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Asian Journal of Finance & Accounting
ISSN 1946-052X
2011, Vol. 3, No. 1: E9
www.macrothink.org/ajfa
138
Internet Financial Reporting in Malaysia:
The Preparers’ View
DR KIEW-HEONG YAP (Corresponding author)
Faculty of Business and Accountancy
University of Malaya, 50603 Kuala Lumpur
Tel: 60-1-6371-7660, 60-3-6250-1367 E-mail: ayapkh@gmail.com
DR ZAKIAH SALEH
Faculty of Business and Accountancy
University of Malaya, 50603 Kuala Lumpur
E-mail: szakiah@gmail.com
Received: November 8, 2011 Accepted: November 18, 2011 Published: December 1, 2011
doi:10.5296/ajfa.v3i1.1067 URL: http://dx.doi.org/10.5296/ajfa.v3i1.1067
Abstract
This paper reports the opinion and awareness of the Internet financial reporting (IFR) from
the preparers’ perspectives and examines the individual firm motives to engage the IFR. The
researchers interviewed ten senior managers using semi-structured and in-depth
questionnaires to seek their views and opinions on IFR issues. Among the three main
motivations to engage in IFR are: first, companies want to be more transparent in
disseminating company information. Second, the companies use the Internet to promote their
products and services to create a good brand name in the industry. Lastly, these companies are
a strong believer of good corporate governance best practices in promoting greater
transparency. 90% of the respondents claimed ownership structure influenced IFR, and 70%
of the respondents agreed industry members and firm size influenced such reporting practice.
As for corporate governance mechanisms, only 34% of the respondents agreed corporate
governance influenced IFR. This paper bridges the gap by interviewing preparers concerning
influences of corporate governance and ownership structures on IFR. Among the more
significant issues highlighted by the respondents are the security of the Web site, timeliness
of reporting and adoption of XBRL.
Keywords: Internet financial reporting, Preparers’ views
Asian Journal of Finance & Accounting
ISSN 1946-052X
2011, Vol. 3, No. 1: E9
www.macrothink.org/ajfa
139
1. Introduction
Internet is becoming a popular mean of communication with all stakeholders. Many
corporations in developed and developing economies have a dedicated Web site to
communicate financial information with the investors. This reporting practice is called
Internet financial reporting (IFR). IFR can be defined as ‘the public reporting of operating
and financial data by a business enterprise by the World Wide Web or related Internet-based
communications medium” (Lymer et al., 1999, p.2). Internet reporting activities are largely
driven by preparers who use it to market their products or services. Reporting companies may
be motivated by the benefits of communicating information by the Internet. These benefits
included: providing companies for global marketing, decreasing the distribution cost of hard
copy financial statements, communicating information cheaper, wider and faster; and
facilitating interaction with stakeholders (Xiao et al., 2002).
There have been much empirical work carried out for IFR by the practitioners and
academicians from the developed economies, however, only limited studies have offered
some reasons about the relationship between the opinion, motivation and influences of IFR,
especially for Malaysia. Past Malaysian studies were mainly descriptive in nature (Nik Salleh
and Mohamad, 2000; Jamaliah et al., 2001; Mohamad et al., 2003), and examined few factors
that influenced the IFR (Hassan et al., 1999; Ismail and Tayib, 2000; Gan and Susela, 2002;
Abdul Hamid et al., 2004). The study on the perception of preparers was solicited by mailed
questionnaire (Hassan et al., 1999; Ali Khan and Ismail, 2009). This paper argues further
research could try other approaches, such as in-depth interviewing with the preparers.
According to Saunders et al. (2009), semi-structured and in-depth interviews provide an
opportunity to the researchers to ‘probe’ answers, where he/she wants an explanation from
interviews to build on their responses. Interviewees may use ideas or words in a specific way,
and probing of these meanings will add depth and significance to the data collected. They
may also lead the discussion into areas that are important for understanding and had not been
previously considered by the researchers. Therefore, this study tries to bridge the gap by
interviewing ten senior managers to seek their views and opinions on influences of corporate
governance and ownership structures on IFR. This paper reports the opinion and awareness of
the IFR from the preparers’ perspectives and examines the individual firm motives. Views on
the influences of corporate governance mechanisms and ownership structures are sought and
the disclosure theories are used in the data interpretation process. IFR issues highlighted by
the respondents are presented.
