian

Stock Exchange “undertaken by Khaled Dahawy was conducted through detailed analysis of the

disclosures of the financial statements of the population of actively traded companies in the

Egyptian stock market as reported by the Egyptian capital authority. The main objectives of

International Accounting Standard Board (IASB) is ability of users understand and use financial

statements. The findings of this research indicate that the disclosure level for the studied

companies averaged 61% of the required level that is mandated by the Egyptian capital market

Authority requirements that are based on International Accounting Standard(IAS).



In the research paper on “Determinants of Voluntary Disclosures In Kenyan

Companies Annual Reports “done by Dulacha G Barako (2007) in that Kenyan Government

has initiated reforms at the Nairobi Stock Exchange. This study has two main aims. The first

is to examine level of voluntary information disclosure through annual reports by Kenya listed

companies over a ten year period (1992 -2001).Secondly, examine factors (governance,

ownership and company characteristics) associated with disclosure of various types of

information .The findings show that a company’s governance, ownership corporate

characteristics influence decisions about the voluntary disclosure of information.

In the research paper on Voluntary disclosure in the annual reports of an emerging

country: The case of Qatar” done by Mohammed Hossain Helmi Hammamiin (2009)

explores the extent and levels of voluntary disclosures in the annual reports of the listed

company in the Doha Securities Market (DSM) in Qatar, a growing emerging country. The

main objective of Qatar Financial Centre (QFC) attracting top firms in finance, energy,

tourism, transportation, health , and education to increase the integration of Qatar in the

global economy. The findings indicate that age, size, complexity, and assets-in-place are

significant and other variable profitability is insignificant in explaining the level of voluntary

disclosure.

In the research paper on “The Nature and Extent of Voluntary Intellectual Capital

Disclosures by Australian and UK Biotechnology Companies” done by Dr. Gregory White,

Prof.Alina Lee and Yuni Yuningsih on information strategies of Australian and UK-based

biotechnology companies. The main aim of the research project was to characterize the

specific nature and extent of ICD by biotechnology companies. The annual reports from 104

Australian biotechnology companies (listed on the Australian Stock Exchange) and 52 UK

biotechnology companies (listed on the London Stock Exchange) were the original objects of

study from which voluntary ICD data were collected. The finding contrasts the legitimate

R&D focused ICD of low-leveraged UK firms; namely to attract stakeholder attention to their

expanding intellectual property base, with the findings from Australian firms’ with relatively

predictable and naïve customer focus.

Research Methodology and Model Specification:

1. Objective of study:

The following are the objectives of the analysis:



To examine the voluntary disclosure pattern of selected Indian companies of different

industries.

To calculate disclosure score of voluntary quantitative items of selected companies

To calculate the disclosure score of voluntary qualitative items of selected companies.

To investigate whether there is any significant relationship between total score and Return on

Capital Employed (ROCE), Net Profit Margin, Divided per share (DPS), and Earnings per

Share (EPS).

2. Sample Size:

Total 5 companies are selected from different industries which are as follows:

HERO MOTORS

HINDUSTAN MOTORS

TATA MOTORS

BAJAJ AUTO

TVS MOTORS

3. Collection of data:

In this study secondary data is used. This data is obtained from the published annual

reports.

4. Time period: This study is based on the data of 5 years commencing on 2009 and

ended on 2013.

5. Tools and Technique: Disclosure performance score are calculated by applying

following formula.

Formula = Frequency of Disclosure

Total Year ∗ 100



Measurement of Variables:

Variable Formula

Return

(ROCE)

on capital Employed profit before tax

*100 capital employed

Net profit margin (NPM) Net profit

∗ 100 sales/turnover

Dividend per share (DPS) Gross dividend − preference dividend

∗ 100 No. of ordinary shares in issues and ranking for dividend

Earnings per share (EPS)

Profit after tax before extra-ordinary items less preference dividend

___________________________________________________________________ ∗ 100

No. of ordinary shares ranking for dividend

With the help of above variables following regression model are used:

TSC = a0 +a1 ROCE+a2 NPM+a3DPS+a4 EPS + st

6. Scope:

Scope of the study is as follow:

Total 5 companies from same industries are selected.

Only voluntary disclosure is investigated of all these companies.

