FACTORS EXPLAINING CORPORATE GOVERNANCE DISCLOSURE QUALITY: CANADIAN EVIDENCE

FACTORS EXPLAINING CORPORATE GOVERNANCE DISCLOSURE QUALITY: CANADIAN EVIDENCE

Walid Ben-Amar * School of Management University of Ottawa 136 Jean Jacques Lussier Ottawa Ontario K1N 6N5 Canada Phone 613-562-5800 x.4723 Fax 613-562-5164 [email protected]

Ameur Boujenoui School of Management University of Ottawa 136 Jean Jacques Lussier Ottawa Ontario K1N 6N5 Canada Phone 613-562-5800 x.4921 Fax 613-562-5164 [email protected]

* Corresponding author The authors gratefully acknowledge financial support from the University of Ottawa School of Management research fund.

FACTORS EXPLAINING CORPORATE GOVERNANCE DISCLOSURE QUALITY: CANADIAN EVIDENCE Abstract This study investigates the determinants of corporate governance (CG) disclosure quality for a large sample of Canadian listed firms. Our results show a negative relationship between inside ownership, CEO duality and the quality of information about corporate governance practices. We document also a positive relationship between board independence and CG disclosure quality. Consistent with voluntary disclosure literature, we find a positive association between firm size, US cross-listing and disclosure quality.

Key Words: corporate disclosure, information quality, corporate governance, Canada

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1. Introduction During the last decade, corporate governance of listed companies has come under the scrutiny of institutional investors, regulatory authorities and the financial press. Several financial scandals as well as the increased risk of investors' spoliation have urged regulatory agencies of several countries (US, Canada, UK, Australia, France among other countries) to institute special task forces with a mission to make recommendations or to establish "codes for best practices" for corporate governance of listed companies (Aguilera and Cuervo-Cazurra, 2004; Collett and Hrasky, 2005; Broshko and Li, 2006).

The Toronto Stock Exchange committee on corporate governance in Canada (Dey Commission) was created in 1994 with the mandate to propose a set of recommendations intended to improve corporate governance practices of Canadian public companies. A year later and in response to the Dey report conclusions, the Toronto Stock Exchange (TSX) adopted a list of best practice guidelines and a disclosure requirement. Canadian companies were not required to implement these 14 guidelines. They were only required to present in their annual report or in their proxy circulars a statement of corporate governance practices with a description of their corporate governance system (section 472 of TSX Company Manual). Moreover, the TSX guidelines did not initially prescribe a standard format for the presentation of the statement of corporate governance practices allowing managers a great discretion to choose, the medium, the extent as well as the quality of the corporate governance disclosures (Labelle, 2002; Bujaki and McConomy, 2002).

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However, and despite the CG mandatory disclosure requirement, the Toronto Stock Exchange (TSX, 1999) as well as the Joint Committee on Corporate Governance (JCCG, 2001) concluded a few years later that many listed companies were not entirely complying with the disclosure requirement. Annual reviews undertaken by the Toronto Stock Exchange (TSX, 2003b; 2004) have also confirmed that while the implementation of the governance guidelines has improved during the recent years, the quality of corporate governance disclosure remained rather poor. In an attempt to improve the quality of the information presented in the statement of corporate governance practices, the Ontario Securities Commission (OSC) 1 adopted recently the national instrument 58101 “Disclosure of corporate governance practices”. This new regulation, effective June 30th 2005, replaced the TSX corporate governance guidelines and is intended to standardize the information provided by TSX-listed companies regarding their corporate governance practices.

This study examines the determinants of the quality of corporate governance disclosures in Canada prior to the adoption of the national instrument 58-101 in June 2005. Before the instauration of this new regulation, the TSX guidelines constituted only minimal requirements that TSX-listed companies had to comply with in relation to the disclosure of their corporate governance practices. However, managers of TSX listed companies enjoyed some discretion to decide the extent as well as the quality of the information disclosed (Labelle, 2002; Bujaki and McConomy, 2002). Our study aims to identify and better understand the motivations of managers of TSX listed companies to voluntarily

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The Ontario Securities Commission is the provincial authority that oversees the Toronto Stock Exchange 4

disclose high quality information in their statement of corporate governance practices. Therefore, this study draws on corporate governance and voluntary disclosure accounting research to identify factors explaining the quality of corporate governance disclosure in Canada.

