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Mandatory Disclosure of Financial Statements for Non-Listed Companies: A Global Perspective

A research study by Ana Cristina Hirata Barros of The World Bank analyzing arguments for and against mandatory disclosure of financial statements by non-listed companies, across various countries. It explores the impact on corporate governance, resource allocation, decision-making, and competitive equality. The study also delves into the legal, enforcement, and compliance aspects of disclosure policies, with initial findings suggesting a mix of views and practices worldwide. The final research paper will be available for review in June/July 2006.

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Mandatory Disclosure of Financial Statements for Non-Listed Companies: A Global Perspective

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  1. Public Availability of Financial Statements by Non-listed Companies Ana Cristina Hirata Barros Research / Operations Analyst Europe and Central Asia Region THE WORLD BANK

  2. Research Questions • Should the World Bank support the mandatory disclosure of financial statements for non-listed companies? • If so, what considerations should be taken into account when formulating mandatory disclosure policies?

  3. Organization Part I: Theoretical Part II: Empirical • Based on literature review • Arguments for and against mandatory disclosure of financial statements of nonlisted companies. • Based on survey data (39 countries) • Legal disclosure requirements • Enforcement mechanisms and compliance rates

  4. Part I Arguments for and against public disclosure of financial statements by non-listed firms. Mandatory vs. voluntary disclosure Country considerations to be taken into account when considering a mandatory disclosure policy for non-listed firms.

  5. Part II How are financial statements made public (e.g., filed in a public registry, published in a newspaper/ official gazette, etc.) What information is included in the financial statements (e.g., explanatory notes, audit report) How are requirements enforced (sanctions), what is capacity of enforcement body, and what are compliance rates

  6. Part II: Sample Austria, Belgium, Croatia, Denmark, Estonia, France, Germany, Italy, Norway, Poland, Russia, Serbia, Turkey, UK China, India Indonesia, Japan, Kazakhstan, Korea, Malaysia, Philippines, Sri Lanka Brazil, Canada, Chile, Dominican Republic, Jamaica, Mexico United States Egypt, Israel, Jordan, Tunisia Kenya, Mauritius, Nigeria, Senegal South Africa Australia, New Zealand

  7. Initial Findings……

  8. Part I Arguments in favor of public disclosure by non-listed firms: Enhancement of Corporate Governance • Protects third parties and the public (e.g. creditors, suppliers, employees, etc.) • Improves the allocation of resources • Disclosure acts as a “report card” on management’s activities.

  9. Part I Arguments in favor of mandatory (vs. voluntary) public disclosure by non-listed firms: • Financial information = public good (would be under-produced). • Reluctance to disclose unfavorable information. • Standardization of financial information  enhanced consistency and comparability • Mandatory disclosure levels the playing field among businesses.

  10. Part I Arguments against public disclosure by non-listed firms: • Costs outweigh the benefits of financial disclosure • Lack of timeliness of financial statements • Lack of usefulness of information contained in financial for decision making.

  11. Part I Policy Considerations • Legal environment and other corporate governance safeguards • Enforcement capacity • Status quo and interest group entrenchment • Level of debt v. equity financing • Quality of accounting standards and practices, as well as quality of accounting standard enforcement mechanisms

  12. Part II Part II: Initial Survey Responses Responses Received Pending Responses Belgium Brazil Canada Chile China Egypt Estonia Indonesia Kenya Korea Malaysia Mauritius N. Zealand Nigeria Norway Philippines Poland Senegal Sri Lanka Turkey UK Australia Austria Croatia Denmark Dominican R. France Germany India Italy Jamaica Japan Kazakhstan Mexico Russia Serbia South Africa Tunisia USA

  13. Countries with No Disclosure Requirement Part II Public Disclosure for Non-listed Companies: Scope of Requirement All Size Legal Form Other Countries with Public Disclosure Requirement *n=19

  14. No Audit Required Audit Required All Size Other Part II Audit Requirements for Non-listed Companies: Scope of Requirement *n=19

  15. Part II Filing Methods for Non-listed Companies *n=12

  16. Part II Relevance of Financial Statements:Required components *n=12

  17. Part II Timeliness of Financial Statements:Consolidated and Legal Entity Accounts *n=11

  18. Research paper will be available for review in June/July 2006. We look forward to presenting our final findings at that time. Thank you

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