Chapter 45 An Investigation of Greek Firms' Compliance to IFRS Mandatory Disclosure Requirements

Apostolos Ballas

Athens University of Economics and Business, Greece

Nicos Sykianakis

Technological Education Institute of Piraeus, Greece

Christos Tzovas

Athens University of Economics and Business, Greece

Constantinos Vassilakopoulos

Athens University of Economics and Business, Greece

ABSTRACT

The paper investigates the compliance with IFRS disclosure requirements and ultimately the quality of financial statements.

DOI: 10.4018∕978-1-4666-6268-1.ch045

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1. INTRODUCTION

This paper investigates the extent of Greek com­panies’ compliance to disclosure requirements laid out in International Financial Reporting Standards (IFRS) as well as some of the factors that may explain compliance. The disclosures included in the published financial statements of a sample of 58 Greek firms have been examined. In order to enhance the robustness of the findings of this study the compliance rate has been calculated by employing two approaches proposed in the literature, i.e. the “dichotomous approach” and the “partial compliance unweigheted method.”

Most ofthe studies concerning disclosure qual­ity concentrate on voluntary disclosure and cover the period before 2005 when the application of IFRS was not mandatory. From January 1^st 2005 onwards the listed companies in all EU countries have had to prepare their financial statements in accordance with IFRS. That development changed structurally the accounting environment of most EU countries, including Greece. This study focuses on mandatory disclosure and covers the period after 2005 when the application of IFRS is mandatory. Furthermore, within this study we examine the disclosure compliance with the most important disclosure items of all IFRS, while many studies have examined the disclosure compliance with specific IFRS. As a result the total number of in­formation items that were examined in this study is significantly higher comparing to disclosure items examined in previous studies. The Greek business environment possesses certain characteristics that provide the researcher the opportunity to investigate the factors that influence disclosure compliance within a context which is quite different from that prevailing in many developed countries. In Greece, as in many European countries (e.g. France, Italy), the ownership structure ofthe majority of the firms is characterized by a high level of concentration (Nobes & Parker, 2000), while the main provid­ers of funds for Greek companies are the banks.

The findings of statistical analysis suggest that ownership structure and the type of the external auditor applied are significant factors explaining compliance. Leverage, size and prof­itability appear to have less explanatory power. Furthermore, we found that the two methods for measuring disclosure compliance do not produce significantly results.

The rest of this paper proceeds as follows. In Section 2 we develop the hypotheses to be tested while in section 3 the sample and the research de­sign followed in this article are described. Section

4 reports the results of the empirical investigation undertaken for the purposes of this study.

5 summarizes and concludes the paper.

2. HYPOTHESIS DEVELOPMENT

This paper adopts agency theory as a conceptual framework to examine the compliance of Greek listed firms with IFRS disclosure requirements. The information asymmetry between agents and principals is the fundamental issue upon which agency theory is developed (Jensen and Meckling, 1976). Information asymmetry emerges when the principal has a limited ability to oversee agent’s actions and performance (Setyadi et al., 2011). Within this context, firms’ managers (agents), due to their ability to conceal possible performance deficiencies from firms’ owners (principals), are likely to behave opportunistically by decreasing their performance and evading responsibilities. This conflict of interest between principal and agent gives rise to agency costs. When, owners and creditors cannot observe managers actions directly, they have a motive to impose costly monitoring systems that oversee managers’ actions. The sig­nificance of agency costs is associated with certain firms’ characteristics. The characteristics of the firm that are examined in this study relate to the financial performance of the firms and certain aspects of their corporate governance structures.

2.1. Leverage and Disclosure Compliance

According to agency theory, the creditors of highly leveraged firms have strong incentives to prompt management to disclose more information (Amran et al., 2009). More leveraged firms tend to be more speculative and riskier while the debt-holders have greater power over the financial structure of such firms (Oliveira et al., 2011). On the other hand, it has been argued that creditors can obtain the information they need by sources other than annual reports (Leuz et al., 2004). Importantly, in Greece as in other European countries (e.g. France, Germany), bank credit plays a dominant role in the financing of business enterprises. Banks developed a close relationship with many companies, while in certain cases they own part of the firm’s share capital.