The remainder of this paper is organised as follows. Section 2 reviews the prior interviews
studies of IFR. Section 3 outlines the research method. Section 4 discusses the result of the
in-depth semi-structure interview with the respondents. This section is divided into 3
sub-sections – Section 4.1 presents the opinion and awareness of the managers; and Section
4.2 discusses the individual firm motives. The interview data obtained from each respondent
are analysed to find out the themes and summarised into tables. Views on the influences of
corporate governance mechanisms and ownership structures are presented in Section 4.3. The
disclosure theories are used in the data interpretation process (Section 4.4). Lastly, IFR issues
highlighted by the respondents are discussed in Section 4.5. Finally, the results are concluded
Asian Journal of Finance & Accounting
ISSN 1946-052X
2011, Vol. 3, No. 1: E9
www.macrothink.org/ajfa
140
in Section 5.
2. Literature Review
2.1 Interviews
Studies on the views of interested parties on IFR started since 1999. The Internet has been
described as “a new platform for distributing financial information” (Hassan et al., 1999, p.1).
It is a platform that shows distinctive and attractive features, which makes it an effective
choice when compared with the traditional platform. Hassan et al. (1999) studied the opinions
of Malaysian chief financial officers (CFO) on the usefulness, benefits and costs of the
Internet disclosure and reporting of financial information. They used a mailed questionnaire
to seek the opinions of the controllers, which achieved a response rate of 35.04%. The
findings suggest the benefits, to both the companies and the users of financial information,
are perceived to be greater than the costs of adopting the Internet as another medium of
communicating and disclosing corporate financial information.
Increasingly, companies are using the Internet to present financial information. However, there
is little published literature on the extent of this new medium that is shaping the future of
corporate reporting practices (Xiao et al., 2002). To widen the participation in the debate, they
propose the non-technological and technological factors will decide the future of IFR; there is a
range of different views in other areas obtained from 17 U.K. experts including regulators,
auditors, academics, reporting companies and users of corporate reports. Some opinions are
non-technologically driven such as resistance to changes in technology, regulators are slow to
react and users are not interested in reading financial reports, whereas, others pay more
attention to technology factors. Some experts adopt a more progressive or even radical
perspective, while others do not foresee any financial reporting changes within the short period
of time. The experts did not address some important issues such as the relative importance of
the identified contingency factors that will affect the changes related to Internet; the state of
these factors will take effect, and the integration impact of Internet with data processing
systems.
A study by Beattie and Pratt (2003) reports the findings of a U.K. study about the views of 500
individuals from preparers, various user groups and auditors on newly emerging practices and
specific change proposals. They found users like the scope expanded by the Web. All groups
found the range of navigation aids; search aids and file formats were least useful. File format
preferences vary across the groups. Paired group comparison shows the views of the preparers
and users differ substantially, while expert and non-expert users hold the same views on many
issues. Generally, auditors’ views fall between the views of preparers and users. This study has
three specific limitations. First, the extent to which members of ProShare and UKSA
representing the private shareholders population is unknown. Second, it is unclear how or why
industry membership might influence the views of financial company finance directors,
because these views were not sampled. Third, this study considered the U.K. settings and
participants only.
Asian Journal of Finance & Accounting
ISSN 1946-052X
2011, Vol. 3, No. 1: E9
www.macrothink.org/ajfa
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Jones and Xiao (2004) report the results of a Delphi study into corporate financial reporting by
2010, in which 20 U.K. experts in accounting and the Internet, representing regulators, auditors,
academics, reporting companies and users, took part in the study. They conclude the financial
reporting package would change into “a core of general-purpose, standardised information (in
both the hard copy and Internet version) with a non-core general purpose and customised
information” (Jones and Xiao, 2004, p.1). Prior studies suggested radical changes such as raw
data disclosure and real-time reporting would not occur, at least to the core package.
Regulators will adopt a minimalist approach while auditors will be cautious and reactive.
Standardisation and customisation will be the fundamental dilemma of Internet financial
reporting in the future.
