Empirical evidence indicates that companies that reduce information asymmetry by
increased voluntary disclosures achieve several benefits, such as lower cost of capital,
improved pricing, and liquidity of their shares. Despite the possibility of such benefits,
many studies report varying degrees of voluntary disclosure behaviour that is
attributable to various factors. Recent studies indicate that investors’ investment
horizon has a significant effect on actions taken by management. Companies with
predominantly short-horizon investors spend less on research and development, invest
in shorter-term projects that are less profitable than longer-term projects, and are more
likely to manipulate earnings to meet short-term earnings expectations. This study
investigates whether investors’ investment horizon has an effect on the quality of
companies’ information environment.
Long-horizon investors should be familiar with their investee company’s risks and
rewards, using both their own internal information gathering processes and the
cumulative information disclosed by management over time. Moreover, over the
course of a long-term relationship, they can become familiar with management’s
capability to deliver long-term sustainable returns. Long-horizon investors should
therefore be less concerned with short-term fluctuations of earnings and
management’s public explanations and disclosures thereof. I hypothesise that higher
(lower) proportions of long-horizon investors are associated with lower (higher) quality
voluntary disclosure.
The shareholder familiarity hypothesis was tested in this study, using an ordinary least
squares regression. Voluntary disclosures were observed via the channel of
companies’ websites. A checklist was compiled of best practices for online investor
relations, and content analyses were conducted on the websites of 205 companies
listed on the Johannesburg Stock Exchange. Shareholder familiarity was proxied by
shareholder stability, measured over nine years. The stability measure was lagged by
one year to create a temporal difference between the shareholder profile and
disclosure behaviour. I found that companies with a profile of unstable investors that
are larger, younger, dual-listed and have a Big4 auditor have higher quality online investor relations practices. The hypothesis of a negative association between
shareholder familiarity and voluntary disclosure quality is therefore accepted.
This study extends the theory on information asymmetry and voluntary disclosure by
providing evidence supporting the argument that investor horizon is a predictor of
voluntary disclosure quality. The dictum of more is better does not hold in all scenarios.
It is important for financial directors and investor relations officers to establish the
investment horizon profile of their respective companies’ shareholders before they
embark on extensive disclosure programmes. / Financial Intelligence
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:unisa/oai:uir.unisa.ac.za:10500/23727 |
| Date | 04 1900 |
| Creators | Esterhuyse, Leana |
| Contributors | Wingard, H. C., Cronje, C. J. |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Thesis |
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