H1: The rate of disclosure compliance is positively associated with the firm’s leverage

2.2. Ownership Status and Disclosure Compliance

Ownership structure has been hypothesized to be associated with the disclosure compliance of a firm (Soderstrom & Sun, 2007); for those firms in which ownership is concentrated in the hands of a relatively small number of shareholders who actively control the firm’s management, manag­ers can communicate any important information directly to shareholders without having to use published financial statements (Klassen, 1997). As a result lower disclosure compliance is expected for closely held firms. According to Birt et al. (2006) in more concentrated ownership structures there is less need for corporate disclosures since the major shareholders can actively monitor and control firms’ management. On the other hand, B arako et al. (2006) argue that in the more diffused ownership structures small shareholders may face difficulties in monitoring firms’ management. Within this context higher level of disclosure can be expected from widely-held firms. As mentioned above the ownership structure of most Greek firms is highly concentrated, particularly in the form of family ownership. In most cases, the owners are actively involved in their companies’ administration by occupying important posts within the organizational structure of their firms (Sykianakis, 2004; Tzovas, 2006). Managers can communicate information regarding firm’s performance directly to their superior owner­managers without having to rely upon financial statements. Under these circumstances, there are no strong incentives for firms to provide high quality financial disclosures.

It should be pointed out that when the owner­ship is so concentrated that a single shareholder effectively controls the company the agency problem may shift away from the manager vs. owner problem, to minority shareholders vs. controlling shareholders problem (Setyadi et al., 2011). When large shareholders control firms they pursue policies that aim to increase their benefits at the expense of minority shareholders (Shleifer & Vishny, 1997). Jensen and Meckling (1976) argue that convergence of interest can occur between outside investors and large shareholders when outside investors believe that large shareholders aim to maximize firm value. In this case outside investors will impose fewer contractual constraints in the firm. Within this context the agency costs will be low and the larger shareholders will not have strong incentives to manipulate and/or withhold information. On the contrary they will have incentives to maintain level of disclosure consistent with the maximisation of the value of the firm. As a consequence, the association between owners’ holdings and disclosure will be positive (Oliveira et al., 2011). Given the opposing arguments that have been developed concerning the impact that ownership structure may have upon disclosure compliance we do not predict a particular sign regarding the association between the two variables and we test the hypothesis:

H2: The rate of disclosure compliance is associ­ated with the firm’s ownership structure.

2.3. Corporate Size and Disclosure

According to Cooke (1989) the size of a firm is a variable that can explain, to a considerable extent, the quality of firm’s disclosures. Larger firms are expected to possess the resources that are necessary for the preparation of an event such as the introduction of IFRS (Jones & Higgins, 2006). Furthermore, the financial statements of larger firms are more likely to be thoroughly examined and analysed by financial analysts and shareholders. As a result, considerable pressure is exercised to larger firms to improve the quality of their disclosure (Hossain & Adams, 1995). Within this context we test the hypothesis:

H3: The rate of disclosure compliance is higher for larger firms

2.4. Profitability and Disclosure

The compliance of a firm to the disclosure re­quirements prescribed by particular accounting standards is affected by the profitability of the firm (Palmer, 2008). When the introduction of a new or a revised accounting standard is expected to adversely affect firms’ income, companies are more concerned about issues relating to the implementation of the new standard and the way they will communicate to their shareholders their continuing underlying profitability (Jones & Higgins, 2006). According to agency theory the managers of profitable firms will disclose financial information to the external users of accounts in order to advance their interests. They will disclose detailed information in order to continue in their positions and their compensation arrangements. On the basis of the political costs theory, it can be argued that the firms with large political vis­ibility will have an incentive to disclose more information in order to justify the level of their profits (Inchausti, 1997). Within this context, it is expected that the more profitable firms will have higher compliance rates than the less profitable firms (Inchausti, 1997; Palmer, 2008). We test the hypothesis that:

H4: The rate of disclosure compliance is positively associated with the firm’s profitability.

