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

Figures & data

Table 1. Sample selection

	# Firm-years		#Firms
Panel A – Sample selection
Companies listed at the Nasdaq OMX Stockholm	2671		375
Foreign companies	151		21
Financial institution	104		14
Investment company	110		19
Other eliminations	160		42
Final sample	2182		314
of which are family firms	990		163
of which are founding firms	494		87
of which founder/family member is CEO	220		46
of which founder/family member is a board member	293		60
of which founder/family member is chairman	188		42
Panel B – Industry distribution
Manufacturing	1039	48%	146	46%
Wholesale and retail	229	10%	33	10%
Services	675	31%	99	31%
Financials^a	239	11%	39	12%
	2182	100%	317	100%

Notes: The initial sample consists of Swedish listed firms at the Stockholm Stock Exchange in the years 2001–2010. Other eliminations include observations with sales revenue less than SEK 25 million (135 obs), a negative equity at the end of the year (10 obs), missing disclosure data (11 obs) and missing firm-data (4 obs).

^aExcluding financial institutions and investment firms.

Table 2. The disclosure index

Governance		Score	Commentary
Item_1	Governance	1 = if the number of pages devoted to corporate governance matters is higher than the average sample’s number of pages, otherwise 0.	The number of pages devoted to corporate governance matters. This includes the corporate governance report and the presentation of board members.
Item_2	Internal control	1 = if the number of pages devoted to internal controls is higher than the average sample’s number of pages, otherwise 0.	The number of pages devoted to internal control. This includes a description of the firm’s internal controls of financial reporting and potential risk assessments.
Item_3	Firm’s shares	1 = if the number of pages devoted to the company’s shares is higher than the average sample’s number of pages, otherwise 0.	The number of pages devoted to information concerning the company’s shares. This includes information on the company’s development on the stock market, dividend pay-out and ownership structure.
Item_4	Meeting	1 = if the board members’ attendance on board meeting is disclosed, otherwise 0.	Board members’ attendance on board meetings.
Item_5	Experience	1 = if the board members previous working experiences are disclosed, otherwise 0.	Board members’ previous working experience.
Item_6	Owners	1 = if information on more than the 10 largest owners is disclosed, otherwise 0.	The names and percentage of ownership possessed by owners.
Item_7	Analysts	1 = If the names of the analysts following the firm is disclosed, otherwise 0.	Names of the financial analysts following the firm.
Item_8	CEOComp	1 = if information on the CEO’s compensation components is disclosed, otherwise 0.	Information on a minimum of three compensation components (fixed, variable, pension, options and/or other) is either disclosed in a table format or discussed in the text.
Item_9	VarComp1	1 = if there is some information regarding the CEO’s variable pay, otherwise 0.	Some information that CEO variable compensation exists.
Item_10	VarComp2	1 = an elaborative discussion regarding the CEO’s variable pay is disclosed, otherwise 0.	This discussion may include following: (a) the extent to which bonus targets are met, (b) the maximum achievable level of bonus, and (c) how bonus targets are evaluated.
Item_11	Retire1	1 = if CEO’s retirement age is disclosed, otherwise 0.	Retirement age of the CEO.
Item_12	Retire2	1 = if other top executive members’ retirement age is disclosed, otherwise 0.	Retirement age for other executives.
Item_13	Termin	1 = if the CEO’s termination conditions are disclosed, otherwise 0.	There is a discussion regarding how the contract with the CEO can be terminated.
Item_14	Sever	1 = if CEO’s severance conditions are disclosed, otherwise 0.	There is a discussion of how much the CEO gets in severance.
