Voluntary Disclosure Concept of voluntary Disclosure

The law requires all companies to disclose their financial information, together with additional information either in annual, half-yearly and quarterly financial reports. In this case, the description that best fits such law a requirement is a typical example of mandatory disclosure of information. Apart from the mandatory disclosure of information, the annual report contains the voluntary disclosure of information. Notably, there are other opportunities that can be used for voluntary disclosure including conference calls, press releases, websites, and other corporate reports (Sharma, 2013). There are several definitions on voluntary disclosure, but this paper borrows a definition postulated by a FASB committee, which defined voluntary disclosure as, disclosures, mainly outside financial statements, which are not explicitly required by GAAP or an SEC rule.

Notably, in practice, the difference amid mandatory disclosure and voluntary disclosure is not crystal. For instance, it is possible for companies to be under obligation by law to disclose information concerning environmental issues, but such information required for disclosure may not be defined. Owing to the definition provided by FASB, such disclosure requires a voluntary drive because the information that requires disclosure does not have a detailed description. It is possible to argue that there is an obligation to disclosing the information, which suggests that disclosing is a mandatory practice. In addition, information disclosure qualifies as information publicity, and the motive is to publicize information on securities in respect to the method of providing stocks, listing on the market as well as trading (Tian and Chen, 2009).

When companies issues security publicly to execute the information disclosure system, they act in line with the requirements of modern securities in the market. The disclosure system covers the whole process of securities' issue and circulation. Notably, prior to the issue of stocks, the firms publicize stock-issuing introductions, listing announcements, interim reports, annual reports, and grave affair reports, which primarily include the firm's operations and financial statements. Currently, voluntary disclosure is dominating in the securities market, primarily due to the interests, participator's trading activities that made the securities identify a balance where disclosure of information completely and effective allocation of resources. Most importantly, the compulsory disclosure of information suggests that relevant laws and rules, clearly regulate the listed firms must actualize information disclosure.

In the case of voluntary disclosure, companies disclose the information voluntarily as a way to protect the company's images, investors and avoid risks concerning accusation. The aim of voluntary disclosure is to introduce and elaborate the companies' capabilities to the investors, drive the fluidity of capital market, decrease capital costs and guarantee effective allocation of capital. Nevertheless, the development of the information disclosure system suggests, voluntary disclosure of information emerges after compulsory disclosure of information. In this context, voluntary disclosure appears to be an extension and complement of the mandatory information disclosure. Historically, the two appeared to have different concepts; however relevant laws and regulations, comment that it is possible to transform the two mutually.

Nevertheless, in different economic, political, legal, and social settings, different states may face varied conditions in relation to voluntary disclosure mainly because of the different relevant laws. Notably, compulsory disclosure can influence the voluntary disclosure, although it cannot stop the disclosure of invalid information (Sharma, 2013), it can restrain the voluntary disclosure. Owing to this, it is possible for companies to adopt a partial disclosure strategy, which will give them a privilege to disclose positive or negative news, at their convenience. Compulsory disclosure and relevant market laws can influence voluntary disclosure in the following ways; firstly, reduce listed companies' voluntary disclosure. This means that if companies' should disclose additional information the voluntary disclosure will increase the costs incurred by the company, owing to processing of information, accusation risks, and loss of competitive advantage.

Secondly, poor quality of compulsory disclosure and inadequate market laws, company managers may adopt voluntary disclosure to send signals to the market, hoping to get positive feedback, which makes them disclose more information voluntarily. In addition, some scholars have studied the credibility of voluntary disclosures; the results suggest that along with progress on the quality of information in compulsory disclosure the quality of information on voluntary disclosure will also improve. In addition, if the period is long, punishment is effective, and the quality of information in compulsory disclosure can work well to evaluate the standards for the voluntary disclosure, which will make the company's manager to provide valid information voluntarily (Tian and Chen, 2009).

Theoretical Framework

There are literatures conducted on corporate social responsibility. Some literatures report...