2.5. Auditor Type

The level of compliance with disclosure require­ments is associated with the type of external auditors appointed (Street & Gray, 2001; Glaum & Street, 2003; Ali et al., 2004; Setyadi et al., 2011). In particular, it is argued that there is a positive association between the engagement of Big-4 international auditing firms and the level of a firm’s disclosure compliance. The choice of external auditor is a mechanism that aims to minimize agency costs. The companies audited by the major auditing firms have significant agency costs and they attempt to reduce these costs by employing the major auditing firms (Setyadi et al., 2011). Tsalavoutas and Evans (2010) found that only companies with non Big-4 auditors faced significant impact on net profit and liquidity on transition to IFRS. Chalmers and Godfrey (2004) argue that, in order to maintain their reputation and to avoid reputational costs, the larger and well-known auditing firms are more likely to demand higher levels of disclosure. Furthermore, the major international auditing firms have greater knowledge about IAS (Lopes & Rodrigues, 2007). In fact, Tsalavoutas and Evans (2010) found that the Greek firms that had experienced a smooth transition to IFRS, were the firms that were audited by Big-4 international auditing firms.

H5: The disclosure compliance is predicted to be higher in companies audited by the Big-4 auditing firms.

3. RESEARCH DESIGN

3.1. Sample Selection

The financial statements of a sample of Greek listed non-finance firms for the financial years 2006 and 2008 were examined. The year 2006 was the second year of compulsory application of IFRS for Greek firms. In order to smooth the progress of adoption of IFRS by Greek firms, in the first year of IFRS application (i.e. 2005), a number of exceptions were (unofficially) granted to firms with respect to the disclosures that they should include in their financial statements. These exceptions were over and above the exceptions allowed by IFRS1 for the first time adoption of IFRS. Therefore, if the present analysis was based on the 2005 financial statements, its results may not be indicative of the actual compliance of Greek firms. From 2009 onwards IFRS were subject of continuous revisions, while a number of revisions that had been decided in earlier periods became effective gradually after 2009. Thus, we decided to restrict our analysis in the financial statements of the periods 2006 and 2008.

3.2. Data Source

The disclosures included in published financial statements of sample of 58 Greek firms have been examined. The sample does not include firms from the financial sector. The firms included in the sample of listed firms were chosen in order to be representative of the (other) main sectors of the Greek Economy. The focus of this paper is compliance with the disclosure requirements of all IFRS; this would require testing whether a firm complies with more than 1,500items, which are not necessarily applicable in all sectors. Furthermore, checking the compliance of a company with all such requirements would be open to substantial bias because the authors could not be certain whether a disclosure requirement was pertinent to the specific company. On the other hand, there is a question regarding which are the most important disclosures. For this reason, this study uses the disclosures included in the proposal (as it then was) for a Standard for Small and Medium Sized Entities. This document supposedly focuses on the most important disclosure items. The total number of information items that were examined in this study is 436, which is significantly higher comparing to disclosure items examined in previ­ous studies. For instance, Glaum and Street (2003) used an IAS disclosure checklist containing 153 items and a US GAAP one contained 144 items. Hodgdon et al. (2008) employed a disclosure list made up from 209 disclosure items and Setyadi et al. (2011) used a 29 item index.

3.3. Measurement of the Variables

3.3.1. Dependent Variable

For each category of disclosure it has determined which elements should be disclosed. Subsequently it has been examined whether the sample firms made the appropriate disclosures in their an­nual report. An issue with scoring disclosures in financial statements is whether or not an undis­closed information item is applicable to a sample firm. Several measures have been proposed in literature for dealing with this problem. Cooke (1989) proposed annual reports to be thoroughly examined before they were scored in order to determine whether the undisclosed information items were indeed inapplicable to the companies. Furthermore, the applicability of some items was determined by logical reasoning (Owusu-Ansah, 2000). For instance, it is sensible to expect a firm to disclose its accounting policy for securities valuation, if it owns a portfolio of securities. Both measures were adopted in this study.