This study adds to the literature on the disclosure of corporate governance information. Two related studies (Bujaki and McConomy, 2002; Collet and Hrasky, 2005) have examined the level of corporate governance disclosure. Bujaki and McConomy (2002) examine the factors explaining the choice of corporate governance disclosure medium (annual report or proxy circulars). Moreover and using a disclosure grid, they also investigate the determinants of the extent of information disclosed by Canadian firms in their statement of corporate governance practices in 1997. Collett and Hrasky (2005) examine the relation between external financing and voluntary disclosure of corporate governance practices by Australian companies in 1994.

Our paper differs from Bujaki and McConomy (2002) in several ways. First, Bujaki and McConomy (2002) have examined corporate governance disclosure made by Canadian companies during the first two years following the implementation of the disclosure requirement. The TSX as well as the final report of the JCCG (TSX, 2001) clearly outlined the fact that several companies did not comply entirely with the new regulations during the year covered by Bujaki and McConomy study (1997). Our study examines the quality of corporate governance disclosure during the period 2002-2004.

Since the

implementation of the new disclosure requirement in 1995, many developments in these

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regulations have been observed in Canada and in the rest of the world (TSX, 1999; 2001) 2 . Canadian listed companies should therefore have been more familiarized with the disclosure requirement between 2002 and 2004 than in 1997. Therefore, our study contributes to recent debate following the adoption of a new mandatory format for the disclosure of corporate governance information (NI-58 101).

Furthermore, this study uses a different measure for corporate governance disclosure quality than Bujaki and McConomy (2002). We rely on the annual governance disclosure scores published by the Report on Business (ROB) of the Globe & Mail (G&M) as a measure of disclosure quality. Starting in 2002, the Canadian newspaper The Globe & Mail has published annual rankings of corporate governance practices of Canadian listed companies. The ROB annual study has evaluated four dimensions of the governance system: board composition, compensation and shareholding policy, shareholders rights policy and governance disclosure policy. The G&M annual rankings have been used in prior studies looking at the impact of governance quality on firm performance, valuation and earnings quality (Allaire and Forsirutu, 2003; Klein et al., 2005; Niu, 2006).

Finally, this paper considers the interrelationship between governance mechanisms (managerial ownership, external block-holders, board composition and leadership structure), firm-level financial attributes (size, leverage, growth opportunities, financial

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For instance, the enactment of the Sarbanes-Oxley Act in United-States in 2002. Aguilera and Cuervo-

Cazurra (2004) describe the different initiatives undertaken in different countries to improve corporate governance practices around the world.

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performance, new equity issues and US cross-listing) and corporate governance disclosure quality. This study contributes to the recent literature (Chen and Jaggi, 2000; Eng and Mak, 2003; Gul and Leung, 2004; Ho and Wong, 2001; Cheng and Courtenay, 2006) looking at the relation between governance attributes and disclosure policy 3 .

We examine corporate governance disclosure quality for a large sample of Canadian listed firms over the period 2002-2004. Our results show a negative relationship between inside ownership, CEO duality and quality of disclosure of corporate governance practices. We document also a positive relationship between board independence and disclosure quality. Consistent with voluntary disclosure literature, we find a positive association between firm size, US cross-listing and CG disclosure quality.

The rest of the paper proceeds as follows. The next section presents the institutional development in Canada regarding the disclosure of corporate governance practices. The third section presents the relevant literature as well as our research hypotheses. The fourth section describes our data and research methodology while section five presents and discusses the study’s results. Finally, the last section offers a conclusion and suggestions for future research.

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Bujaki and McConomy (2002) have considered only the relation between the proportion of unrelated directors and the comprehensiveness of CG information in 1997. 7

2. Corporate Governance Disclosure in Canada The Canadian governance regime has been introduced in response to the conclusions of the Dey report (TSX, 1994). The Toronto Stock Exchange issued in 1995 a list of best practice guidelines as well as a disclosure requirement. Similar to the UK and Australia, the Canadian governance regime was “voluntary” (Anand et al., 2006; Broshko and Li, 2006) 4 . Canadian companies were not required to implement each of the fourteen published guidelines. However, companies were required to disclose in a “Statement of Corporate Governance Practices” the extent to which they comply with the best practice guidelines and to explain and justify why they voluntary choose not to implement the guidelines.

