The adequacy of corporate mandatory disclosure practices on emerging markets : a case study of the Zimbabwe stock exchange

This research study is descriptive, normative and empirical in scope. The main purpose of the study, reported in this thesis, is to empirically investigate the "adequacy" of mandatory information disclosure practices of public companies listed on an anglophone African stock exchange classified as an emerging equity stock market by the International Finance Corporation (IFC), and to assess the "stringency" of the disclosure regulatory regime of that market. The study also investigates the characteristics of the relationship between some selected corporate attributes and mandatory disclosure. The corporate attributes examined are: company size, audit quality, ownership structure of equity shares, industry-type, company age, multinational corporation affiliation, profitability, and liquidity. A sample of 49 non-financial companies listed on the Zimbabwe Stock Exchange (ZSE) as of 31 December 1994 formed the basis of the conclusions reported in this thesis. To measure the "adequacy" of mandatory disclosure in the annual reports and accounts of these companies, a disclosure measuring instrument was constructed consisting of information items required by companies law, financial accounting standards, and listing rules of the ZSE. Applying the measuring instrument against the annual reports and accounts of the sampled companies, their mandatory disclosure scores were obtained, and were used with other data specific to each sample company to test the relational hypotheses. To investigate the adequacy of mandatory disclosure practices of the sample companies, a descriptive statistical analysis was undertaken. The results of this analysis suggest that the amount of mandated information disclosed in the annual reports and accounts of these companies is inadequate for the information needs of users of annual reports and accounts in Zimbabwe. There were several instances where none of the sample companies disclosed the required information items. In another respect, the stringency of the disclosure regulatory regime of the stock exchange was empirically assessed with both a Paired sample t test and Wilcoxon signed-rank test. The results of these tests indicate that the disclosure regulatory regime of the stock market is less stringent. Although it has an elaborate monitoring and enforcement mechanisms, it failed to secure full compliance with its disclosure requirements in practice as there were several instances of non-compliance. To ascertain the nature and the strength of the relationship between the corporate attributes and mandatory disclosure, both correlation and multivariate regression analyses were undertaken. The results of the correlation analysis showed that only company age has a significant positive relationship with the extent of mandatory disclosure. In contrast, a robust regression analysis indicated that company size, ownership structure, company age, multinational corporation affiliation, and profitability are positively significantly associated with the extent of mandatory disclosure in Zimbabwe. Thus, of the eight corporate attributes, only company size, ownership structure, company age, multinational corporation affiliation, and profitability "best" explained mandatory disclosure behaviour of the sample companies. On the whole, the results of this study provide support to the general view and prior studies that disclosure practices of emerging equity stock market listed companies are inadequate due to weak monitoring and enforcement of disclosure requirements. It is recommended in this study that the disclosure regulatory regime should be made stringent to minimise non-compliance with requirements by increasing the number of annual reports and accounts of public listed companies that is reviewed annually under the existing monitoring and enforcement mechanisms. This will ensure that each listed company is subject to the review process, at least, once in every three years.