Item_15	NonCEO1	1 = information on non-CEO’s remuneration packages, otherwise 0.	To be awarded 1 point, at least two pay components about the non-CEO’s compensation package should be disclosed.
Item_16	NonCEO2	1 = a discussion on non-CEO’s remuneration packages is provided, otherwise 0.	A discussion on the non-CEO’s compensation package is provided.
Item_17	NonCEO3	1 = non-CEO remuneration package is provided in a table with adjoining text, otherwise 0.	The non-CEO’s remuneration conditions are clearly presented in a table and discussed in a text.
Strategic
Item_18	Where1	1 = if a heading titled ‘target’ is disclosed, otherwise 0.	A heading titled ‘targets/financial goals’ is disclosed in the strategy section of the annual report.
Item_19	Where2	1 = if a heading titled ‘target’ in the table of contents, otherwise 0.	A heading titled ‘targets/financial goals’ is disclosed in the table of contents on the annual report.
Item_20	Mis/Vis	1 = if a mission or vision is disclosed, otherwise 0.	Information on the company’s mission or vision.
Item_21	Target	1 = if some kind of target is disclosed, otherwise 0.	‘Some kind of target’ can be both financial, non-financial or accounting number-based targets (e.g. sales, growth, ROA).
Item_22	MeasTarg	1 = if a measurable target is disclosed, otherwise 0.	A ‘measurable target’ can be any of the following: sales, sales growth, earnings growth (earnings per share), EBIT, EBITDA, EBT ROE, ROCE, solvency, debt/equity, dividend pay-out ratio.
Item_23	FinTarg	1 = if a financial target is disclosed, otherwise 0.	A financial target is a quantitative target which is not based on accounting numbers (e.g. related to products, operations and customer satisfaction).
Item_24	HisTarg1	1 = if targets are evaluated, otherwise 0.	There is a mentioning on whether the firm has reached its targets in the past year.
Item_25	HisTarg2	1 = if targets are evaluated for several years, otherwise 0.	There is a discussion on whether the firm has reached its targets in the past year.
Item_26	Strategy	1 = if a corporate strategy is disclosed, otherwise 0.	Information about the company’s strategy, which could include how they aim to obtain their vision/mission.
Item_27	TargStrat	1 = if strategy on how to reach financial targets is disclosed, otherwise 0.	Does the company disclose strategies on how to reach its financial targets?
Item_28	Forecast1	1 = if a forecast is disclosed, otherwise 0.	A forecast on, e.g. sales expectations is disclosed.
Item_29	Forecast2	1 = if a forecast on financial targets and/or EPS is disclosed, otherwise 0.	A forecast on specifically the company’s financial targets is disclosed.
Item_30	Compete1	1 = if there is a mentioning of the competitors, otherwise 0.	The name of the company’s competitors is disclosed.
Item_31	Compete2	1 = an elaborative discussion on the competitors is provided, otherwise 0.	There is an elaborative discussion on the company’s competitors and information about their market volume share is disclosed.
Item_32	Market1	1 = their position in product markets is disclosed, otherwise 0.	There is a discussion on the company’s position in active product markets.
Item_33	Market2	1 = an elaborative discussion on the position in product markets is provided, otherwise 0.	There is an elaborative discussion on the company’s position in active product markets.
Notes
Item_34	Pages	1 = if the annual report is longer than the average sample’s annual report, otherwise 0.	Total number of pages the annual report contains.
Item_35	Notes	1 = if the number of notes is higher than the average sample’s number of notes, otherwise 0.	The number of notes to the financial statements in the annual report.
Item_36	PagesNotes	1 = if the number of pages is higher than the average sample’s number of pages, otherwise 0.	The number of pages devoted to the notes to the financial statements.
Item_37	AccPrin	1 = if the number of pages the ‘accounting principle note’ covers is longer than the average sample’s number of pages, otherwise 0.	The number of pages the note covering accounting principles covers.