Few years later, the Toronto Stock Exchange (TSX, 1999) and the JCCG (2001) evaluated the governance practices of Canadian firms. Their analysis has confirmed an improvement in the implementation of the TSX guidelines. However, and although the disclosure regime was mandatory for TSX listed firms, the JCCG (2001) concluded that many companies were not disclosing their compliance with the best practice guidelines. The final report of the JCCG (2001, page 8) indicates that “not all TSX-listed companies comply with the disclosure requirement in the spirit in which it is intended………In addition, there has been a tendency for disclosure to degenerate into boilerplate-to become less meaningful as well as less complete.”

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Broshko and Li (2006) discuss main differences between corporate governance regimes in Canada and in the US. Canadian approach to corporate governance is principles-based whereas the US approach is rulesbased. 8

Moreover, and in order to improve the quality of CG disclosure, the TSX (TSX, 2003a) issued in 2003 a guide to good disclosure to give insights to TSX-listed companies to fully disclose the extent of their compliance against each of the 14 guidelines. However, subsequent reviews (TSX, 2003b, 2004) have also shown a great variability in the corporate governance disclosure made by TSX-listed firms.

Recently, the Ontario Securities Commission has adopted a new corporate governance policy NP 58-201 “Corporate governance guidelines” and a national instrument NI 58101 “Disclosure of Corporate Governance Practices” effective on June 30 2005. The new policy is intended to provide guidance to listed companies when choosing their governance system. However, TSX listed companies are still not required to fully implement the governance guidelines. The national instrument NI 58-101 introduced a prescribed format to the disclosure of corporate governance practices. TSX listed firms are required to disclose specified items with regards to the board composition, to the board mandate, to the positions description, orientation and continuing education, to ethical business conduct, nomination of directors, compensation and other board committees. 5

This study investigates the factors explaining corporate governance disclosure quality for a sample of TSX listed companies prior to the adoption of NI 58-101 which has introduced a prescribed format for the disclosure of information.

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The appendix A1 of the NI 58-101 presents a detailed description of all items to be disclosed by listed companies in their annual reports or information circulars for years ending on or after June 30 2005. 9

3. Corporate Governance Disclosure Quality Determinants Prior to the adoption of NI 58-101 in June 2005, TSX-listed companies' managers enjoyed a great discretion on the choice of the medium of presentation as well as the extent and the quality of corporate governance disclosure (Labelle, 2002; Bujaki and McConomy, 2002). TSX guidelines were considered as minimal requirements for information disclosure, but companies could voluntarily provide high quality information to external investors and/or to other stakeholders. This study builds on the corporate governance as well as the voluntary disclosure accounting research to identify factors explaining CG disclosure quality.

3.1. Governance Mechanisms and Corporate Disclosure Quality Recent research has examined the relationship between governance structure and disclosure policy (Forker, 1992; Chen and Jaggi, 2000; Gul and Leung, 2004; Eng and Mak, 2003; Cheng and Courtenay, 2006). These mechanisms include ownership structure, board composition and leadership structure.

3.1.1. Ownership structure Jensen and Meckling (1976) suggest that the separation of ownership and control results in agency costs due to the conflict of interests between managers and shareholders. When managerial ownership is low, i.e ownership diffusion, agency costs are high resulting in a high demand for informative disclosure to monitor managers (Fama and Jensen, 1983; Hossain et al., 1994). As a result, the extent of disclosure is likely to be greater in widely held rather than in closely held corporations. Prior accounting research has generally

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confirmed a negative relationship between managerial equity ownership and disclosure level. Ruland et al. (1990) report a negative association between ownership concentration and the disclosure of managers’ forecasts while Gelb (2000) documents a negative relation between managerial shareholdings and disclosure quality (as measured by analysts’ ratings of firms' disclosure) in the US. Looking to the disclosure practices of listed Malaysian companies, Hossain et al. (1994) find that ownership concentration is negatively related to the voluntary disclosure level in the annual report. Finally, Chau and Gray (2002) as well as Eng and Mak (2003) provide evidence of a negative association between managerial ownership and the extent of voluntary disclosure in Hong Kong and Singapore.

Moreover, the presence of large external block holders should significantly impact the disclosure strategy. Given the importance of their resources allowing them an extensive research for information as well as their significant ownership stake, large shareholders have greater incentives to effectively monitor managers. The active monitoring by large block-holders reduces agency costs as well as the demand for informative disclosure. Prior research has drawn mixed evidence when it looked at the relation between external block holders' ownership and disclosure level. For example, Schadewitz and Blevins (1998) find a negative association between institutional ownership and disclosure for a sample of listed Finnish firms while Eng and Mak (2003) show a positive association between large governmental ownership and the extent of voluntary disclosure in Singapore.

