Examining the Moderating Role of Auditor Reputation

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The impact of executives ’ compensation and corporate governance attributes on voluntary

disclosures: Does audit quality matter?

Praveen Kumar

Finance and Accounting Area, Indian Institute of Management Jammu, Jammu, India

Abstract

Purpose – This article investigated whether the executives’ compensation and corporate governance attributes are aligned with stakeholders’demands for higher corporate voluntary disclosures. Moreover, the study also examined the moderating role of the auditor’s reputation in the direction of association among executive compensation, corporate governance attributes, and voluntary disclosures.

Design/methodology/approach–The study used a sample of S&P BSE index constituents’90 Indian firms for 2017–2019. The voluntary disclosure scores were fetched from the India Disclosure Index Report published by FTI Consulting. This analysis was carried out in two parts by applying four panel-data regression models in the agency and signalling theories framework. First, the study examined the association between executive compensation, board strength, composition, gender diversity, and voluntary disclosures. Second, the article investigated the moderating role of the“Big 4”in the direction of association among executive compensation, corporate governance attributes, and voluntary disclosures.

Findings–The willingness of executives to share private information with stakeholders depends on the compensation they receive from their employer. The higher compensation paid to executives leads to a higher

“tone from the top,”which is better aligned with stakeholder interests. Further, the research also found that bigger board sizes, a higher proportion of independent and woman directors (indicators of good governance), and an auditor’s reputation are associated with increased voluntary disclosure.

Research limitations/implications – The findings showed that the executives’ compensation and corporate governance attributes are aligned with stakeholders’demand for higher voluntary information from firms. Moreover, the study also found that the“Big 4”play a moderating role in this direction. The choice of a reputed auditor indicates the firms’ long-term positive future perspectives, which strengthens investor confidence in the financial market.

Practical implications–The study suggests that fair executive compensation can address the agency problem.

Originality/value – This research furnishes managers and different stakeholders with significant implications of executives’ compensation, corporate governance, and auditor’s reputation in the best interests of a firm through reducing potential risks of information asymmetry.

KeywordsVoluntary disclosures, Executives’compensation, Corporate governance,“Big 4”, Agency and signalling theory

Paper typeResearch paper

1. Introduction

Higher voluntary disclosure is a good proxy for a firm’s good governance and management culture. The current global scenario also demands voluntary disclosures on board governance, diversity, cybersecurity, sustainability disclosures, management engagement with investors, and transparently embedding it into the management report (Fiandrinoet al., 2022). The stakeholders rely on such “tone from the top” to better predict the firms’ performance (Verrecchia, 1983;Orenset al., 2010;Kumar and Kumar, 2018). Otherwise, the potential risk of information asymmetry may increase the firms’cost of capital (Leuz and Verrecchia, 2000;Brownet al., 2004;Armstronget al., 2011). So, voluntary disclosures can

Audit quality

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/0967-5426.htm

Received 24 November 2022 Revised 22 April 2023 Accepted 9 June 2023

Journal of Applied Accounting Research

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play an essential role in the value-creation procedures of the firms (Lang and Lundholm, 1996;

Easley and O’Hara, 2004) by preventing the informational disadvantage of investors (Dye, 1990;Gregoriouet al., 2005). However, managers’willingness to share private information with outsiders depends on the compensation or“pay for performance”they receive from their employers (Laksmana, 2008; De Jong, 2017). In addition to executives’ pay, corporate governance attributes such as board strength and composition (Williamson, 1985;Forker, 1992;Chen and Jaggi, 2000) and gender diversity also affect voluntary disclosure. Further, the

“Big 4”auditor also plays a crucial role in voluntary disclosures by firms (Dufloet al., 2013;

Ahmadi and Bouri, 2019).

With this specific background, this research analysed S&P BSE index constituents’90 Indian firms for 2017–2019. The voluntary disclosure scores were fetched from the India Disclosure Index Report. This analysis was carried out in two parts by applying four different panel-data regression models in the agency and signalling theories framework. First, the study examined the association between executive compensation, board strength, composition, gender diversity, and voluntary disclosures. Second, the article investigated the moderating role of the

“Big 4”in the direction of association among executive compensation, corporate governance attributes, and voluntary disclosures. The willingness of executives to share private information with outsiders depends on the compensation they receive from their employers. The higher compensation paid to executives leads to a higher“tone from the top,”which is better aligned with stakeholder interests. Further, the research also found that bigger board sizes with a higher proportion of independent and woman directors may better observe the exercises of the board, which further urges firms to provide more private information. However, the strength of this association between executive compensation, corporate governance attributes, and voluntary disclosures depends upon the auditor’s reputation.

This article adds to the literature in several ways. First, the study contributes to the literature on factors affecting voluntary disclosure. Existing studies on corporate disclosures focused on three major themes: the motives for disclosure, the factors that influence voluntary disclosure, and the impact of disclosure. For instance,Healy and Palepu (2001)highlighted six motives affecting managers’voluntary information disclosure. Moreover, prior studies also explored different variables that affects voluntary disclosure, such as board gender diversity (Alvarez and McCaffery, 2000; Singh et al., 2008), corporate governance and board composition (Eng and Mak, 2003;Cheng and Courtenay, 2006), legal environment (Baginski et al., 2002) and earnings quality (Franciset al., 2008).