Table 3. Definition of test and control variables

Dependent variables
DSCORE	The total disclosure score obtained by a firm in year t divided by the maximum possible disclosure score.
GOVERNANCE	The total corporate governance information score obtained by a firm in year t divided by the maximum possible corporate governance information score.
STRATEGIC	The total strategic information score obtained by a firm in year t divided by the maximum possible strategic information score.
NOTES	The total score on notes to the financial statements obtained by a firm in year t divided by the maximum possible score on notes to the financial statements.
Independent variables
FAMILY	A dummy variable, which takes the value of 1 if the founder or a member of his or her family owns at least 20% of the voting rights and/or possesses one of the following management positions; CEO, chairman or board member.
OWNERSH	The total percentage of voting rights controlled by the family and their heirs.
FOUNDER	A dummy variable, which takes the value of 1 if the founder is present in the management (i.e. possesses one of the following management positions; CEO, chairman or board member).
Control variables
MTB	The end of year market value of equity divided by the end of year book value of equity. Winsorized at the 1% level.
AGE	The natural logarithm of the number of years since the company was founded or incorporated. Sometimes firms are ‘founded’ when two entities merge.
SIZE	The natural logarithm of the total assets.
LEV	Total liabilities divided by total equity at the end of the year.
BIG4	A dummy variable taking the value of 1 when one of the signing auditing firms is a Big4 audit firm (in 2001: Big5).
ROA	ROA is net profit divided by average total assets. Winsorized at the 1% level.

Table 4. Pearson correlation test between the test variables

	DSCORE	GOVERNANCE	STRATEGIC	NOTES	FAMILY	OWNERSH	FOUNDER	MTB	AGE	LEV	BIG4	ROA	SIZE
DSCORE	1
GOVERNANCE	0 . 827	1
STRATEGIC	0.746	0.282	1
NOTES	0.651	0.589	0.212	1
FAMILY	−0.188	−0.203	−0.084	−0.144	1
OWNERSH	−0.124	−0.160	−0.036	−0.077	0.703	1
FOUNDER	−0.200	−0.204	−0.108	−0.135	0.578	0.531	1
MTB	−0.035	−0.021	−0.042	0.000	0.005	−0.008	−0.024	1
AGE	0.197	0.142	0.171	0.120	−0.057	0.112	−0.089	−0.002	1
LEV	0.213	0.078	0.253	0.151	−0.171	−0.140	−0.133	0.077	0.081	1
BIG4	0.202	0.172	0.122	0.191	−0.086	−0.085	−0.155	0.007	−0.021	0.050	1
ROA	0.134	0.109	0.101	0.089	0.001	0.055	0.005	−0.021	0.083	−0.054	0.034	1
SIZE	0.523	0.441	0.325	0.485	−0.170	−0.041	−0.205	−0.081	0.284	0.294	0.159	0.129	1

Notes: The sample consists of Swedish publicly listed firms in the years 2001–2010: 2182 obs. See Table 3 for the definition of variables. Bold values indicate significance at the 5% level.

Table 5. Descriptive statistics

Panel A: Whole sample
Variable	Mean	SD	25	Median	75
DSCORE	0.482	0.193	0.351	0.486	0.622
GOVERNANCE	0.509	0.231	0.353	0.529	0.706
STRATEGIC	0.466	0.244	0.313	0.500	0.625
NOTES	0.434	0.379	0.000	0.250	0.750
LEV	0.527	0.185	0.397	0.547	0.667
SIZE	3.207	0.841	2.591	3.095	3.760
AGE	1.434	0.492	1.114	1.362	1.799
ROA	0.011	0.168	−0.009	0.045	0.089
MTB	2.759	2.836	1.150	1.949	3.249
BIG4	0.911	0.284	1	1	1
Panel B: Family firms vs. non-family firms
	Family firms (N = 990)		Non-family firms (N = 1192)
Variable	Mean	Median	Mean	Median
DSCORE	0.442	0.459	0.515***	0.541***
GOVERNANCE	0.457	0.471	0.551***	0.588***
STRATEGIC	0.443	0.438	0.485***	0.500***
NOTES	0.374	0.250	0.483***	0.500***
LEV	0.492	0.500	0.555***	0.582***
SIZE	3.051	2.930	3.338***	3.258***
AGE	1.404	1.342	1.459***	1.398***
ROA	0.018	0.051	0.006*	0.041***
MTB	2.809	1.984	2.718	1.926
BIG4	0.885		0.934***

Notes: The sample consists of Swedish listed firms in the years 2001–2010: 2182 obs. For a definition of the variables, please see Table 3.

