Examining the relationship between the ranking of companies based on financial and non-financial indicators and the amount of optional disclosure of information

Master's Thesis in Accounting

Abstract

The main purpose of this research is to investigate the relationship between company ranking based on financial and non-financial indicators and the amount of optional disclosure of information in companies admitted to the Tehran Stock Exchange. In order to rank companies, fundamental analysis [1] has been used. The combination of nine fundamental indicators that measure the four important dimensions of the company, i.e. profitability, operational efficiency, liquidity and financing decisions, determines the company's ranking based on financial indicators. The non-financial index of interest in this research is the liquidity rating of companies, which is a number that shows the liquidity of a share in the market. The amount of optional disclosure was calculated based on the model proposed by Botusan (1997) after applying adjustments in six general sections including information background, a summary of important historical results, department information, non-financial key statistics, forecast information, discussion and management analysis. The sample of this research includes the companies accepted in the Tehran Stock Exchange, 49 companies were selected taking into account the desired restrictions and were investigated for a period of 5 years (1387-1391). The amount of voluntary disclosure of information was analyzed as a dependent variable and the company's rating based on financial and non-financial indicators was analyzed as an independent variable. In connection with the analysis of regression model coefficients, the results show that there is no significant relationship between rating and voluntary disclosure at the 95% level. Also, in connection with the examination of the relationship between the change in the company's rating based on financial and non-financial indicators and the amount of voluntary disclosure, the results show that the change in rating does not cause a change in voluntary disclosure and there is no significant relationship at the 95% level.

Key words: company rating, financial and non-financial indicators, voluntary disclosure, fundamental analysis

[1] Fundamental Analysis

Introduction

Measuring and comparing the performance of companies is important information that helps investors and other users in making economic decisions. In fact, the ranking of companies in terms of financial and non-financial criteria provides clear and understandable information to internal and external users. In addition, research has shown that the position and rank of the company has an effect on performance, as well as the quality and amount of information it provides. On the other hand, transparency and voluntary disclosure in financial reports attract investors' trust and provide the basis for creating an efficient market.

     Studies on the impact of company reputation on company behavior are very few. Also, considering that so far there is no institution in Iran that ranks companies based on reputation criteria, therefore, the studies conducted in this field are only limited to ranking companies based on quantitative financial and sometimes non-financial indicators. The history of research on voluntary disclosure has expanded in recent years, but there has been no research that examines these two factors at the same time. In this chapter, first the main problem of the research, its importance and necessity is discussed, and then explanations about the goals and assumptions of the research and the application of its results are presented, and finally, the chapter will end with a brief description of how to measure the variables of the model used in this research. Although financial statements provide very important information about the company's financial status and financial performance, users also need a series of comparative information. This information not only compares the past trends of companies with themselves and with other companies in relation to certain criteria (financial and non-financial), but also evaluates their position and rank. In fact, the ranking of companies in terms of financial and non-financial criteria provides clear and understandable information to internal and external users.

External users, including investors and lenders, use this information to make decisions about investment and credit. Also, managers as users within the organization make decisions about the optimal use of company resources by measuring their performance.

    So far, the ranking of companies based on financial and non-financial indicators has received a lot of attention. In the ranking based on financial indicators, it examines those financial ratios that are more concerned by financial analysts. The ranking of the company based on non-financial indicators is done in different ways according to the data used and how it is done. In a method that uses quantitative data, such as the volume of transactions, the number of transactions and the number of buyers, based on a combination of the liquidity of the shares and the degree of influence of the companies on the market. In another method, using qualitative data including management quality, product quality, creativity and innovation, social and environmental responsibility, it measures the company's reputation from this point of view. In fact, reputation is an intangible asset that is acquired over time. It is expected that this reputation and credit, which is obtained after a series of actions and operations and correct management, will have an impact on the decision-making and subsequent operational and financial actions of the company, reporting and disclosure. The theoretical literature in relation to this issue states that reputation comes from information asymmetry. In this regard, Milligram and Robert [1] (1982) believe that asymmetric information regarding the correctness of the actor's action creates a belief about his action, which is reputation. Also, they state that: "When people are uncertain about the authority or motives of others, the category of reputation is expected to be raised.

Voluntary disclosure of the company plays an important role in reducing the information asymmetry between managers and external investors. The benefits of voluntary disclosure of information for both the supplier and the capital provider strengthen the motivation of voluntary disclosure of information in managers. In fact, it reduces the uncertainty of the investor and Lenders are concerned about the company's performance and then the company's financial resources are provided. Several reasons are mentioned that companies with more reputation publish more quality discretionary disclosures Compared to other companies, more well-known companies attract more public attention and scrutiny, and this creates additional pressure to implement practices that benefit stakeholders, including voluntary disclosure of quality and greater continuity of information. Third, companies with more reputations are more likely to lose this advantage than other companies, because reputation is a complex structure that is built up over time, and once it collapses, it is in some cases impossible to rebuild it. The higher cost of losing the reputation of more famous companies compared to the additional cost of quality disclosure creates an additional incentive for these companies to disclose (Cao et al. [2], a 2013). Based on the aforementioned exploratory studies and theoretical foundations, in fact, the present research seeks to find a scientific and appropriate answer to the question: "Is there a difference between the ranking of companies based on financial and non-financial indicators that are representative of Is there a meaningful relationship between the company's reputation and the amount of its optional disclosure?" 3-1- Importance and necessity of the topic: Clarifying the business environment and the economic position of companies, managers, policy makers, investors, creditors and others will help to know more precisely the financial and economic structure of the country's industries and large economic enterprises, as well as decision-making in various economic fields. This research can expand Accounting literature helps in ranking the company. Also, the findings of this research can be useful for capital market actors in making financial decisions. It seems that the current research can help managers in making decisions regarding the voluntary disclosure of information and obtaining and maintaining a superior position, as well as investors, creditors and other users in analyzing and comparing companies and their economic decisions. It seems that the results of this research provide an appropriate answer to the question of whether obtaining a superior position in terms of financial and non-financial indicators creates an incentive for the manager to disclose more information.