With respect to the measuring of disclosure compliance two approaches are proposed in the literature. The most common approach, known also as the “dichotomous approach,” adopts an unweigheted disclosure index (see Ali et al., 2004).The disclosure compliance of a company is depicted as the value a compliance ratio computed for each company. The compliance ratio is the ratio of what a company disclosed in its annual report to what it is obliged to disclose for each category of disclosure. For each item of disclosure there are three possibilities: the information item is disclosed in the annual reports (OK); the information item is not disclosed item in the annual reports because it is not applicable in the particular company (non applicable NA); the information item is not dis­closed item in the annual reports despite the fact it is applicable in the particular company and this company should disclose it (non-mentioned, NM). Thus, disclosure ratio under the dichotomous ap­proach has been calculated as follows:

where C_j = the total compliance score for each company and 0≤C_j≤1; T = is the total number of items disclosed () by company j; and M = the maximum number of applicable disclosure items for company j that could have been disclosed.

This approach gives equal weight to the specific items required to be disclosed by all standards. As a consequence, it gives greater weight to standards that require more items to be disclosed (Tsalavoutas et al., 2010). Although, this method has been employed in most studies examining disclosure compliance, it appears to have the se­rious limitation that does not treat each standard equally (Tsalavoutas et al., 2010). Given that some standards require a large number of items to be disclosed while others a few items, the standards that require more items to be disclosed are not treated equally with these standards that require few items to be disclosed (Al-Shiab, 2008).

An alternative approach proposed in the lit­erature is the “partial compliance unweigheted method” (see Street & Gray, 2001; Al-Shiab 2008). This approach is based on the assumption that each standard is of equal importance and gives equal weight to each standard (Tsalavoutas et al., 2010). Under this approach, the compliance rate of each entity is measured by adding the degree of each standard and the diving the total by the number of standards applicable to each company. Street and Gray (2001) found different significant associations under each method between disclo­sure compliance and a number of independent variables. Similarly, Tsalavoutas et al. (2010) found that the two methods produce significantly different results. They believe that the simultane­ous application of the two methods will provide more robust results. Within this study we adopted both measures of disclosure compliance.

Under the “partial compliance unweigheted method” the compliance with each standard is calculated separately. Then the sum of these com­pliance scores (X) is divided by the total number of applicable standards (R) for each sample firm

j. Thus the compliance score for each firm is calculated as follows:

where PC_j is the total compliance score for each company and 0≤PC_j≤1.

3.3.2. Independent Variables

In accordance with the hypotheses developed above, the present study uses five independent variables in order to explain the disclosure com­pliance of the sample firms: size, leverage, profit­ability, ownership structure and auditor type. Two metric variables were considered as measures of size. The first one is equity (EQUITY), which is depicted by the end of year total equity of the reporting firm. The second variable is assets (ASSETS) and it is measured by the logarithm of a firm’s total assets. Profitability is depicted by three metric measures of profitability; income, Return on Equity (ROE) and Return on Assets (ROA). Income (PROFITS) is measured by net income after tax at the end of the fiscal year for each firm. ROE is the ratio of total income after tax divided by the average of equity. It should be noted that in the case where equity is negative this variable is not defined. The last measure of profitability is ROA, which comprises the ratio of income divided by the average of assets. Leverage (LEV) is measured by the debt ratio of each firm in the sample. The debt ratio is calculated as the proportion of total debt to equity.

A dummy variable has been used in order to indicate the ownership status of the sample firms. The dummy variable takes the value 1 when the firm is characterised by concentrated ownership and 0 otherwise. In order to determine the owner­ship structure of a firm a combination of criteria has been employed based upon the proportion of share capital owned by major shareholders and the composition of the board of directors. In par­ticular, if three shareholders control 70% or more of firm’s share capital the firm is characterised as a closely-held firm, and three shareholders control 50% or more of firm’s share capital the firm is characterised as a closely-held firm, and one shareholder owns 20% or more than of share capital and no other shareholder owns more than 5% of share capital the firm is characterised by concentrated ownership. When none of the above criteria are met, the sample firm is characterised as a firm with diffused ownership. Finally, the remaining firms are categorised as closely held ones only if a firm meets at least one of the above criteria and one or more of the major shareholders participate in the board of directors.

A dummy variable has been used in order to indicate the type of the external auditor employed. The dummy variable takes the value 1 when the auditing firm is a Big-4 firm and 0 otherwise.

