Title: Financial instruments disclosure in an unregulated and regulated reporting environment: a proprietary cost perspective

Authors: Faizah Darus; Indra Devi Rajamanoharan; Dennis Taylor

Addresses: Faculty of Accountancy and Accounting Research Institute, Universiti Teknologi MARA, 11th Floor, Menara SAAS, 40450, Shah Alam, Selangor, Malaysia. ' Faculty of Accountancy and Accounting Research Institute, Universiti Teknologi MARA, 14th Floor, Menara SAAS, 40450, Shah Alam, Selangor, Malaysia. ' School of Accounting and Law, RMIT University, Building: 108, Level: 15, Room: 18, Australia

Abstract: In this study, proprietary cost theory is used as a basis to compute a disclosure index to investigate the effect of hedging strategies and investment growth opportunities on management's incentives to voluntarily disclose proprietary information relating to financial instruments. Using a sample of 69 Australian listed companies, a weighted disclosure index for perceived 'proprietariness' of the information contained in each disclosure item was computed in the pre- and post-regulation periods, of the Australian Accounting Standard, AASB 1033 'Financial Instruments: Presentation and Disclosure'. On the basis of this computed index, the results reveal significant increase in voluntary disclosure of proprietary information between the pre- and post-regulation periods. Findings from the study also suggest that firms' growth opportunities have some influence in limiting voluntary disclosure of proprietary information in the unregulated period. Implications of the findings for standards-setters and financial statement users are also discussed in this paper.

Keywords: voluntary disclosure; proprietary costs; financial instruments; hedging strategies; derivatives; unregulated reporting; regulated reporting; investment growth; management incentives; Australia; financial statements.

DOI: 10.1504/AAJFA.2012.048247

Afro-Asian Journal of Finance and Accounting, 2012 Vol.3 No.2, pp.161 - 181

Received: 09 Nov 2011
Accepted: 22 Apr 2012
Published online: 06 Apr 2013 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article