*Difference between the mean (median) family firms and non-family firms is significant at the .10 level using a t-test of means (Wilcoxon two-sample test) and median difference test (Mann–Whitney test).

**Difference between the mean (median) family firms and non-family firms is significant at the .05 level using a t-test of means (Wilcoxon two-sample test) and median difference test (Mann–Whitney test).

***Difference between the mean (median) family firms and non-family firms is significant at the .01 level using a t-test of means (Wilcoxon two-sample test) and median difference test (Mann–Whitney test).

Table 6. Governance characteristics of the 163 family firms

The founder is the largest owner	27%
The founder possesses a management position	35%
The founder is the CEO	13%
The founder is a board member	24%
The founder is the chairman	11%
The total voting rights controlled by the founders and their heirs (mean)	41%
Family firms with dual-class shares	26%

Note: The sample consists of the 163 (990 obs) family firms listed at the Stockholm Stock Exchange in the years 2001–2010.

Table 7. Descriptive statistics on the disclosure index

Mean and standard deviation	All	Family	Non-family	Diff. t-stats
Governance
Governance	0.51	0.45	0.56	5.09***
	0.50	0.50	0.50
Internal control	0.37	0.31	0.41	4.92***
	0.48	0.46	0.49
Firm’s shares	0.20	0.22	0.19	−1.75*
	0.40	0.19	0.39
Meeting	0.44	0.40	0.47	3.07***
	0.50	0.49	0.50
Experience	0.25	0.17	0.32	7.81***
	0.43	0.38	0.47
Owners	0.30	0.33	0.27	−3.07***
	0.46	0.47	0.44
Analysts	0.29	0.24	0.32	4.29***
	0.45	0.43	0.47
CEOComp	0.66	0.60	0.71	5.70***
	0.47	0.49	0.45
CEOVarComp1	0.72	0.65	0.78	6.55***
	0.45	0.48	0.41
CEOVarComp2	0.38	0.32	0.44	6.24***
	0.49	0.47	0.50
Retire1	0.71	0.63	0.78	7.61***
	0.45	0.48	0.42
Retire2	0.50	0.43	0.56	6.12***
	0.50	0.50	0.50
Termination	0.84	0.85	0.83	−0.95
	0.37	0.36	0.38
Severance	0.68	0.65	0.71	2.73***
	0.47	0.48	0.45
NonCEO1	0.75	0.68	0.81	6.74***
	0.43	0.46	0.39
NonCEO2	0.63	0.53	0.71	8.65***
	0.48	0.50	0.46
NonCEO3	0.41	0.29	0.51	10.50***
	0.49	0.46	0.50
Strategic
Where1	0.74	0.73	0.75	0.85
	0.44	0.45	0.44
Where2	0.44	0.39	0.48	4.38***
	0.50	0.49	0.50
Mis/Vis	0.69	0.69	0.70	0.45
	0.46	0.46	0.50
Target	0.80	0.78	0.82	1.94**
	0.40	0.41	0.39
MeasTarget	0.70	0.66	0.74	3.61***
	0.46	0.47	0.44
FinTarget	0.57	0.51	0.62	5.26***
	0.50	0.50	0.48
HisTarg1	0.49	0.43	0.54	4.79***
	0.50	0.50	0.50
HisTarg2	0.26	0.24	0.27	1.64
	0.44	0.43	0.45
Strategy	0.72	0.66	0.76	5.04***
	0.45	0.47	0.43
TargStrat	0.17	0.15	0.19	2.87***
	0.38	0.35	0.40
Forecast1	0.44	0.48	0.41	−3.18***
	0.50	0.50	0.50
Forecast2	0.11	0.12	0.10	−1.72*
	0.31	0.32	0.30
Compet1	0.61	0.58	0.63	2.27**
	0.49	0.49	0.48
Compet2	0.22	0.22	0.22	−0.04
	0.41	0.41	0.41
Market1	0.37	0.33	0.41	4.09***
	0.48	0.47	0.49
Market2	0.12	0.11	0.12	0.69
	0.32	0.32	0.33
Notes
Pages	0.42	0.36	0.48	5.48***
	0.49	0.48	0.50
Notes	0.48	0.42	0.54	5.87***
	0.50	0.49	0.50
PagesNotes	0.39	0.34	0.43	4.33***
	0.49	0.47	0.50
AccPrinciples	0.44	0.38	0.49	5.03***
	0.50	0.49	0.50