Most recent study by Ali Khan and Ismail (2009) examined the factors that influence
Malaysian companies to engage in IFR. This paper sought the opinions of preparers of
financial information by a mailed questionnaire. The findings suggest three factors that firms
perceive as important: (1) enhance corporate image, (2) company teller with the technology
development, and (3) competitors in the industry. However, ‘the need to keep information
updated’, ‘required expertise from the company’ and ‘concern over security of information’
are the three main factors that inhibit companies from adopting IFR the most. The researchers
suggest further studies could try other approaches, such as interviewing companies and
preparers to gain an in-depth understanding about the factors influencing Malaysian
companies to engage in IFR.
2.2 Determinants of IFR
Many researchers conducted empirical studies to identify factors associated with IFR,
firm-specific determinants include industry type, firm size and profitability (Debreceny et al.,
2002; Ettredge et al., 2002; Marston and Polei, 2004; Debreceny and Rahman, 2005; Bonson
and Escobar, 2006). It can be concluded certain specific firm characteristics such as firm size
appear to be statistically associated with the extent of IFR.
Xiao et al. (2004) argue IFR is responsive to specific environment attributes. This study
found state share ownership is negatively related to IFR, legal person ownership is positively
associated with IFR. The negative relationship proves the state owners have privileged access
to private information, whereas the legal person shareholders have motivation to oversee
company management. The authors argue important determinants of disclosure choice in the
developed economies may not apply to Chinese environment.
Abdelsalam et at. (2007) found analyst following, director ownership, director independence
and CEO duality is related to IFR. However, the results of the random sample of 110 top
quartile listed companies may not generalise to smaller listed companies on the exchange.
More recent IFR study link IFR to corporate governance mechanisms. The findings by Kelton
and Yang (2008) show U.S. firms with weak shareholder rights, a low percentage of block
holder ownership, a higher percentage of independent directors, a more diligent audit
committee and a higher percentage of audit committee members with financial expertise are
more likely to have IFR. The findings may not generalise to listed companies from other
Asian Journal of Finance & Accounting
ISSN 1946-052X
2011, Vol. 3, No. 1: E9
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142
stock exchanges. Future study may examine other characteristics such as reporting frequency
and information quality.
Prior interview studies mainly focused on issues related to IFR; whereas determinant studies
examined the relationships between various factors to its influence on IFR. This paper tries to
link the IFR practices to its determinants by examining from the preparers’ views about the
influences of corporate governance mechanisms and ownership structures on IFR. This study
uses the disclosure theories to interpret the results, because it improves our understanding on
IFR practices.
3. Research Method
Many researchers put much effort examining the initial financial disclosure, and studying the
managements’ decisions in voluntarily non-obligatory disclosure. However, there are limited
empirical findings available about what drives the companies to incur extra distribution costs
related to Internet reporting. Currently, limited empirical evidence about Internet disclosure is
available in the Malaysian accounting literature; however, the Internet’s potential role for
communicating company information has been debated more in advanced countries such as
the U.K. and U.S. This study extends prior studies by interviewing the preparers of Malaysian
listed companies about their views and opinions, specifically on the influences of corporate
governance and ownership structures on IFR practices.
The interview questions are divided in two categories: the first category included five
open-ended questions dealing with opinion, needed financial information, reporting format
and other issues about IFR. The questions began with a short paragraph providing a definition
of Internet reporting. The second category included eight theme-guided questions dealing
with Internet regulation, influences of IFR from various parties or sources such as industry
members, firm’s size, financial performance (profitability), beta (systematic risk), auditor
type, ownership structure and board governance structures. It was also made clear these
questions are only related to the IFR of the sample companies.
The researchers' pilot tested the questionnaire using four individuals (two audit partners; one
regulator and one academician) and changed the content accordingly. The researchers
emailed the questionnaires to the investor relations department of the sample companies, with
an explanatory letter giving the background to the study and an assurance of confidentiality
of responses. The first mailing to all sample companies took place in May 2009.
3.1 Sampling
Sampling is important; as the researchers cannot possibly study everything everyone is doing
everywhere. In qualitative research, Punch (2005) admits there are no summarised sampling
strategies because of a great variety of purposes, approaches and settings for research.