The main problem in the studies is the conceptualization of the main issues because there is no consensus on the case of methodology and results, when compared. Therefore, it is not apparent whether it is feasible to use similar models for financial disclosure and social disclosure. Nevertheless, the nature of the relationships between social disclosures, economic and social performance require deep studies taking into consideration strategies of different companies, focusing on how the companies deal with demands of their stakeholders. Studies on social disclosure, which utilize economic theory, have been in the periphery of accounting theory. There are political studies applied legitimacy theory and stakeholder theory; however, in most cases legitimacy theory is predominantly used, when compared to stakeholder theory. In addition, the concept of theories in voluntary disclosure research is central to authors of substantial literatures (Orij, 2007).
Stakeholder Theory

There have been considerable debates concerning accountability of a given firm. The issue is whether a company's liability should include parties in comparison to shareholders. Some of the theories, based on the primacy of interest of shareholders, ignore the non-shareholder parties with a stake in the events of a company. If the managers can maintain a good relationship with their stakeholders by improving the quality of disclosures to stakeholders, this will work well in generating a valuable status. Stakeholders refer to individuals, or group of people who can affect, or feel the effect of the company's objectives. They include shareholders, employees, customers, suppliers, competitors, lenders, communities, government, and various groups, such as environmentalists, media and consumer advocates (Oliveira, Rodrigues and Craig, 2013).

Stakeholder theory is a system oriented theory because a company is part of a society, but represents the broader social system. The company operates within this society, and it operates to achieve a positive accountability to the stakeholders for its strategic view. The stakeholder theory has an ethical approach, which aims to prompt managers in order to recognize the legitimacy of different stakeholder interest. It also has a managerial branch, which stresses the need to manage the stakeholders. This means that the more crucial stakeholder resources are to the continued growth of a company, the greater the expectation that the company will address the stakeholder's demands. Most importantly, the relationships between companies and their stakeholders are very vital because stakeholders are sources of wealth.

One way that companies strengthen the stakeholder relationship is by disclosing their company information voluntarily. Furthermore, sound stakeholder relationship is valuable, as it will assist the company to survive and prosper. On the other hand, intangibles and intellectual capital are valuable because they help the company achieve a competitive advantage. However, it is difficult to measure, categorize, and define the two aspects in financial statements. Owing to this, scholars suggest that disclosure should extend beyond the short-term financial measures in order to include non-financial measurements. From the stakeholder point-of-view, a corporate disclosure helps in building the relationship between the company and stakeholders. This is because it is a strategy, which can help in managing or manipulating the demands of the diverse stakeholders (Oliveira, Rodrigues and Craig, 2013).

Nevertheless, many companies who have developed corporate reporting are central to a stakeholder perspective. These include intellectual capital reporting, triple bottom line form of reporting, social and environmental reporting, sustainability reporting, and integrated reporting, which combines the report on financial, intellectual capital and sustainability issues. However, there are some corporations, which have advocated guidelines that have advocated for voluntary disclosure of financial and non-financial information (Sharma, 2013), regarding intangibles and capital. In this context, it is likely that companies expect good stakeholder relations to be sound in an attempt to develop its reputation by differentiating it from its competitors. Nevertheless, these valuable intangible resources have the capacity to reinforce and strengthen relations with all the stakeholders.

Legitimacy Theory

Although there are several theories, which try to elucidate CSR disclosure practices, prior studies suggest that literatures on CSR mainly rely on legitimacy theory. Therefore, the theory is the most used in explaining corporate disclosures. In support of this, some scholars suggest that legitimacy theory has an advantage over other theories because it provides some disclosing strategies, which companies adopt to legitimate their existence. The theory emerges from the concept of organizational legitimacy. In addition, the theory postulates the companies will continually seek to ensure that they function within the boundaries of their respective societies (Bagnoli and Watts, 2005). Furthermore, companies would voluntarily report on activities if the firm perceives the…