Note: The sample consists of Swedish listed firms in the years 2001–2010: 2182 obs. For a definition of the variables, please see Table 3. Standard deviation values are reported in italics.

***Statistical significance at the 1% level (t-tests are two tailed).

**Statistical significance at the 5% level (t-tests are two tailed).

*Statistical significance at the 10% level (t-tests are two tailed).

Table 8. Regression results

	(1)	(2)	(3)	(4)
	DSCORE	GOVERNANCE	STRATEGIC	NOTES
Panel A: Family firms and disclosure practices
FAMILY	−0.018 (0.179)	−0.042** (0.005)	0.005 (0.805)	−0.008 (0.752)
MTB	0.001 (0.781)	0.004* (0.089)	−0.003 (0.406)	−0.001 (0.836)
AGE	0.006 (0.692)	−0.004 (0.809)	0.024 (0.290)	−0.027 (0.233)
LEV	0.124** (0.002)	−0.032 (0.436)	0.304*** (0.000)	0.069 (0.307)
BIG4	0.035* (0.079)	0.011 (0.563)	0.058* (0.071)	0.045 (0.169)
ROA	0.084** (0.011)	−0.005 (0.890)	0.249*** (0.000)	−0.194*** (0.000)
SIZE	0.091*** (0.000)	0.108*** (0.000)	0.043** (0.023)	0.210*** (0.000)
Constant	−0.070* (0.072)	−0.101** (0.021)	0.095 (0.149)	−0.599*** (0.000)
N	2182	2182	2182	2182
Year & Industry FE	YES	YES	YES	YES
R^2	0.542	0.581	0.206	0.520
Panel B: Disclosure practices among the largest firms
FAMILY	−0.060** (0.022)	−0.090** (0.009)	−0.069 (0.153)	0.107** (0.016)
MTB	−0.016*** (0.000)	−0.006 (0.162)	−0.030*** (0.000)	−0.002 (0.828)
AGE	0.028 (0.242)	0.023 (0.303)	0.036 (0.431)	0.012 (0.756)
LEV	0.284*** (0.000)	0.092 (0.262)	0.542*** (0.000)	0.066 (0.666)
BIG4	0.054 (0.101)	0.054 (0.166)	0.090* (0.095)	−0.088 (0.421)
ROA	0.088 (0.393)	0.032 (0.787)	0.319 (0.102)	−0.594** (0.022)
Constant	0.205** (0.012)	0.229** (0.005)	0.146 (0.307)	0.336** (0.033)
N	542	542	542	542
Year & Industry FE	YES	YES	YES	YES
R^2	0.569	0.590	0.288	0.499

Notes: The sample in Panel A consists of Swedish listed firms in the years 2001–2010: 2182 firm-year observations. The sample in Panel B consists of the largest firms in the sample: 542 firm-year observations. The dependent variable in Model 1 is the disclosure score (DSCORE) obtained from the index (see Table 2 for details). The dependent variables in Models 2–4 represent each disclosure category included in the DSCORE, i.e. GOVERNANCE, STRATEGIC and NOTES. The independent and control variables are defined in Table 3. The analyses are based on pooled OLS regressions with standard errors clustered at the firm level.