Data are collected from secondary data sources for study purpose.

7. Limitation of study:

The study is based on the data of 5 companies only.

The time period is for 5 years only.

Only voluntary disclosure is under taken only.

Only performance score is calculated.

Different companies of same industries are selected randomly.

Secondary data sources used for the study.



Data Analysis and Interpretation: The score card for each five selected companies are as under:

HERO MOTORS CORP:

Quantitative Disclosure:

SR.

NO

COMPONENTS 2009 2010 2011 2012 2013 Total

1 INFLATION ACCOUNTING 0 0 1 1 0 2

2 Human resources accounting 1 0 1 0 0 2

3 Value added statement 0 0 0 0 0 0

4 Economic value added 1 1 1 1 1 5

5 Performance ratio 1 0 0 1 1 3

6 Disclosure for capacity management 0 0 0 0 0 0

7 Contribution in foreign exchange 0 1 1 1 1 4

8 Expense in foreign exchange 0 0 1 0 0 1

9 Report presentation cost 0 0 0 0 0 0

10 Brand valuation 0 0 0 0 0 0

11 Transfer pricing 0 0 0 0 0 0

12 Report required as per norms of other countries

0 0 0 0 0 0

13 Account as per us GAAP 1 0 0 0 0 1

14 Reconciliation statement of profit of us GAAP

1 0 0 0 0 1

15 Social profit and loss account and balance sheet

1 1 1 1 1 5

16 Fund flow statement 0 0 0 0 0 0 TOTAL 6 3 6 5 4

% of item disclose 37.5 18.75 37.5 31.25 25.00

Qualitative Disclosure:

SR.

NO
















0 0 0 0 0 0



1 0 0 0 0 1


1 1 1 1 1 5


% of item disclose 37.5 18.75 37.5 31.25 25.00

HINDUSTAN MOTORS:

Quantitative Disclosure

SR.

NO


1 Inflation Accounting 0 0 0 0 0 0











12 Report required as per norms of

other countries

0 0 0 0 0 0


14 Reconciliation statement of profit of

us GAAP

0 0 0 0 0 0

15 Social profit and loss account and

balance sheet

1 1 1 1 1 5

16 Fund flow statement 0 0 0 0 0 0

TOTAL 1 1 1 1 1

% of item disclose 6.25 6.25 6.25 6.25 6.25



Quantitative Disclosure :

SR. No

Components 2009 2010 2011 2012 2013 Total

1 Environmental reporting 1 0 0 0 1 2

2 Social development 0 0 0 0 0 0

3 Product segment 0 1 0 0 0 1

4 Shareholder’s information 1 1 1 1 1 5

5 Geographical segment 0 1 1 1 1 4

6 Management structure 1 1 1 1 1 5

7 Management director/ chairman report

1 0 0 0 0 1

8 Budgetary control 0 0 0 0 0 0

9 Employees welfare

measures

0 0 0 0 0 0

10 Joint venture 0 1 1 1 1 4

11 International accounting

and auditor report

1 1 1 1 1 5

Total 5 6 5 5 6

% of item disclose 45.45 54.54 45.45 45.45 54.54

TATA MOTORS

Quantitative Disclosure

SR. NO














0 0 0 0 0 0





0 0 0 0 0 0

15 Social profit and loss account and balance

sheet

1 1 1 1 1 5


TOTAL 2 5 5 5 4

% of item disclose 12.5 31.25 31.25 31.25 25.00


SR. No








7 Management director/

chairman report

0 0 0 0 0 0


9 Employees welfare

measures

0 0 0 0 0 0


11 International accounting and auditor report

1 1 1 1 1 5

Total 5 5 5 5 6

% of item disclose 45.45 45.45 45.45 45.45 54.54

BAJAJ AUTO

Quantitative Disclosure:

SR. NO















12 Report required as per norms of other

countries

0 0 0 0 0 0



0 0 0 0 0 0


1 1 1 1 1 5


TOTAL 3 1 1 1 1

% of item disclose 18.75 6.25 6.25 6.25 6.25


SR. No








7 Management director/

chairman report

1 1 1 1 1 5


9 Employees welfare

measures

0 0 0 0 0 0


11 International accounting and auditor report

1 1 1 1 1 5

Total 7 9 9 9 9

% of item disclose 63.64 81.82 81.82 81.82 81.82

TVS MOTORS: Quantitative Disclosure:

SR. NO















12 Report required as per norms of other

countries

0 0 0 0 0 0

13 Account as per us GAAP 0 0 0 0 0


0 0 0 0 0 0


1 1 1 1 1 5


% of item disclose 18.75 18.75 18.75 18.75 18.75


SR. No








7 Management director/ chairman report

1 1 1 1 1 5


9 Employees welfare measures

0 0 0 0 0 0


11 International accounting

and auditor report

1 1 1 1 1 5

Total 8 8 8 8 8

% of item disclose 72.72 72.72 72.72 72.72 72.72

Analysis of regression result:



The results for different measures of score card of voluntary disclosure and profitability of the firms

including Return on Capital Employed, Net Profit Margin, and Dividend per Share and Earning per Share

are presented in the following section. First, the descriptive analysis is presented followed by multiple

regression analysis to see the association between Net Operating Profitability and all independent variable

Descriptive Statistics of Variables

Name of the company/

Year

Total score

of voluntary

disclosure

ROCE (%) NPM (%) DPS (%) EPS (%)

TVS MOTORS

2009 8 8.7 1.88 1.2 3.71

2010 8 17.77 2.85 1.1 4.1

2011 8 19.83 3.22 1.3 5.24

2012 8 11.18 1.48 0.6 2.44

2013 8 19.95 3.02 1.4 5.51

TATA MOTORS

2009 5 12.26 6.26 15 39.26

2010 5 12.55 3.81 20 28.55

2011 5 11.38 2.26 4 3.91

2012 5 7.31 0.64 2 0.95

2013 6 2.94 0.87 2 1.04

BAJAJ AUTO

2009 7 59.19 14.23 40 124.54

2010 9 69.67 19.8 40 87.26

2011 9 64.24 15.11 45 100.2

2012 9 53.51 14.63 45 105.18

2013 9 47.92 15.55 50 112.08

HERO MOTORCORP

2009 3 76.48 14.16 111 111.76

2010 5 60.82 99.48 105 96.54



2011 3 59.33 100.89 45 119.09

2012 4 42.46 8.91 60 106.07

2013 3 48.56 8.34 65 105.61

HINDUSTAN

MOTORS

2009 5 -75.88 -8.27 0 -3.17

2010 6 -79.45 0.1 0 0.05

2011 5 -207.84 -5.95 0 -1.73

2012 5 -2.85 -9.69 0 -3.85

2013 6 -321.86 -1.62 0 -0.17

In analyzing the data presented in the above table, the ordinary least square regression method was used.

The result of the data analysis is presented below.

Model Specification:

The result of correlation is obtained by using model:

TSC = f (ROCE, NPM, DPS, and EPS)

Where: TSC, ROCE, NPM, DPS and EPS represent TOTAL SCORE of Companies; Return on Capital

Employed; Net Profit Margin; Dividend per Share; and Earnings per Share respectively.

The econometric form of the model is as follows:

TSC= a0 +a1 ROCE+a2 NPM+a 3DPS +a4 EPS+st

Where: a0, a1, a2, a3, a4, and st represent intercept, Impact of Return on Capital Employed, Impact of Net

Profit Margin, Impact of Dividend per Share, Impact of Earnings per Share and Error terms respectively. The

a priori expectation is that TOTAL SCORE (TSC) has a positive relationship with the Return on Capital

Employed (ROCE), Net Profit Margin (NPM) Dividend Per Share (DPS) and Earnings Per Share (EPS) in the

period under study.

Towards Excellence: An Indexed Refereed Journal of Higher Education / Ms. Ruchi Joshi / 8-164


Correlation Matrix:

Total Score ROCE NPM DPS EPS

Total Score 1.000 0.107

(0.306)

-0.222

(0.143)

-0.279

(0.089)

-0.075

(0.361)

ROCE 0.107

(0.306) 1.000

0.356

(0.040)*

0.503

(0.005)*

0.562

(0.002)*

NPM -0.222

(0.143)

0.356

(0.040)* 1.000

0.600

(0.001)*

0.569

(0.002)*

DPS -0.279

(0.089)

0.503

(0.005)*

0.600

(0.001)* 1.000

0.858

(0.000)*

EPS -0.075

(0.361)

0.562

(0.002)*

0.569

(0.002)*

0.858

(0.000)* 1.000

(* indicate 5% significance level)

The above table indicates the relation between independent variable ROCE, NPM, DPS, EPS and

dependent variable is Total Score.