Table 1 presents the definitions of the inde­pendent variables.

3.4. Research Method

The statistical analysis has been conducted for both measures of disclosure compliance presented above on an individual year basis (i.e. year 2006 and year 2008) and for the pooled-sample as well. The univariate analysis aiming to examine the association between the compliance rate and each individual independent variable has been fol­lowed by a multivariate analysis. The multivariate analysis aims to identify the accumulated effect of the independent variables on the compliance ratio of the sample-firms. In particular, it has been examined the association between the disclosure compliance of the sample firms with the firms’ size, leverage, profitability, ownership status and the type of the external auditor employed.

For the purposes of the multivariate analysis the following model has been estimated for each of periods 2006 and 2008 and for the pooled sample as well.

where CR = compliance rate, other variables as defined in Table 1.

Table 1. Independent variables

*It should be noted that in the case where equity is negative the variable ROE is not defined

4. RESULTS

4.1. Descriptive Statistics

Descriptive statistics for the firms in the pooled sample for years 2006 and 2008 are provided in Table 2. The average compliance rate under the “dichotomous approach” is 75%, while under the “partial compliance unweighted method” the compliance rate is 71.2%. It should be noted that the average compliance rate under the “di­chotomous approach” for the year 2006 is 74.91%, while under the “partial compliance unweigheted method” the compliance rate is 70.9%. For 2008 the average compliance rate under the “dichoto­mous approach” is 75.55% and under “partial compliance unweighted method” the compliance rate is 71.57%. These results indicate that about a quarter of the required items are not disclosed by the firms in the sample on average.

The observed compliance rate raises some questions regarding audit quality and the en­forcement of regulations in Greece especially since the financial statements of the companies in our sample were not qualified for inadequate disclosure.

Previous research has indicated that two meth­ods for measuring disclosure compliance produce significantly different results (see Tsalavoutas et al., 2010). In our sample, the compliance rate under the “partial compliance unweighted method” is lower comparing to the compliance rate under the “dichotomous approach.” It has been examined the association between the results provided by the two methods. The results of the Spearman’s correlation test suggest that the results provided by the two methods employed for measuring dis­closure compliance are correlated. In particular, for 2006 the value of the Spearman’s correlation rho is 0.87 (significant at 5%), while for 2008 the value of the Spearman’s correlation rho t is 0.95 (significant at 5%). These results suggest that the two methods do not produce significantly different results. This finding is not in line with the findings of Tsalavoutas et al. (2010) who found that the two methods produce significantly different results.

Table 2. Descriptive statistics for pooled sample (2006-2008)

Compliance rate - Dichotomous approach (%): is measured by the total compliance score for each company divided by the total number of items disclosed.

Compliance rate - PC unweighted method (%): is measured by the sum of the compliance scores for each standard divided by the total number of applicable standards (R) for each sample firm.

Assets: is measured by the logarithm of the total assets of firm i in fiscal year t.

EQUITY: is measured by the end of year total equity of firm i in fiscal year t.

PROFITS: is measured by net income after tax at the end of the fiscal year t for firm i.

ROE: Return on equity of company i for fiscal year t. It should be noted that that in the case where equity is negative the variable ROE is not defined.

ROA: is measured by the net income of firm i divided by the average of assets for firm i at period t and period t-1.

Leverage: Debt ratio of firm i in fiscal year t.

Under both measures of disclosure compliance the disclosure compliance of the sample firms for year 2006 does not differ significantly from the disclosure compliance for year 2008 (Table 3). The lack of improvement in the disclosure compliance suggests that the experience those Greek firms might have acquired regarding the implementation of IFRS did not affect significantly their compli­ance with IFRS disclosure requirements.

4.2. Univariate Analysis

In Table 4 the results of the univariate analysis concerning the association between the disclosure compliance and the independent variables for each individual year and for the pooled-sample are presented.