Second, prior studies have produced mixed results on the effects of an auditor’s reputation on corporate voluntary disclosure practices. Few studies have found a positive correlation between the two variables (Deeganet al., 2002;Sun and Cui, 2014;Al-Gamrh and Al-Dhamari, 2016;Pucheta-Martınezet al., 2019;Kolsiet al., 2021;Boatenget al., 2022;Islamet al., 2023;

Friedrich and Quick, 2023). On the other hand, some researchers found no/negative relationship between an auditor’s reputation and voluntary disclosure (Piot and Missonier- Piera, 2007;Al-Gamrh and Al-Dhamari, 2016). Therefore, given mixed results in prior studies, the relationship between an auditor’s reputation, executives’ compensation, corporate governance attributes, and voluntary disclosures required to be re-investigated to explore additional insights within the agency and signalling theory framework.

Third, past literature employed overly simplistic approaches that only proposes direct relationships between executives’compensation and voluntary disclosure, while potential moderating mechanisms have been ignored. The Agency hypothesis suggests that external audit attributes such as size and reputation restrict the window dressing by directors, which further helps firms address agency issues better (Fama, 1980).DeFond (1992)mentioned four principal internationally reputed auditors: PricewaterhouseCoopers, Deloitte, Ernst snd Young, and KPMG, popularly known as the“Big 4”.“Big 4”improves the earning quality and assists firms in addressing the potential risk of information asymmetry between managers

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and stakeholders (Chalmers and Godfrey, 2004); it also enhances investors’trust in the market. However, the strength of this association between executive compensation and disclosures depends on the auditor’s reputation (Datar et al., 1991). To the author’s knowledge, no recent research directly explored the moderating role of the auditor’s reputation in the association between executives’ compensation, corporate governance attributes, and voluntary disclosures.

Lastly, the past literature in developed nations clarified a few voluntary reporting clarifications (Ajinkyaet al., 2005;Chunget al., 2015;Al-Shaer and Zaman, 2016;Ahmadi and Bouri, 2019). However, relatively less research has been done about developing economies, especially in the Indian context. Due to the intense scrutiny that followed the IL&FS and other corporate scandals in India, more and more large companies have focused on strengthening and maintaining audit quality. Getting financial statements audited from a“Big-4”should be a much bigger priority for the leading Indian firms than size alone (Raina, 2022). The“Big 4” audit company service a third of India’s listed firms’audit business by value. The“Big 4”in India audits nearly 60% of the Nifty 500 firms (Jain, 2019). Despite the“Big 4”being audit leaders in India (Mahanta, 2022), no study explored the role “Big 4” play in corporate reporting by Indian firms. This research also fills this gap in the literature by examining the effects of an auditor’s reputation on accounting disclosures in Indian settings.

The remainder of this article continues as follows:Section 2reviews the relevant research articles, and Section 3mentions the data sources and the econometric model used. The findings are included inSection 4.Section 5contains the concluding remarks.

2. Theoretical background and literature review 2.1 Agency and signalling theory

Voluntary disclosures attracted much attention from investors, firms, auditors, and the academic community worldwide because the stakeholders are dependant on such disclosures to better predict the firms’performance (Kumar and Firoz, 2019). Resultant, these disclosures are getting importance in the value creation procedures through reducing the information gap between investors and companies (Lang and Lundholm, 1996;Easley and O’Hara, 2004) and preventing the informational disadvantage of market makers (Dye, 1990;Gregoriouet al., 2005). In this connection, Agency theory clarifies why firms report information voluntarily, providing a hypothesis to build one theoretical model to carry out this examination. The Agency hypothesis was gneisses by Ross in 1973 and was additionally extended by Jensen and Meckling in 1976 (Abeywardana and Panditharathna, 2016), which argues that voluntary disclosure by firms’will, in general, reduces information asymmetry (Easley and O’Hara, 2004). The management ought to provide legitimate disclosures to investors;

otherwise, the shortfall would increase the firm costs, such as suits and auditing costs (Charumathi and Ramesh, 2015). In this way, one of the reasons to have agency cost is flawed data availability to investors, which is not satisfactory for making appropriate decisions.

These irreconcilable situations between the board (agent) and the investors (principal) cause a disparity concerning the information. To overcome this issue and furnish investors with data, firms must publish an annual report including all material without biases (De Jong, 2017).

However, executive compensation and incentives can mitigate agency issues and additional auditing costs through higher voluntary disclosure, further decreasing agency costs and reducing litigation risk (Skinner, 1994,1997;Fieldet al., 2005). In this direction, signalling theory recommends that firms with future uplifting outlooks are expected to disclose private data. They will be monetarily compensated if their signalling is credible (Ross, 1977). For an instant, the financial statements certified by the“Big”auditors fortify investor trust in the financial market (Dataret al., 1991). Further, the choice of a reputed auditor depicts the firm’s positive sign to stakeholders regarding future perspectives.

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Conversely, firms with poor financial performance cannot afford“Big 4”due to high audit fees (Trueman and Titman, 1988;Kolsiet al., 2021). Thus, under the signalling hypothesis, firms recruiting a“Big 4”auditor provides a sign of being profitable (Weisbach, 1988). These reputed auditors can reduce the risk of information asymmetry by providing quality accounting information, which indicates excellent corporate governance.