ROCE has a positive relation with Total Score but relation is not statistically significant.

NPM is non-significantly negatively related with Total Score but NPM is statistically

significantly positively related with ROCE.DPS is non-significantly negatively related with Total

Score where as ROCE and NPM is statistically significantly positively related with DPS. EPS is

negatively related with Total Score and relation is non-significantly where as ROCE and NPM is

statistically significantly positively related with EPS.

Regression Analysis:

VARIABLES CO-EFFICIENT STD. ERROR t- STATISTIC

Total score 6.559

(0.000)* 0.567 11.558

ROCE 0.006

(0.305)* 0.005 1.053

NPM -0.011

(0.547)* 0.018 -0.612

DPS -0.046

(0.066)* 0.024 -1.943

EPS 0.020

(0.201)* 0.015 1.323

R Square 0.235



Adjusted R Square 0.082

F Statistic 1.533

F prob. 0.231

(Figures in the parenthesis indicate the p-values of the corresponding Coefficients)

(* indicate 5% significance level)

TVS = 6.559 +0.006ROCE -0.011NPM -0.046DPS +0.020EPS t-ratio =

(11.558) (1.053) (-0.612) (-1.943) (1.323)

R-Squared = 0.235 Adjusted R-Squared = 0.082 F-Stat =

1.533 DW Statistic = 1.101

From the result presented above, all the variables except Net profit margin (NPM) and Dividend

per Share (DPS) are in line with the apriority expectation. It can also be seen that total score has a

n Positive relationship with the Return on Capital Employed (ROCE) and Earnings Per Share

(EPS) and a negative relationship with Net Profit Margin (NPM) and Dividend Per Share (DPS) in

the period under study. Using the Coefficient of variation from the model presented above, it will

be observe that autonomous total score which is represented by total score Cost (TSC) is a positive

6.559 when all other variables are held constant.

Consequently, a percentage change in total score Cost (TSC) will lead to positive change of about

0.006 percentages in ROCE less the autonomous component provided all other variables arc held

constant. Also, a percentage change in TSC provided all other variables are held constant will have

a negative change of about 0.011percentage in NPM less the autonomous component. Furthermore,

a percentage change in TSC will lead to a negative change of about 0.046 percentages in DPS less

the autonomous component. And a percentage change in TSC will lead to a positive change of

0.020 percentages in EPS.

Using the t- Ratio to test for their statistical significance, it is evident that only ROCE and EPS

variables are statistically significant. This is due to the fact that their observed t- values are positive

and above the “rule of thumb of 2”. The other variables are statistically insignificant because their

observed t-values are either negative or far less than the 'rule of thumb' of 2. From the R- squared

of 0.235, the regression co-efficient indicates that about 83% of the changes in the dependent



variable are explained by the changes in the independent variables. The F- value of 1.533 indicates

that the parameter estimate cannot be dismissed at 5% level of significance. This is due to the fact

that the calculated F- value is more than the critical K-value. The D.W statistic of 1.101 indicates

the absence of auto - correlation since it is up to rule of Thumb of 2.

Conclusion:

As result shows the negative relation of NPM, DPS, EPS with Total Score that means there is no

relation between profitability and voluntary disclosure. Study concludes that different companies

have their different policy and according to their needs different companies are discloses different

voluntary items. There is no compulsion to disclose each and every item of voluntary disclosure

due to this subjectivity arises in the annual report of two different companies. Thus comparison

between two or more companies cannot be possible. There is no change in numbers of voluntary

item which is disclosed by company if the different financial year. As the voluntary disclosure is

not mandatory. Investors do not look for measuring profitability from voluntary disclosure. So

there is needed to make voluntary disclosure to as mandatory.



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Ruchi. S. Joshi

Research Scholar E Mail: [email protected]

mailto:[email protected]

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