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3.1.2. Board Composition The board of directors is an important element of the governance system of a listed firm. According to agency theory, the board should be more effective when composed of a majority of unrelated directors. Given that independent directors compete in the directors’ labor market (Fama and Jensen, 1983), they have incentives to establish and keep a reputation of professional experts who effectively monitor managers and who look for the shareholders’ best interests.

Chen and Jaggi (2000) argue that boards with a majority of external directors should be aware and more responsive to investors’ demands for informative disclosure and consequently would improve the comprehensiveness and the quality of firm disclosure. Chen and Jaggi (2000) provide evidence of a positive association between board independence and the comprehensiveness of financial disclosures in Hong-Kong. Cheng and Courtenay (2006) report also that board independence is positively correlated to the disclosure level for a sample of firms listed on the Singapore stock exchange.

However, Forker (1992) conclude that there is no significant association between corporate governance attributes and share option disclosure quality and Ho and Wong (2001) did not report any significant relation between the proportion of independent directors and the extent of voluntary disclosure for a sample of listed companies in HongKong. Eng and Mak (2003) even find a negative relationship between board independence and level of voluntary disclosure. Their results suggest that board independence acts as a substitute rather than a complement for accounting disclosure.

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3.1.3. Board Leadership Structure According to agency theory (Jensen & Meckling, 1976; Fama & Jensen, 1983), CEO duality, i.e the role of CEO is combined with that of the chairman of the board, indicates a lack of separation between management and control decisions. It is argued that CEO duality may reduce board independence and its ability to effectively monitor managers including the disclosure of information to external stakeholders. Gul and Leung (2004, p. 356) suuggest that ‘firms with CEO duality are more likely to be associated with lower levels of voluntary disclosures since the board is less likely to be effective in monitoring management and ensuring a higher level of transparency.’

Prior accounting research looking to the relationship between CEO duality and disclosure level has obtained mixed evidence. Gul and Leung (2004) find that CEO duality is associated with a lower level of voluntary disclosure in Hong-Kong whereas Cheng and Courtenay (2006) did not report any significant association between CEO duality and the extent of voluntary disclosure in Singapore.

3.2. Firm’s Financial Characteristics and corporate disclosure

The accounting literature (Meek et al., 1995; Ahmed and Courtis, 1999; Healy and Palepu, 2001) relates firm financial attributes to the disclosure level in the annual report. Building on the voluntary disclosure literature, this study investigates the relationship

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between firm size, leverage, financial performance, growth opportunities, new shares issue, US cross-listing and corporate governance disclosure quality. Firm Size Prior research suggests that firm size is a key determinant of the extent of voluntary disclosure (Meek et al., 1995; Ahmed and Courtis, 1999). Larger companies are associated to larger resources to allocate for the preparation of high quality information, and the costs involved are lesser due to the economies of scale. The accounting literature (Chow and Wong-Boren, 1987; Eng and Mak, 2003; Gul and Lang, 2004) has consistently confirmed the existence of a positive relationship between firm size and the extent of voluntary information disclosure. Bujaki and McConomy (2002) also document the existence of a positive relationship between firm size and the extent of information provided by TSX-listed companies regarding their corporate governance practices in 1997. Leverage Highly leveraged firms should be associated with an increased bankruptcy risk as well as an increased likelihood of the breach of debt covenants (Dechow et al., 1996; Bujaki and McConomy, 2002). Therefore, highly leveraged firms should increase their disclosure level to reduce agency costs associated to leverage. We expect a positive association between leverage ratio and corporate governance disclosure quality. Highly leveraged firms should improve the quality of their disclosures to restore the investors’ and creditors’ confidence in the firm’s governance system and thus reduce the perception of bankruptcy risk. Bujaki and McConomy (2002) find a positive association between leverage and the comprehensiveness of corporate governance information.

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Growth opportunities The existence of growth opportunities is generally associated with an information asymmetry and with higher agency costs (Smith and Watts, 1992; Gaver and Gaver, 1993). Therefore, companies experiencing good growth opportunities should be associated to a higher corporate governance disclosure quality intended to reduce the existing information asymmetry between the company and external investors. Hossain et al. (2005) document the existence of a positive relationship between growth opportunities and the disclosure of prospective information. In contrast, Eng and Mak (2003) did not find any significant relationship between growth opportunities and the extent of voluntary disclosure in annual reports.