2.2 Executive compensation and voluntary disclosures

Compensation is perceived as critical in executives’motivation to impart private data to stakeholders. It is likewise considered a significant variable in a reward strategy. It may play a specific role in a firm’s development and benefit by lessening the expected information asymmetry risk. In this direction, Murphy (2001) argued that most corporations use accounting numbers as a performance measure for incentive compensation. Since higher disclosures make it more straightforward for managers to arrive at those performance measures, the hypothesis might confirm that executive compensation impacts voluntary disclosure.

Additionally, Bergstresser and Philippon (2006) also found evidence of a positive relationship between earnings management and compensation. Further,Cheng and Warfield (2005)observed that executives with higher incentives are bound to meet or beat investors’ forecasts. Knowing whether compensation paid to executives increases reliable accounting disclosures and can resolve agency issues is essential. However, contrary to these studies, Coultonet al.(2001)argued no association between corporate governance and transparent disclosures. Further, transparency is also not linked with cash and stock-based compensation. Similarly,Merino et al.(2019)analysed data from 73 listed companies for 2007–2012. The study reported no association between corporate governance attributes and directors’remuneration.

Nagaret al.(2003)track down a positive connection between executives’compensation for shares held and the recurrence of voluntary disclosure. Further,Choi and Kim (2017)reported executives’stock-based compensation fortifies the explanatory force of current profit for future income. On the other hand, the reluctance to uncover data for investors alludes to disclosure related to agency issues. In contrast, executives’compensation can increase the revelation of good news, which improves firms’performance and is considered a positive sign by the stakeholders about the company’s future perspectives under the Signalling hypothesis (Milgrom, 1981;Verrecchia, 1983). Moreover,Burns and Kedia (2006)andEfendiet al.(2007) also suggest that the probability of accounting repetitions is positively connected with executives’in-the-money option holdings.

Laksmana (2008)reported that the“pay for performance”standard decides the extent of board disclosure of compensation practices in the U.S.Luoet al.(2021)analysed whether executives’compensation aligned with stakeholders’demands for more corporate carbon disclosures. The inclination to willfully unveil carbon data and the quality is excellent when executives’compensation contracts align with stakeholder interests. Moreover,Arora and Gill (2022)established the association between executive compensation and corporate tax aggressiveness. However, the findings showed a negative impact of fixed executive payment on tax aggressiveness and no significant linkage between compensation and tax aggressiveness. Most recently,Chen and Hassan (2022)showed a non-significant impact of executive cash payment on corporate performance; however, executives’ equity-based compensation significantly affects firm performance. Moreover, female executives’ proportion is negatively linked with performance.

Based on these studies, this article also has hypotheses:

H1. Executives’compensation is positively related to voluntary disclosures.

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2.3 Corporate governance attributes (including board strength, independent and female directors) and voluntary disclosures

Firms with good governance mechanisms, generally with higher independent direction on the board, are more viable in monitoring executives, handling agency issues, and reducing information gaps (e.g.Ajinkyaet al., 2005). Jensen and Meckling (1976)argued that good governance mechanisms could also solve agency issues. Laksmana (2008)indicated that independent directors take higher responsibility for sharing private information.

Additionally, Forker (1992) signified that corporate governance affects share option revelation. In the same way, Chen and Jaggi (2000) also inspected the linkage between independent non-executive directors and accounting disclosures. Brammer and Pavelin (2008)observed that enormous firms with dispersed ownership and low debt were bound to disclose. The quality reporting was significantly and positively correlated with the company’s size and environmental performance. Moreover,Reid and Toffel (2009)suggested that the state regulation in which a company operates affects voluntary disclosure based on an analysis of 524 firms for 2006–07. The suitable governance mechanism enhances information transparency by boosting voluntary disclosure, which further helps firms address agency issues better (Beekes and Brown, 2006;Coles, 2008;Laksmana, 2008;Chung et al., 2015).

Further, Gender diversified boards benefit the decision-making process (Alvarez and McCaffery, 2000; Burke, 2000; Singh et al., 2008). Later, Nielsen and Huse (2010) also investigated and reported that the higher ratio of women directors is positively linked with strategic board control.Boulouta (2013), using a sample of S&P500 companies, studied the linkage between board gender diversity and corporate social performance. The research has concluded that promoting diversity in the boardroom will likely positively impact voluntary disclosures. Similarly,Fernandez-Feijooet al.(2014)reported that in countries with more board directors, at least three women report more on voluntary disclosures.

Al-Shaer and Zaman (2016) suggested that female directors increase the quality of sustainability reports.Katmonet al.(2019)also propose a positive linkage between gender diversity and CSR disclosure. Moreover,Sial et al.(2018)indicated that female directors improve firm performance. Later,Manitaet al.(2018)revealed a positive impact of board gender diversity on ESG disclosure.Seifzadehet al.(2022)assessed managerial attributes’ role in analysing financial statements comparability. The findings showed a significant negative association between management narcissism and effort and financial statements comparability.

Yadav and Prashar (2022) also argued that having three female directors on boards reduces ESG performance. However, having higher gender diversity improves performance.