4.2.1. Corporate Size and Disclosure

As it can be seen in Table 4, for 2006 firms’ size as measured by the log of total assets is associ­ated with disclosure compliance under both ap­proaches used in order to measure the dependent variable. When size is measured by total equity the association is significant only under the “di­chotomous approach.” For year 2008 there is a positive but not significant association between both measures of compliance and both measures of size. For the pooled-sample the association between the variables of interest does not appear to be significant. Overall, these findings provide weak evidence in favour of hypothesis 3 that the rate of compliance is higher for bigger firms. These findings are not in line with the findings of previ­ous research that found a significant association between the two variables (see, Inchausti, 1997; Oliveira et al., 2011; Setyadi, 2011). Within the context of Greece, Florou and Galarniotis (2007) found that corporate governance quality increases with firms’ size. On the other hand, they did not find any systematic pattern regarding the aggregate level of non-disclosure by firm size and found positive relationship between size and disclosure compliance.

4.2.2. Profitability and Disclosure

The rank correlation coefficients between the three measures of profitability used in this study and the compliance rate measured under the “di­chotomous approach,” presented in Table 4, are positive but not significant at the 5% level. This holds both for 2006 and 2008 and for the pooled- sample. Similar are the results when disclosure compliance is measured under “partial compliance unweighted method.” These findings provide no evidence in favour of hypothesis 4 that the level of compliance is associated with profitability. Previ­ous research provides mixed evidence regarding the association of the two variables. Wallace and Naser (1995) found that the profitability of firm affects its compliance to disclosure requirements. On the other hand, Palmer (2008) found limited support for the hypothesis that more profitable firms disclose more information. Inchausti (1997), Dunmontier and Raffourmier (1998) and Street and Bryant (2000) do not provide evidence to support the argument that the rate of firm’s compliance is associated with its profitability.

Table 3. Compliance rate by year

Table 4. Correlation coefficient among compliance rate and independent variables

4.2.3. Leverage and Disclosure Compliance

No significant association is observed between leverage and compliance ratio when the latter is measured under the “dichotomous approach.” This holds both for years 2006 and 2008 and for the pooled-sample. When the compliance is mea­sured using the “partial compliance unweighted method” the results are similar. This provides no evidence in favour of hypothesis 1 that the level of compliance is associated with leverage. This result is consistent with the findings of previous research that found little evidence to support the hypothesis that there is a significant association between corporate disclosures and leverage (Abra­ham & Cox, 2007; Amran et al., 2009; Linsley & Shrives, 2006; Mohobbot, 2005). Oliveira et al. (2011) found that firms’ leverage is important in explaining the risk related disclosure.

4.2.4. Ownership Structure and Disclosure Compliance

The concentrated ownership firms exhibit a higher compliance rate comparing to the diffused-own- ership firms. This holds under both approaches being used in order to measure disclosure compli­ance. Yet this association is statistically significant only for year 2008 under the “partial compliance unweighted method” (see Table 5). A further statistical analysis being conducted by using the non-parametric Pearson chi-square test indicated that no significant association exists between the disclosure compliance and the ownership status of the sample firms. It should be noted that previous research has indicated that the widely-held firms comply better with the disclosure requirements of IFRS (Klassen, 1997; Birt et al., 2006; Soderstrom & Sun, 2007). On the other hand, Mohobbot (2005), Oliveira et al. (2011) and Setyadi(2011) found no relation between firms’ ownership struc­ture and level of disclosure, while Abraham and Cox (2007) provide mixed evidence regarding the association between firms’ disclosure compliance and their ownership structure. Kajuter (2006) and Lajili (2007) found negative association between owners’ holdings and disclosure.

4.2.5. Auditor Type and Disclosure Compliance

The firms that employ one of the Big-4 interna­tional auditing firms exhibit a higher compliance rate comparing to the firms that appoint other auditing firms. This association is statistically sig­nificant for 2006 under both approaches being used in order to measure disclosure compliance (see Table 6). The application of the non-parametric Pearson chi-square test provided similar results. In particular, under the dichotomous approach the value of the Pearson chi-square test for the year

Table 5. Ownership structure and disclosure compliance

2006 was 10.70 (significant at the 1% level) while for the same year under the “partial compliance unweighted method” the value of the Pearson chi­square test was 6.74 (significant at the 1% level). These results provide evidence in support of the hypothesis 5. These findings are in line with the findings of previous research. Inchausti (1997), Glaum and Street (2003) and Oliveira (2011) found positive relationship between disclosure and auditor type. On the other hand, Setyadi et al.(2011) found no relation between firms’ auditor type and level of disclosure.