Firm performance Prior accounting research looking to the relation between firm performance and disclosure quality has obtained mixed evidence (Lang and Lundholm, 1993). Managers of firms experiencing good performance have incentives to improve their corporate governance disclosure quality to present the governance system in place. However, managers of firms having a poor financial performance should increase the quality of CG disclosure to convince shareholders and potential investors that the governance system in place is appropriate and should help the company improve its performance in the next few years. Bujaki and McConomy (2002) found an inverse relationship between financial performance, measured as the change in revenues, and the extent of CG disclosure.

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New Shares Issue Prior research (Lang and Lundholm, 1993; Frankel et al., 1995; Bujaki and McConomy, 2002; Collet and Hrasky, 2005) suggests that companies planning to issue new equity during the coming year should increase their disclosure level to reduce information asymmetry with external investors and reduce financing costs. Therefore, TSX-listed companies needing external financing should be more likely to increase the disclosure quality of their statement of corporate governance practices to ensure potential investors about the quality of the firm’s governance system. Collett and Hrasky (2005) find a positive association between voluntary disclosure of corporate governance practices and the intention to raise equity capital in Australia. However, Bujaki and McConomy (2002) do not report a significant association between equity issue and the extent of corporate governance information.

US Cross-listing Prior accounting research (Meek et al., 1995; Khanna et al., 2004) suggests that US crosslisting may have a significant impact on a firm’s disclosure strategy. Following the enactment of the Sarbanes-Oxley Act (SOX) in the US, Canadian cross-listed companies have to comply with tougher governance rules, increased corporate governance disclosure requirements (Doidge, 2004; Doidge et al., 2004; Broshko and Li, 2006) and face a more litigious legal environment than in Canada (Leuz, 2003).

Therefore, cross-listed companies may have incentives to enhance the extent as well as the quality of CG disclosure to offer potential investors a comprehensive picture of the

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governance system and convince them that governance practices have been implemented to protect them from any potential spoliation. Moreover, prior accounting research (Lang et al., 2003; Leuz, 2003; Khanna et al., 2004) has also shown that cross-listed firms may increase their disclosure level to reduce information asymmetry with external investors, increase analysts following and ultimately lower their cost of capital. Khanna et al. (2004) provide evidence of a positive association between the interaction with US markets and disclosure quality for a sample of Asian and European companies.

4. Data and Methodology Sample Our initial sample consists of non financial firms listed on the S&P TSX composite index with governance rankings in the Globe & Mail Report on Business (ROB) annual study of corporate governance practices in 2002, 2003 and 2004. Starting in September 2002, the Canadian newspaper The Globe & Mail has published annual rankings of corporate governance practices of Canadian listed firms. Given that this study uses the G&M disclosure scores as a measure of CG disclosure quality, we limit our analysis to firms with available governance rankings. Furthermore, our analysis is limited to the period prior to the adoption of the national instrument NI-58-101 which became effective on June 30 2005. Prior to this date, managers enjoyed a great discretion in the choice of the extent as well as the quality of corporate governance information.

Ownership and corporate governance information is gathered from proxy circulars available on SEDAR Website (all documents files by Canadian listed companies are

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available on this website since 1997). Financial information is collected from StockGuide database and company annual reports. After eliminating firms with missing corporate governance or financial information, we end up with a final sample of 587 firm-year observations (214 firms in 2002, 182 in 2003 and 191 in 2004).

3.2 Variable definitions Table 1 presents a description of the study variables. Dependent variable (CG Disclosure quality) We rely on the Globe & Mail annual corporate governance disclosure score as a measure of the firm level CG disclosure quality. Based on information published by companies in their proxy circulars, the Report on Business of the Globe & Mail has evaluated governance practices of Canadian companies. The maximum governance score that a company can obtain is 100 points.. The aggregate governance score is obtained by summing the ratings obtained in four sub-categories: board composition (maximum score of 40 points), shareholdings and compensation policy (maximum score of 23 points), shareholder rights policy (maximum score of 22 points) and corporate governance disclosure quality (maximum score of 15 points) 6 . The appendix presents the detailed procedure used by the G&M to compute CG disclosure scores 7 .

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Following the adjustments made by the G&M to the weights of the different subcategories of the governance index in 2003 and 2004, the maximum CG disclosure rating a company could achieve did not change in 2003 but was reduced to 13 in 2004. We adjusted 2004 disclosure scores accordingly to eliminate the effect of the weight change. 7 The disclosure score evaluates the quality of corporate governance disclosure and not the implementation of best practice guidelines by TSX listed companies.