Most recently,Shafeeq Nimr Al-Malikiet al.(2023)explored the impact of board members’ characteristics on innovations and CSR. The study found that board interlock and independence increase firms’innovation.

The above discussion leads to the following hypotheses:

H2a. The strength of the board of directors is positively related to voluntary disclosures.

H2b. The higher proportion of independent directors is positively related to voluntary disclosures.

H2c. The higher proportion of female directors is positively related to voluntary disclosures.

2.4 External auditor attributes

Pucheta-Martınezet al. (2019)contended that the size of an auditing company positively influences the degree of CSR disclosures of Spanish non-financial firms.Sun and Cui (2014)

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also reported a positive connection between the auditor’s reputation and the company’s voluntary disclosure practices. The firms recruiting“Big 4”auditors show higher standards of disclosure quality (Al-Gamrh and Al-Dhamari, 2016). In line with signalling hypothesis,

“Big 4”generally looks to recruit professional staff to improve the reporting quality.

Deeganet al.(2002)suggested that“Big 4”will urge their clients to report social and environmental data to outsiders (Wang et al., 2008). Similarly,Pahuja (2009) found a positive linkage between CSR disclosures and audit firm size. However,Al-Gamrh and Al- Dhamari (2016)showed no association between CSR disclosure and auditor size. Similarly, based on data analysis of 289 French firm-year observations,Piot and Missonier-Piera (2007)revealed that corporate governance quality decreases the cost of debt, whereas audit quality does not.

Most importantly,Kolsiet al.(2021)mentioned that the“Big 4”choice significantly affects the CSR revelations of ADX-listed firms.“Big 4” also significantly and positively affects voluntary financial and forward-looking information disclosures (Boateng et al., 2022).

Similarly,Islamet al.(2023)also advocate companies should focus on audit committee quality and internal audit function quality to enhance financial reporting quality. Most recently, Friedrich and Quick (2023), using data from German firms, concluded that“Big-4”auditors provide high-quality services, further reducing companies’ litigation costs and reputation risks.

This study used“Big 4”as a moderating variable to predict the direction of association among executive compensation, board strength, board composition, and voluntary disclosures.

Based on the above discussion, this study hypothesis is as follows:

H3. The effect of executives’ compensation and corporate governance attributes on voluntary disclosures is more accentuated for firms audited by BIG4 auditors.

3. Model specification and research methodology 3.1 India disclosure index

FTI Consulting, a non-profit organization, provides an annual index on voluntary corporate disclosure practices in India under global institutional investor expectations, and the SEBI regulations of Clause 49 of the Listing Agreement (Trading Economics, 2019). The index provides non-financial information and standard company benchmarks on 12 disclosure parameters into three categories: performance, board quality, and risk management. It then assigns weights based on five disclosure parameters to provide a composite score for the top 100 listed Indian firms.

3.2 Sources of data collection and sample

The initial sample covered S&P BSE index constituents’top 117 Indian firms under the Business Extent of Disclosure index. The examination excluded 27 firms from the banking, financial, and insurance industries because the administrative and listing requirements and strategic approaches differ from other sectors (Hossain et al., 1995;Schultz et al., 2010;

Nguyenet al., 2014). Finally, 90 firms were chosen (Appendix 1) for 2017, 2018, and 2019. The article chose this period for two reasons: The India Disclosure Index Report was first published in 2016–17 on how India’s leading listed firms fair on voluntary corporate disclosures. Second, 2019 was the last year of data available during data collection. These 90 sample firms belong to 34 industry sectors, as reported inAppendix 2. The information on executives’compensation, board of directors, and other financial data was fetched from the Ace Analyser database (seeTable 1).

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3.3 Econometric model and variables under study

To decide between static and dynamic panel data models, one must consider the endogeneity issues and models best suit data (Kumaret al., 2022). Otherwise, owing to the

Variables Expected sign Descriptions

VOLDISCL Dependent

Variable

The general voluntary disclosure under the India Disclosure Index or Business extent of Disclosure Index (05less voluntary disclosure to 105more voluntary disclosure) made by the firm more than mandatory disclosures (Kumar and Firoz, 2019) EXEREM þ EXEREM is executive compensation paid to the board of

directors, including salaries, bonuses, incentives, etc. This study only considered cash-based compensation; the share-based payments were not included

BDSTRENGTH þ BDSTRENGTH is board Strength or size, measured by the total number of board directors, including executives and non- executives (Beasly Mark, 1996;Cheng and Courtenay, 2006) BDCOMPOSITION þ BDCOMPOSITION is board composition measured by the

proportion of independent directors (Fama, 1980;Fama and Jensen, 1983;Eng and Mak, 2003)

BOARDGD þ BOARDGD is board gender composition measured by the

proportion of female directors (Yadav and Prashar, 2022) SIZE þ The proxy for the size of a firm and obtained by taking the

natural logarithm of its capitalization (Demsetz and Lehn, 1985;

Gulati, 1995;Hackston and Milne, 1996;McWilliams and Siegel, 2001;Blacket al., 2006;El Ghoulet al., 2011;Ioannou and Serafeim, 2012;Matsumuraet al., 2014;Lee, 2015;Kumar and Firoz, 2017;Boatenget al., 2022;Ronoowah and Seetanah, 2023) ROA þ It is determined by dividing a firm’s yearly profit by its total

assets (Hart and Ahuja, 1996;Russo and Fouts, 1997;Shen and Chang, 2009)

OWNERSHIP þ This shows whether the sample company is public or private.

