Resumen de Incentives for Non-Disclosure by Corporate Groups
Michael E. Bradbury, Graeme Dean, Frank Clarke
A regulatory approved deed of cross guarantee (the deed) was introduced into Australia in December 1991, relieving participating companies within a group from having to prepare, have audited, and file financial statements. We examine the characteristics of firms that obtain relief from filing (and therefore disclosing) separate financial statements of closed-group companies by adopting the deed. This is the first attempt to analyse adoption using large-scale archival data. The results support the survey evidence in Dean and Clarke (2005), thus providing triangulation on their work. In particular they support the view that the decision to adopt the deed is a function of strategic factors as well as accounting and auditing cost savings. Those strategic factors were not in focus when regulators first introduced a deed of indemnity in 1985, nor when the original indemnity was modified to become a deed of cross guarantee in 1991 or when it was further modified in 1998. Further, evidence is provided to test the conflicting ideas arising from the analytical literature and the mixed results in the empirical, voluntary disclosure literatures. That evidence suggests that non-disclosure arises when firms are in a more competitive industry and, in particular, when there is ability to retain non-disclosure at the consolidated level (i.e., where the number of segments is high). Other factors supporting non-disclosure are leverage and the proportion of foreign operations (proxying for deed complexity). The proportion of outside directors (a proxy for legal liability) and the number of shares outstanding (a proxy for agency costs of equity) are not associated with the decision to adopt the deed.