4.3. Multivariate Analysis

Multiple regression analysis was used for multi­variate testing of the hypotheses; the dependent variable, compliance rate, was regressed against the independent variables of Size, Profitability, Leverage and dummy variables for ownership status and auditor type. Assets were chosen as a proxy for size in order to be consistent with previous studies, while profitability is measured by reference to ROE.

Given the small size of the sample, the skewed distribution of the explanatory variables and therefore the possible presence of outliers that would make the analysis unreliable, a non­parametric estimation technique was used, namely quantile regression (Koenker & Hallock, 2001). This technique differs from traditional OLS be­cause instead of minimizing the sum of squared residuals, the objective function is to minimize the mean absolute deviation (MAD). Regression results when the dependant variable is measured under the “dichotomous approach” are presented in Table 7. Panels A and B report estimated coef­ficients and standard errors for the 2006 and 2008 samples correspondingly. The estimated coeffi­cients and standard errors for the pooled-sample are presented in Panel C.

Regression results when the dependent vari­able is measured under the “partial compliance unweighted method” are presented in Table 8. Panels A and B report estimated coefficients and standard errors for the 2006 and 2008 samples correspondingly. The estimated coefficients and standard errors for the pooled-sample are presented in Panel C.

In line with the findings of the univariate analysis the profitability and the leverage of sample firms do not appear to influence their disclosure compliance. Similarly, size is not associated with the disclosure compliance, although the univariate analysis has indicated that for 2006 the larger are more likely to comply with the IFRS disclosure requirements. The ownership status and the type of the external auditor appointed of the sample firms are factors are more likely to explain their compli­ance with the disclosure requirements provided by IFRS. In particular it appears that concentrated­ownership firms achieve higher compliance rates

Table 6. Auditor type and disclosure compliance

* Significant at 5% level

Table 7. Regression of size, profitability, leverage, ownership status and auditor type on disclosure compliance (dichotomous approach)

* Significant at 5% level. Standard errors in parentheses

Compliance rate - Dichotomous approach (%): is measured by the total compliance score for each company divided by the total number of items disclosed.

Assets: is measured by the logarithm of the total assets of firm i in fiscal year t.

ROE: Return on equity of company i for fiscal year t. It should be noted that that in the case where equity is negative the variable ROE is not defined.

Leverage: Debt ratio of firm i in fiscal year t.

Ownership: equal to 1 for concentrated ownership and 0 otherwise.

Auditor type: equal to 1 when the auditor of the firm is a Big-4 audit company and 0 otherwise.

compared to widely-held firms. This association is statistically significant for year 2008 and for the pooled-sample under both measures of disclosure compliance. The univariate analysis has found a significant association for year 2008 only under the “partial compliance unweighted method.” These findings support Hypothesis 2 that firms’ disclosure compliance can be associated with the ownership structure. Yet the observed relationship does not support the widely accepted contention that the widely-held firms comply better with the accounting standards’ disclosure requirements. In fact, it appears that closely held firms are more

Table 8. Regression of size, profitability, leverage, ownership status and auditor type on disclosure compliance (Partial compliance unweighted method)

^* Significant at 5% level. Standard errors in parentheses

Compliance rate -PC unweighted method (%): is measured by the sum of the compliance scores for each standard divided by the total number of applicable standards (R) for each sample firm.

Assets: is measured by the logarithm of the total assets of firm i in fiscal year t.

ROE: Return on equity of company i for fiscal year t. It should be noted that that in the case where equity is negative the variable ROE is not defined.

Leverage: Debt ratio of firm i in fiscal year t.

Ownership: equal to 1 for concentrated ownership and 0 otherwise.