It is a dummy variable (Kumar and Kumar, 2018). Equal to 1 if the firm is state/government-owned and 0 otherwise

CROSS BORDER

LISTING þ It shows the listing of a company in the stock exchanges of foreign capital markets. It is a dummy variable (Kumar and Firoz, 2019). Equal to 1 if the firm is listed abroad and 0 otherwise FIRMAGE þ The age of a firm is used to control the effect of a company’s

lifecycle on firm value (Drobetzet al., 2004;Blacket al., 2006;

Mishra, 2015;Kumar and Firoz, 2019)

BTMV þ The BTMV controls firms’growth, estimated as the firm’s book value over its market worth (Liet al., 2014;Kumar and Firoz, 2018)

GEARING RATIO – The gearing ratio is calculated by dividing long-term debt by equity (Myers and Majluf, 1984;Waddock and Graves, 1997;

Orlitzkyet al., 2003;Blacket al., 2006;Kumar and Firoz, 2017;

Ahmadi and Bouri, 2019)

“BIG 4” ? It is the size and reputation of the auditor of the firm; this study operationalized this variable as a bifurcate variable, taking a score of one (1) if the firm is audited by a“Big 4”and 0 otherwise (Chalmers and Godfrey, 2004;Ahmadi and Bouri, 2019;Boateng et al., 2022). It is used as a moderating variable (or moderator) to check the strength and direction of the executive compensation and voluntary disclosure relationship

ε^t ^? ^{Error Term}

Source(s):Author’s Compilation

Table 1.

Description of variables under study

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endogeneity may create misleading coefficients. The test for endogeneity used in prior studies is the D.W. statistic, developed by James Durbin and Geoffrey Watson in 1954. The D.W. test tells whether the endogenous regressors in a model are truly endogenous (Guo et al., 2018). The Durbin–Watson statistic ranges from 0 to 4. A value of 2 or nearly 2 depicts no first-order autocorrelation and endogeneity issues with data; in such cases, static panel data models deem fit to the data. The econometric model used in this analysis depicted that the Durbin–Watson value is 1.97 (around 2), so the panel-data regression model (static model) best suits the data. The model used is as follows:

VOLDISCL_ðtÞ¼^ðα⁰^ÞI NTERCEPT_ðtÞ þ^α¹^:¹EXEREMt þ^α¹^:²BDSTRENGTHt

þ¹^:³BDCOMPOSITIONt þ¹^:⁴BOARDGDþ^α²SIZEt þ^α³ROAt

þ^α⁴OWNERSHIPt þ^α⁵CROSS BORDER LISTINGt þ^α⁶FIRMAGEt

þ^α⁷BTMVtþ^α⁸GEARINGRATIOt þε^t

(A1) A detailed explanation of all the variables is explained inTable 1. Further, to examine the moderating effect of“Big 4”Model B1, B2, and B3 models were developed by introducing an interaction term“Big 4”between board strength/independent board directors, a composition/

board gender diversity, and voluntary disclosures as:

VOLDISCLt ¼^α⁰I NTERCEPTt þ^α¹EXEREMtþα2BIG4Dummiesit

þ^α³VOLDISCL * BIG4it þ^α⁴BDSTRENGTHt þ^α⁵SIZEtþ^α⁶ROAt

þ^α⁷OWNERSHIPtþ^α⁸CROSS BORDER LISTINGtþ^α⁹FIRMAGEt

þ^α¹⁰BTMVtþ^α¹¹GEARINGRATIOt þε^t

(B1)

VOLDISCLt ¼^α⁰I NTERCEPTtþ^α¹EXEREMtþ_α2BIG4Dummiesit

þ^α³V OLDISCL*BIG4itþ1:3BDCOMPOSITIONtþ^α⁵SIZEtþ^α⁶ROAt

(B2) VOLDISCLt ¼^α⁰I NTERCEPTtþ^α¹EXEREMtþα2BIG4 Dummiesit

þ^α³V OLDISCL*BIG4itþ4BOARDGDtþ^α⁵SIZEtþ^α⁶ROAt

(B3)

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4. Data analysis and interpretations 4.1 Descriptive statistics

Descriptive statistics of the firms are depicted in Table 2. The voluntary disclosures (VOLDISCL) are 4.73, which indicates that the degree of disclosure by Indian firms is moderate. The standard deviation of VOLDISCL is 1.93, which denotes the low scattering in disclosures. On average, out of 12 (BDSTRENGTH), approximately half of the board of directors (45%) are independent directors (BDCOMPOSITION). The maximum board size obtained is 19, and the lowest is 4.