P-values are reported within parentheses, where the significant levels are denoted as follows: *p < .10, **p < .05, ***p < .001.

Figure 1. Path analysis

Note: Reported values are the standardized beta coefficients and t-values within parentheses, where the significant levels are denoted as follows: *p < .10, **p < .05, ***p < .001. Following steps are followed in the path analysis: Step 1: DSCORE = β₀ + β₁FAMILY₁ + e; Step 2: DSCORE = β₀ + β₁SIZE₁ + e, Step 3: SIZE = β₀ + β₁FAMILY₁ + e and Step 4: DSCORE = β₀ + β₁FAMILY₁ + β₁SIZE₁ + e.

Table 9. Regression results

	(1)	(2)	(3)	(4)
	DSCORE	GOVERNANCE	STRATEGIC	NOTES
Panel A: Family ownership and disclosure practices
OWNERSH	−0.053** (0.033)	−0.102*** (0.000)	−0.008 (0.835)	−0.021 (0.673)
MTB	0.001 (0.809)	0.004* (0.100)	−0.003 (0.409)	−0.001 (0.830)
AGE	0.010 (0.470)	0.005 (0.768)	0.025 (0.279)	−0.025 (0.260)
LEV	0.121** (0.002)	−0.036 (0.371)	0.300*** (0.000)	0.068 (0.309)
BIG4	0.033* (0.100)	0.008 (0.682)	0.057* (0.077)	0.044 (0.176)
ROA	0.094** (0.005)	0.012 (0.740)	0.253*** (0.000)	−0.190*** (0.000)
SIZE	0.091*** (0.000)	0.108*** (0.000)	0.042** (0.024)	0.210*** (0.000)
Constant	−0.072* (0.052)	−0.111** (0.006)	0.103 (0.101)	−0.600*** (0.000)
N	2182	2182	2182	2182
Year & Industry FE	YES	YES	YES	YES
R^2	0.546	0.588	0.206	0.520
Panel B: Founders and disclosure practices
FOUNDER	−0.027* (0.089)	−0.048** (0.015)	−0.013 (0.602)	0.001 (0.967)
MTB	0.000 (0.884)	0.004 (0.151)	−0.003 (0.390)	−0.001 (0.835)
AGE	0.005 (0.740)	−0.006 (0.725)	0.024 (0.294)	−0.027 (0.235)
LEV	0.127** (0.002)	−0.023 (0.580)	0.300*** (0.000)	0.072 (0.287)
BIG4	0.032 (0.105)	0.006 (0.745)	0.055* (0.082)	0.046 (0.162)
ROA	0.087** (0.009)	−0.003 (0.924)	0.254*** (0.000)	−0.197*** (0.000)
SIZE	0.090*** (0.000)	0.106*** (0.000)	0.041** (0.026)	0.211*** (0.000)
Constant	−0.064* (0.080)	−0.101** (0.021)	0.111* (0.073)	−0.608*** (0.000)
N	2182	2182	2182	2182
Year & Industry FE	YES	YES	YES	YES
R^2	0.544	0.580	0.207	0.520

Notes: The sample consists of Swedish listed firms in the years 2001–2010: 2182 firm-year observations. The dependent variable in Model 1 is the disclosure score (DSCORE) obtained from the index (see Table 2 for details). The dependent variables in Models 2–4 represent each disclosure category included in the DSCORE, i.e. GOVERNANCE, STRATEGIC and NOTES. The independent and control variables are defined in Table 3. The analyses are based on pooled OLS regressions with standard errors clustered at the firm level.

P-values are reported within parentheses, where the significant levels are denoted as follows: *p < .10, **p < .05, ***p < .001.