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The G&M governance scores have been used in prior Canadian studies which have examined the relationship between corporate governance and firm performance (Allaire and Firsirotu, 2003; Klein et al., 2005; Gupta et al., 2006). Niu (2006) has also used the G&M annual rankings to investigate the association between corporate governance and the quality of accounting earnings disclosed by Canadian firms.

Explanatory variables Corporate governance variables Similar to prior studies (Forker, 1992; Bujaki and McConomy, 2002; Eng and Mak, 2003; Gul and Leung, 2004), we relate corporate governance variables to disclosure quality. Inside Ownership (INSIDEOWN) is measured as the voting rights held by the firm’s officers and directors while External block holders’ ownership (EXTERNAL BLK) is measured as the voting rights held by external large shareholders (more than 10% of voting rights). Board Independence (UNRELATED) is measured as the ratio of unrelated directors to the board size. We use the Toronto Stock Exchange definition (TSX, 1994) of unrelated board members which considers a director unrelated if he is not a manager of the firm or of its subsidiaries, is not related to the controlling shareholder and does not have business dealings with the firm which could create conflict of interests. Finally, we create a dummy variable (CEO DUALITY) that takes the value of one if the firm’s CEO is also chairman of the board and zero otherwise. Ownership and governance information have been collected from the proxy circulars available on Sedar.

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Consistent with the voluntary disclosure literature, we examine whether firm’s financial attributes (size, leverage, financial performance, growth opportunities, financing needs and US cross-listing) are related to its CG disclosure quality. Firm size is measured as the logarithm of total assets. Leverage is measured as the debt to equity ratio. We use the return on equity ratio (ROE) as a proxy for firm financial performance and the ratio of the market to book value of assets as a proxy for growth opportunities. External financing is evaluated through a dummy variable (SHAREISSUE) that takes the value of one if the firm has increased its share capital by 20% or more in the two following years and zero otherwise. Finally, we create a dummy variable CROSSLISTED that equals one if the firm is also cross-listed on a US stock exchange and zero otherwise.

Control variables Prior accounting research (Meek et al., 1995; Ahmed and Courtis, 1999) has shown that disclosure level varies with industrial sectors. Therefore, our multivariate analysis includes dummy variables for industries. We control also for year effects with year dummies. Insert Table 1 about here

5. Results 5.1. Descriptive statistics Table 2 presents the descriptive statistics for the study’s variables. Panel A presents CG disclosure scores by years; Panel B describes governance mechanisms while Panel C presents the firm level financial characteristics. As shown in Panel A of Table 2, CG

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disclosure quality has improved between 2002 and 2004. The average (median) score in 2002 was 6.20 (7.00), it increased to 9.81 (10.00) in 2003 to reach 11.28 (12.70) in 2004. These results are in accordance with the conclusions of the TSX periodic reviews of corporate governance disclosures (TSX, 2003b; 2004) which have noticed an improvement in the comprehensiveness of corporate governance information disclosed by TSX firms in the recent years. Given that CG has recently come under the scrutiny of institutional investors and regulatory authorities during the recent years, companies seem to have responded to this increased pressure through an improvement of their disclosures of corporate governance practices.

Panel B of Table 2 shows that firm’s directors and officers hold on average 20.13% of the voting rights while the average external block ownership in our sample is 10%. These figures are consistent with ownership concentration in Canada as reported in previous Canadian studies (Morck et al., 2000; Forester et al., 2004; Gadhoum, 2006). Moreover, the results of Panel B suggest an improvement of board independence and leadership structure during the recent years. On average, 76% of board members are unrelated directors while the firm’s CEO holds also the position of board chairman in 37% of the sample firms.

Insert Table 2 about here

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Table

3

presents

the

distribution

of

the

sample

firms

by

industry.

The

telecommunications and media industry is the most represented with 22.15 % share of the sample firms, followed by the mining, minerals and metal transformation (16.01%), oil gas and chemicals (15.16%) and trade and distribution industrial sector (14.14%). The remaining observations are uniformly distributed amongst the others industries.

Insert Table 3 about here

5.2. The determinants of corporate governance disclosure quality Univariate Results Table 4 presents the pearson correlation coefficients between dependent and explanatory variables. Consistent with prior accounting literature, CG Disclosure quality is positively related to firm size (0.306; p.value