The mean size is 79558.49, demonstrating that the firms covered under study are large, with a maximum value of 864037.4. The mean ROA is 10.48%, which shows that the sample firms are profitable and have a decent return on their assets. Moreover, the standard deviation of ROA is 9.99%, indicating that these firms have less dispersion from the mean value and are comparable. The most significant and lowest estimations of ROA are 72.02%

and24.65%. These statistics demonstrate that the firms under analysis have good financial performance. OWNERSHIP and CROSS BORDER LISTING (CBL) are dummy variables with a maximum of 1 and a minimum of 0 (seeTable 1). The mean of the GEARING RATIO portrayed inTable 2is 0.37, which is moderate and represents that the Indian firms use lower debt in their capital structure. The maximum age is 112 years, showing India’s long corporate history. The average book-to-market value is 6.31. In summary, descriptive insights show that the firms under study are growing large caps and are less risky.

4.2 Correlation matrix

A prior condition to applying a panel-data regression model is to check the multicollinearity issues (Gujarati and Porter, 2009). Severe multicollinearity may create misleading coefficients. Past studies recommended various measures to deal with the issue of multicollinearity.Hairet al.(2006)proposed that correlation coefficients below 0.9 may not cause severe multicollinearity, whileKennedy (2003)contended a value below 0.8 shows no serious multicollinearity. The correlation matrix (seeTable 3) depicted that the correlation

Variables Observations Minimum Maximum Mean Std. Deviation

Dependent Variable

VOLDISCL (Numbers) 270 0 10 4.73 1.93

Independent Variables

EXEREM (Currency:₹) 270 1388.24 1,112,100,000 221,936,453.3 223,426,581.6

BDSTRENGTH (Numbers) 270 4 19 12 2.53

BDCOMPOSITION (Percentage)

270 0.15 0.8 0.45 0.12

BOARDGD (Percentage) 270 0 50.0 12.04 8.03

Control Variables

SIZE (Currency:₹) 270 1145.12 864037.4 79558.49 104544.5

ROA (Percentage) 270 24.65 72.02 10.48 9.99

OWNERSHIP (DUMMY) 270 0 1 0.16 0.37

CROSS-BORDER LISTING (DUMMY)

270 0 1 0.24 0.43

FIRMAGE (Years) 270 2 112 45.89 24.23

BTMV (Percentage) 270 0.09 74.32 6.31 8.03

GEARING RATIO (Percentage)

270 0 3.85 0.37 0.57

Source(s):Author’s Calculation

Table 2.

Descriptive statistics

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VariablesVOLDISCLEXEREMBDSTRENGTHBDCOMPBOARDGDSIZEROAOWNERSHIPCBLFIRMAGEBTMVGEARINGRATIO VOLDISCL10.00000.0900**0.20000.1091*0.19000.07000.04000.2500**0.15000.06000.0200 EXEREM10.1396**0.2038*0.1898*0.17750.04230.3289*0.04410.0903**0.02750.0415*** BDSTRENGTH10.01540.11540.0586*0.02120.3296**0.08430.10550.04690.03 BDCOMPOSITION10.1285**0.03350.16620.40.20880.12430.06230.0413 BOARDGD10.1585**0.08210.28190.14490.1902*0.1281**0.1416 SIZE10.27240.01590.1226***0.02310.10540.076** ROA10.0108*0.170.00190.52760.4606 OWNERSHIP10.11560.046*0.1937**0.1316* CBL10.25590.23220.0579 FIRMAGE10.03660.1909** BTMV10.1947 GEARINGRATIO1 Note(s):Thesignificancelevelsaregivenby:*5p<0.01,**5p<0.05,***5p<0.10 Source(s):Author’sCalculation Table 3.

Correlation matrix

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coefficient values are beneath these values, so there is no issue of multicollinearity among the variables under study.

4.3 Voluntary disclosure model

Table 4depicts the results of theH1,H2 (a,b,c), andH3. The table presents that the EXEREM (executive compensation) positively and significantly linked to the voluntary disclosures at the 1 snd 5% level of significance (p-value <0.01, <0.05 Model I, II and III). These findings confirmedH1that the willingness of managers to share private information with outsiders depends on the compensation they receive from their employer. The higher payment (including salaries, bonuses, incentives, etc.) paid to executives leads to a higher“tone from the top”(De Jong, 2017). These voluntary disclosures may help firms to reduce the potential risk of information asymmetry or the information gap (asymmetry) between firms and

Panel Least Squares Effect Coefficient (p-value)

Cross- Section Random Effect Coefficient (p-value)

Cross- Section Fixed Effect Coefficient (p-value)

Variables Model I Model II Model III Model IV Model V Model VI Model VII Model VIII Model IX Model X Model XI Model XII

INTERCEPT 1.0726

(0.905) 1.1104 (0.059) ***

1.1112 (0.198)

5.3084 (0.000)*

5.2480 (0.000)*

5.2466 (0.000)*

3.1665 (0.000)*

3.1532 (0.000)*

3.1529 (0.000)*

4.006 (0.000)*

4.2233 (0.000)*

4.0322 (0.000)*

EXEREM 0.3799

(0.000)*

0.3848 (0.000)*

0.3850 (0.000)*

--- --- --- --- --- --- --- --- ---

BDSTRENGTH --- --- --- 0.091

(0.008)*

0.0790 (0.0233)**

0.0787 (0.024)**

--- --- --- --- --- ---

BDCOMPOSIT

ION --- --- --- --- --- --- 2.3136

(0.026)**

2.5082 (0.013)**

2.5123 (0.013)**

--- --- ---

BOARDGD --- --- --- --- --- --- --- --- --- 0.4722

(0.000)*

0.4832 (0.000)*

0.5012 (0.000)*

SIZE 3.7606

(0.000)*

3.2406 (0.000)*

3.2306 (0.000)*

3.8106 (0.000)*

3.2606 (0.000)*

3.2506 (0.000)*

3.4206 (0.000)*

2.8806 (0.000)*

2.8706 (0.000)*

0.0681 (0.001)*

0.0626 (0.001)*

0.0669 (0.000)*

ROA 0.0252

(0.038)**

0.0227 (0.060)***

0.0226 (0.062)***

0.0285 (0.018)**

0.0256 (0.032)**

0.0256 (0.033)**

0.0207 (0.1310)