Auditor type: equal to 1 when the auditor of the firm is a Big-4 audit company and 0 otherwise

likely to comply with disclosure requirements. The observed relationship can be explained within the context of agency theory. The major shareholders aim to maximize firm’s value and as a consequence the agency costs are low. As mentioned earlier when major shareholders aim to maximize firm’s value a positive association is expected between owners’ holdings and disclosure.

With respect with the type of external auditor appointed it appears that the firms that employ one of the Big-4 international auditing firms exhibit a higher compliance rate comparing to the firms that appoint other auditing firms. This associa­tion is statistically significant for the year 2006 under both measures of disclosure compliance. These results are similar with those provided by the univariate analysis. These findings support Hypothesis 5 that the disclosure compliance is higher in companies audited by the Big-4 audit­ing firms. Results regarding the auditor type are consistent with the findings of previous research. The fact that the association is significant for year 2006 suggests that the local auditing firms, and in general smaller auditing firms, might not have possessed in that year the superior knowledge and experience that the Big-4 international auditing firms possessed with respect to the application of IFRS and the auditing of financial statements prepared according to IFRS. As a consequence the disclosure compliance of the firms audited by Big-4 international auditing firms was higher comparing to the disclosure compliance of firms being audited by local auditing firms. However, by 2008 that gap between Big-4 international auditing firms and local auditing firms regarding the expertise upon the application of IFRS might have narrowed.

It should be pointed out that the two methods employed for measuring disclosure compliance do not produce significantly different results. In fact, we found similar association between the dependent variable (disclosure compliance) and the independent variables under each method employed for measuring dependent variable. This holds for both the univariate and the multivariate analysis. As mentioned previous research has indicated that the two methods can produce quite different results.

5. CONCLUSION

The objective of this article is to examine the compliance of Greek firms to the IFRS disclosure requirements. We examine the relation between disclosure compliance and certain firms’ charac­teristics for a sample of 58 Greek listed firms for 2006 and 2008. In order to examine the association between disclosure compliance and a range of firm’s characteristics, a compliance rate has been estimated under two approaches proposed in the literature, which are the “dichotomous approach” and the “partial compliance unweighted method.” Prior research has indicated that these two methods can produce significantly different results.

It appears that for the sample firms the own­ership structure and the type of external audi­tor appointed are the most important factors in explaining disclosure compliance. Contrary to the findings of previous research, it seems that the closely-held firms exhibit higher compliance rate comparing to the widely held ones. Results regarding the auditor type are consistent with the findings of previous research, which indicated that firms that are being audited by one of the Big-4 international auditing firms comply better with the disclosure requirements of IFRS. On the other hand, the leverage of a firm its profitability and its size do not appear to be statistically significant variables in explaining disclosure compliance. It should be noted that the results were similar under both methods employed in this study for measur­ing disclosure compliance. This finding is not in line with the findings of previous research that found that the two methods provide significantly different results.

The findings of this study add to our knowledge regarding the factors that explain the disclosure compliance of Greek firms. Given the similarities of Greek business environment with the environ­ment prevailing in other European countries the findings of this study can be useful to researchers that examine disclosure compliance in other Eu­ropean countries. Moreover, while prior research has examined the association between disclosure compliance and firms’ characteristics, mainly in a voluntary setting, we add to our understanding of the firm characteristics associated with dis­closure compliance in mandatory environment. In addition this study examines the disclosure compliance with the important disclosure items of all IFRS rather than focusing in the disclosure items of specific IFRS.

This study contributes to the knowledge base that accounting regulators can use to determine the extent to which Greek firms comply with the disclosure requirements of IFRS and will assist in future directions in developing mechanisms that will monitor the implementation of IFRS.

Additional research could extent the time period under investigation by examining the pe­riod after 2009. The deep recession that plagues recently Greek economy since 2009 has eroded Greek firms’ profitability and their equity. A further research may be required in order to inves­tigate Greek firms’ disclosure compliance under the prevailing adverse environment. Incorporating more explanatory variables and expanding the size of the sample can enrich this analysis.

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This work was previously published in International Journal of Corporate Finance and Accounting (IJCFA), 1(1); edited by Constantine Cantzos and Constantin Zopounidis, pages 22-39, copyright 2014 by IGI Publishing (an imprint of IGI Global).

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