Huberman and Miles (2002) mentioned qualitative researchers usually studied small samples
size, which are examined in depth and nested in their context, in contrast to quantitative
researchers who aim for larger context numbers such as seeking statistical significance and
stripped cases. Punch (2005) argues the basic ideas of specific sampling strategies change is
to reflect the study’s purposes and questions. He stresses the direction should be coherent and
Asian Journal of Finance & Accounting
ISSN 1946-052X
2011, Vol. 3, No. 1: E9
www.macrothink.org/ajfa
143
consistent with the study logic.
Purposive sampling is employed in this study to select the companies to be sampled. The
sampling is confined to listed companies that disseminate information on their company web
page. Selection of rich case information for an in-depth study influences the logic and power
of purposive sampling (Patton, 2002). Information rich refers to those cases where the
researchers can learn many centrally important issues for the research objective.
This study used two of the strategies under purposefully selecting information-rich cases
(Patton, 2002) in deciding on the sample. First, is the intensity of sampling. This sampling
strategy consists of information – rich cases that show the interested phenomenon intensely
but not extremely (Patton, 2002). To discover the variation type under the investigated
situation, exploratory work needs to be done under this sampling strategy.
Companies chosen to be the sample in this part of the study are the listed companies that
report a significant amount of information on their company web page. This coincides with
the strategy suggested above. As the purpose of the study is to identify what motivates the
firms to engage in IFR, it seems proper to study only companies that are practising it.
Reviewing their company homepage assesses this practice. To meet the intensity criteria
stated by Patton (2002), this study finds the potential sampling through the list of companies
that ranked the highest score under the corporate governance survey 2008, by their
compliance with the corporate disclosure and governance. One of the key areas covered is
shareholders and investor relations, which emphasised improving the accessibility and
transparency of financial disclosures to investors.
The second strategy adopted is to use the maximum variation sampling (Patton, 2002). This
aims at describing and capturing the main principles, outcomes or themes that affect most
variation in participants (Patton, 2002). The objective in this study is to explain IFR
phenomenon in Malaysia without any limit on the industry type. In the prior studies, the
industry type is considered to be significant in influencing IFR. This study tries to see the
various responses across the various industries for Malaysia.
3.2 Data Collection
The researchers used search engines, e.g. Yahoo and Google to find Web pages of the Top
120 sample companies that ranked the highest score under the corporate governance survey
2008, of which only 17 companies included the investor relations contact on the Internet.
Reviews of the potential respondents were conducted prior to select the particular
respondents. Then, the researchers made a telephone call to arrange an appointment with
these investor relations’ personnel. They confirmed the appointment after a few follow up
calls; finally, the researchers interviewed senior managers from ten companies. Appendix 2
lists the details of the companies and the persons interviewed. In addition, company
backgrounds by their Internet reporting were investigated. The information served to confirm
the reliability of the interview responses and allowed more direct and detailed probing in the
interviews.
The researchers used a standardised set of questions to interview the respondents. These
Asian Journal of Finance & Accounting
ISSN 1946-052X
2011, Vol. 3, No. 1: E9
questions served in extracting the required information from them. The purpose of using
open-ended questions is to invite participation from the respondents during the conversation
(Cooper and Schindler, 2006; Saunders et al., 2009). Since, all the respondents are
high-ranking personnel with a busy schedule, time management is important. Only
respondents who were seen to be more receptive were probed to get more in-depth responses.
If time permitted respondents were asked concerning the aspects of the emerging theory.
Every respondent was asked the same questions. Some respondents were asked further
questions to gain more information. Appendix 1 sets out the list of questions asked during the
interview sessions.
The researchers emailed a letter with a set of questionnaires with a standard definition of
Internet reporting to the interviewees. During the interview, the researchers briefly explained
the definition and the concept of Internet reporting to all the respondents, as some of them did
not read the letter emailed to them earlier thoroughly. The main purpose of the interview was
to identify what motivates them to disclose financial information by the Internet. The
researchers began by asking the respondent’s opinion before going to the main questions.
Then, by asking a question that is broad in nature, the researchers can identify their real
motivation. The main objective is to gain the information about their opinion and experience,
followed by more specific questions.
English was the main language used during the interview. The researchers taped the