0.0179 (0.194)

0.0178 (0.1978)

0.8502 (0.013)**

0.5602 (0.012)**

0.5934 (0.013)**

OWNERSHIP 0.1799

(0.386) 0.1672 (0.417)

0.1667 (0.420)

0.1332 (0.435)

0.0884 (0.6194)

0.0874 (0.625)

0.2183 (0.449)

0.2273 (0.432)

0.2275 (0.433)

0.0032 (0.735)

0.8412 (0.9454)

0.6741 (0.2252)

CBL 0.8555

(0.000)*

0.8815 (0.000)*

0.8820 (0.000)*

0.8097 (0.000)*

0.8425 (0.000)*

0.8432 (0.000)*

0.7928 (0.000)*

0.8132 (0.000)*

0.8136 (0.000)*

0.9067 (0.001)*

0.2534 (0.000)*

0.3272 (0.001)*

FIRMAGE 0.0089

(0.021)**

0.0077 (0.035)**

0.0076 (0.037)**

0.0079 (0.040)**

0.0065 (0.074)***

0.0065 (0.077)***

0.0058 (0.068)***

0.0045 (0.117)

0.0045 (0.120)

0.9801 (0.059)***

0.4995 (0.198)

0.3455 (0.209)

BTMV 4.3205

(0.996) 0.0031 (0.724)

0.0031 (0.719)

0.0029 (0.750)

0.0002 (0.9746)

0.0003 (0.968)

0.0037 (0.682)

0.0007 (0.936)

0.0006 (0.942)

0.3347 (0.983)

0.7875 (0.658)

0.6699 (0.812) GEARINGRAT

IO

–0.2017 (0.052)***

–0.1798 (0.085)**

– 0.1794 (0.087)**

–0.2509 (0.012)**

–0.2246 (0.028)**

– 0.2240 (0.029)**

–0.1826 (0.028)**

–0.1584 (0.058)***

– 0.1578 (0.060)***

–0.8622 (0.018)*

– 0.1849 (0.038)**

–0.7681 (0.080)***

Adjusted R-square

0.1023 0.1293 0.339 0.0968 0.1172 0.3297 0.1021 0.1325 0.3415 0.2134 0.2653 0.4153

Note(s): The significance levels are given by: * = p < 0.01, ** = p < 0.05, *** = p < 0.10 Source(s): Author’s Calculation

Table 4.

Corporate voluntary disclosure model

Audit quality

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investors (Lang and Lundholm, 1996;Easley and O’Hara, 2004), because the stakeholders use such disclosures to better predict the amount, timing, and uncertainty of future earnings and firm performance (Verrecchia, 1983;Orenset al., 2010;Kumar and Firoz, 2018).

Further, the results show that a bigger board size (consistent with H2a), a higher proportion of independent directors (H2b), and a higher proportion of female directors (H2c) are associated with increased disclosure. The board size is positively and significantly related to voluntary disclosure at the 5% level of significance (p-value <0.05, Model IV, V and VI).

Further, in contrast to the results reported byEng and Mak (2003), the board composition is also positively and significantly related to voluntary disclosures at the 5% level of significance (p-value <0.05, Model VII, VIII and IX). These outcomes validate the contention that having a higher proportion of non-executive directors on the board would bring better monitoring exercises (Fama, 1980; Fama and Jensen, 1983; Chen and Jaggi, 2000).

Independent directors urge firms to report more information to investors. Moreover, aligned with the prior literature (Alvarez and McCaffery, 2000;Singhet al., 2008;Yadav and Prashar, 2022), board gender diversity is also positively and significantly linked with voluntary disclosure at the 5% level of significance (p-value <0.05, Model X, XI and XII).

However, these results are contrary toSaha and Kabra (2022).

In line with a few critical studies (e.g.Demsetz and Lehn, 1985;Gulati, 1995;Hackston and Milne, 1996;McWilliams and Siegel, 2001;Blacket al., 2006;El Ghoulet al., 2011;Ioannou and Serafeim, 2012;Boatenget al., 2022), the coefficient of size is positively and significantly associated with VOLDISCL in all twelve models at 1 snd 5% level of significance (p-value

<1% and < 5%). Large-caps firms report more voluntary information than small firms and have a lower risk of information asymmetry (Matsumuraet al., 2014;Ahmadi and Bouri, 2019;

Kumar and Firoz, 2019;Boatenget al.,2022). Further, the coefficient for the ROA is also positively and significantly associated with VOLDISCL at 5 and 10% levels of significance (p-value <5% <10%). This finding argues that profitable firms have more resources to afford voluntary reporting (Ahmadi and Bouri, 2019).

