in voluntary disclosure (from a financial statement user’s perspective), and more
stringent disclosure rules, monitoring, and enforcement. Use of the Internet has be-
come an integral part of many companies’ disclosure strategy, and many of these dis-
closures are strictly voluntary in nature. Companies’ growing interest in eXtensible
Business Reporting Language (XBRL), and the strong endorsement of XBRL by the
International Accounting Standards Board and other international organizations, sug-
gest that financial reporting is on the verge of revolutionary change. Corporate man-
agers are moving toward the view that increased voluntary disclosure increases
shareholder value.
This chapter has two main purposes. First, it briefly lays out a framework for
thinking about disclosure. This framework links regulators’ goals of investor protec-
tion (of which disclosure is a key element) and market quality. Recent empirical ev-
idence is discussed which supports the view that disclosure is positively associated
with market liquidity in global equity markets. Second, the chapter discusses selected
corporate disclosure practices and regulations, and analyzes what that evidence im-
plies for financial statement users and corporate managers.
To illustrate the similarities and differences in corporate disclosure worldwide, we
present results from an analysis of disclosures made by six automobile manufactur-
ers: Fiat S.p.A. (Italy), Ford Motor Company (United States), Hyundai Motor Co.
(South Korea), Jaingling Motor Corporation (China), Toyota Motor Corporation
(Japan), and Volkswagen AG (Germany). These companies vary greatly in terms of
characteristics expected to influence their disclosure. They represent both developed
(United States, Italy, Japan, and Germany) and emerging (China and South Korea)
economies, range from very large to moderate size, and cover the range from global
to more local production and capital market activities. The evidence is anecdotal, but
highly representative of what is found in practice.
13.2 SUMMARY OF MAIN RESULTS. The evidence and discussion presented in this
chapter suggest the following:
- Capital markets drive corporate disclosure practices. To know what to expect a
company to disclose and to understand managers’ disclosure incentives, one
must be familiar with the (global) capital markets in which the company oper-
ates, its ownership structure, and the corporate finance and governance charac-
teristics of its home market. - Empirical evidence supports regulators’ and managers’ assumptions that in-
creased disclosure improves market liquidity. - Global norms for many types of mandated corporate disclosure now exist. For
example, disclosure about cash flows and industry and geographic segments is
now almost universal among large public companies. Similarly, securities regu-
lators and stock exchanges increasingly are adopting international benchmarks
for non-financial disclosures made in connection with the public offering of se-
curities. - However, vast differences in mandatory disclosure for listed companies remain
(depending on the capital markets in which they operate). For example, U.S. fi-
nancial statement users should not expect all “world-class” non-U.S. companies
to disclose “sensitive” information, such as details about directors and corporate
officers’ compensation, share ownership, and related party transactions. Such
13.2 SUMMARY OF MAIN RESULTS 13 • 3