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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

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2011, Vol. 3, No. 1: E9

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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

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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

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2011, Vol. 3, No. 1: E9

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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