The coefficient of CBL is statistically significantly and positively associated with the VOLDISCL at the 1% significance level in all twelve models (p-value <1%). These results align with the argument that firms listed abroad tend to voluntarily report more on their corporate actions than domestically listed firms (Kumar and Firoz, 2019). Further, similarly to the earlier research (Drobetzet al., 2004;Blacket al., 2006;Mishra, 2015), firms’ age positively and statistically significantly affect voluntary disclosures (p-value <5%). A company’s lifecycle is one of the most critical determinants of voluntary information reporting. Older firms report more accounting information voluntarily than new firms (Kumar and Firoz, 2019). While consistent with prior literature (Myers and Majluf, 1984;

Waddock and Graves, 1997;Orlitzkyet al., 2003;Blacket al., 2006;Kumar and Firoz, 2017;

Ahmadi and Bouri, 2019), the coefficient of GEARING RATIO is statistically negatively and significantly associated with the VOLDISCL at the 5 and 10% levels of significance in all twelve models (p-value <5% <10%). However, this examination did not find evidence to support that firms’OWNERSHIP and BTMV affect the extent of accounting disclosures (Kumar and Firoz, 2019).

4.4 The moderating role of“Big 4”auditing firms

The sample firms are categorized as a bifurcate variable; firms audited by a“Big 4”and firms, not by a“Big 4”based on the classification of Chalmers and Godfrey (2004)and Ahmadi and Bouri (2019). It is used as a moderating variable (or moderator) to check the strength and direction of the executive compensation, corporate governance attributes, and voluntary disclosure relationship.Table 5represents descriptive statistics for both groups. It can be inferred that firms audited by others than a“Big 4”have reported lower

JAAR

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accounting information (4.45) than those audited by a“Big 4”. Besides, the size and ROA of the firm also differ substantially between“Big 4”audited firms (mean size 81683.1; ROA 10.66) and firms audited by other than“Big 4”(mean size 78206.4; ROA 10.36), indicating that large and profitable firm has more resources to afford quality audit (Ahmadi and Bouri, 2019). Moreover, the portion of independent directors on the board is also higher (mean 0.48) in the case of firms audited by a “Big 4” than others (mean 0.43). These outcomes validate the contention that having a higher proportion of non-executive directors on the board would bring better monitoring exercises (Fama, 1980;Fama and Jensen, 1983;Chen and Jaggi, 2000).

The“Big 4”auditor-wise panel data regression output has been summarized inTable 6. The results conclude a positive and statistically significant impact of executive compensation, board strength and composition, and gender diversity on voluntary disclosures for firms audited by a

“Big 4”(Group I) in all twelve models at 1, 5, and 10% level of significance (p-value <1%, <5%,

<10%). The board size and composition coefficients in Group I (firms audited by“Big 4”) are positively and statistically significantly associated with VOLDISCL at a 5 snd 10% significance level (p-value <5%, <10%). These results support the argument that independent directors urge firms to report more information to investors (Chen and Jaggi, 2000). However, for firms audited other than the “Big 4”(Group II), the results found a statistically non-significant impact of executive compensation, board strength and composition, and gender diversity on disclosures in all twelve models (see Table 6). Thus, the strength of the relationship between executive compensation, board strength, board composition, and voluntary disclosures depends on whether a reputed auditor audits the company’s financial statements.

Variables Observations Minimum Maximum Mean SD

Group I: Firms audited by“BIG 4”

VOLDISCL 105 0.9 10 5.18 2.25

EXEREM 105 7,300,820 1,112,100,000 250,136,829.4 208,807,509

BDSTRENGTH 105 7 18 12 2.06

BDCOMPOSITION 105 0.15 0.8 0.48 0.13

BOARDGD 105 0 50.0 13.04 8.93

SIZE 105 9482.28 323345.9 81683.1 64845.51

ROA 105 6.03 72.02 10.66 10.61

OWNERSHIP 105 0 1 0.11 0.31

CROSS BORDER LISTING 105 0 1 0.28 0.45

FIRMAGE 105 10 112 48.48 24.04

BTMV 105 0.25 18.14 5.15 4.33

GEARING RATIO 105 0 2.18 0.34 0.47

Group II: Firms audited by other than“BIG 4”

Variables Observations Minimum Maximum Mean SD

VOLDISCL 165 0 8.2 4.45 1.64

EXEREM 165 1388.24 965,480,000 203990759.4 231079497.9

BDSTRENGTH 165 4 19 12 2.8

BDCOMPOSITION 165 0.15 0.7 0.43 0.11

BOARDGD 165 0 40.0 10.04 7.79

SIZE 165 1145.12 864037.4 78206.4 123514.6

ROA 165 24.65 35.07 10.36 9.61

OWNERSHIP 165 0 1 0.20 0.40

CROSS BORDER LISTING 165 0 1 0.21 0.41

FIRMAGE 165 2 109 44.23 24.28

BTMV 165 0.09 74.32 7.056 9.61

GEARING RATIO 165 0 3.85 0.38 0.63

Source(s):Author’s calculation

Table 5.

Descriptive statistics of firms audited by“BIG 4”and other than

“BIG 4”