Disclosure Practices by Family Firms: Evidence from Swedish Publicly Listed Firms

Abstract

I investigate the effect of family ownership on firms’ disclosure practices in their annual reports. In specific, I study Swedish publicly listed firms, which are typically characterized by controlling owners that have a strong influence in the corporate governance decisions of the firm, including corporate disclosures. To measure disclosure, I construct a comprehensive disclosure index covering information on (1) corporate governance, (2) strategic and financial targets and (3) notes to the financial statements. The results reveal that overall, family firms provide less disclosure in annual reports than non-family firms do. The finding is consistent with the premise that through their management positions, family owners can directly monitor managers and avoid costly public disclosures. Overall, the results suggest that ownership structure of firms is important to consider in understanding firms’ disclosure incentives, particularly in settings where controlling owners play a significant role in the governance of the firm.

Keywords:

• family firms
• disclosure
• disclosure index
• annual reports
• Sweden

JEL Classification:

• G32
• M41

Acknowledgements

I wish to thank the editor of this journal and two anonymous reviewers for their valuable comments. Furthermore, I thank the participants of the 39th Annual Congress of the European Accounting Association (Maastricht, May, 2016), and the 12th workshop on European Financial Reporting (Fribourg, September, 2016) for useful comments on earlier versions of the paper. Furthermore, I would like to thank Mattias Hamberg, Associate Professor at the Department of Business Studies at Uppsala University, for instructive comments on earlier drafts of this paper and for providing access to compilation of ownership data. I also thank David Andersson, researcher at the Department of Business Studies, Uppsala University.

Disclosure Statement

No potential conflict of interest was reported by the author.

Notes

1 According to Swedish law, the same person cannot hold the positions of both CEO and chair of the board (Swedish Company Act, 2005). In addition, Swedish listing regulations restrict the number of executives on the board to only one executive (which is usually the CEO).

2 The part of the index concerning the executive compensation disclosure was collectively gathered and used in another study by Cieslak, Hamberg, and Vural (2018).

3 Prior disclosure studies also apply an alternative method and allow weight to certain disclosure items/information that is regarded as more informative or has different importance to different user groups. For instance, Botosan (1997) provides additional points for firms providing quantitative information and for a directional prediction or point estimate on forecasted information. However, researchers have raised the concern of subjectivity involved in weighting disclosure items and it is also expected that firms better at disclosing ‘important’ items are also good at disclosing ‘unimportant’ items (Ahmed & Courtis, 1999; Chau & Gray, 2010; Meek, Roberts, & Gray, 1995). Similarly, in line with mentioned concerns, this study follows an unweighted scoring procedure.

Additional information

Funding

This work was supported by Jan Wallanders och Tom Hedelius Stiftelse samt Tore Browaldhs Stiftelse [P13-0182].