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In a similar study, with a sample of 25 companies, Setia at al. (2015) used t-test to compare the difference in integrated reporting practice between 2010 and 2012 in South Africa. Following similar approach, the study also conducts two samples t-test to compare the difference in disclosure between Japan and UK. In addition, due to small sample size (20 companies from each country), the present study also performs non-parametric Wilcoxon Rank Sum/Mann-Whitney test. In this regard, Shapiro-Wilk test is also conducted to test the normality of variables. Results of normality test are given in tables 6.1 and 6.2.
Results show that within Japanese sample, disclosure score in Organizational Overview and External Environment, Governance, Business Model, Risks and Opportunities and Performance are normally distributed. However, Overall disclosure score, Strategy and Resource Allocation, Outlook, and Basis of Preparation and Presentation are not normally distributed. On the other hand, in UK sample, Overall disclosure score, Business Model, Risks and Opportunities, Strategy and Resource Allocation, Performance, and Outlook are distributed normally. UK disclosure scores in Organizational Overview and External Environment, Governance, and Basis of Preparation and Presentation are not normally distributed.
Table 6. 1: Shapiro-Wilk Test Result of Normality of Data: Japanese Sample
Variable Obs. W Z Prob>z
Overall disclosure score 20 0.874 2.198 0.014
Organizational Overview and External Environment 20 0.911 1.504 0.066
Governance 20 0.976 -1.113 0.867
Business Model 20 0.984 -2.01 0.978
Risks and Opportunities 20 0.963 -0.246 0.597
Strategy and Resource Allocation 20 0.896 1.823 0.034
Performance 20 0.985 -2.081 0.981
Outlook 20 0.804 3.09 0.001
Basis of Preparation and Presentation 20 0.898 1.769 0.038
(Note: In this test, Null hypotheses are that the variables are normally distributed. Results reject the hypotheses (5%
level of significance) that Overall disclosure score, Strategy and Resource Allocation, Outlook, and Basis of Preparation and Presentation are normally distributed. In contrary, results cannot reject the hypotheses (5% level of significance) that Organizational Overview and External Environment, Governance, Business Model, Risks and Opportunities, Performance are normally distributed).
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Table 6.2: Shapiro-Wilk Test Result of Normality of Data: UK Sample
Variable Obs. W Z Prob>z
Overall disclosure score 20 0.975 -1.093 0.863
Organizational Overview and External Environment 20 0.842 2.660 0.004
Governance 20 0.772 3.397 0.000
Business Model 20 0.990 -2.940 0.998
Risks and Opportunities 20 0.948 0.403 0.343
Strategy and Resource Allocation 20 0.983 -1.791 0.963
Performance 20 0.929 1.038 0.150
Outlook 20 0.996 -4.607 1.000
Basis of Preparation and Presentation 20 0.844 2.636 0.004
(Note: In this test, Null hypotheses are that the variables are normally distributed. Results reject the hypotheses (5%
level of significance) that Organizational Overview and External Environment, Governance, and Basis of Preparation and Presentation are normally distributed. In contrary, results cannot reject the hypotheses (5% level of significance) that Overall disclosure score, Business Model, Risks and Opportunities, Strategy and Resource Allocation, Performance, and Outlook are normally distributed).
Results of two samples t-test and Wilcoxon Rank Sum test are shown in table 6.3 and 6.4 respectively.
Table 6. 3: Two samples t-test for difference in IR score between Japan and UK
Content Elements Mean
Japan
Mean UK
Mean
Difference t-value
Degrees of freedom
p-value
Overall disclosure 47.9 52.550 -4.650 -1.959 38 0.058
Organizational Overview and External Environment
7.600 8.550 -0.950 -2.937*** 38 0.006
Governance 7.200 8.800 -1.600 -8.219*** 38 0.000
Business Model 5.300 6.500 -1.200 -1.798 38 0.080
Risks and Opportunities 4.500 5.850 -1.350 -2.702*** 38 0.005
Strategy and Resource Allocation
7.200 6.800 0.400 0.859 38 0.396
Performance 6.250 6.650 -0.400 -1.039 38 0.305
Outlook 6.050 6.600 -0.550 -1.621 38 0.113
Basis of Preparation and Presentation
3.800 2.800 1.000 1.279 38 0.209
Note: *** shows significance at 1%
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Table 6.4: Wilcoxon Rank Sum test for difference in Overall Disclosure between Japan and UK
Content Elements Rank Sum Japan Rank Sum UK z-value p-value
Overall disclosure 351.5 468.5 -1.585 0.113
Organizational Overview and External Environment
315.5 504.5 -2.706*** 0.007
Governance 226 594 -5.245*** 0.000
Business Model 349.5 470.5 -1.660 0.097
Risks and Opportunities 320 500 -2.530** 0.011
Strategy and Resource Allocation 454 366 1.219 0.223
Performance 375.5 444.5 -0.960 0.337
Outlook 369.5 450.5 -1.167 0.243
Basis of Preparation and Presentation
457 363 1.337 0.181
Note: *** and ** show significance at 1% and 5% level respectively
Tables 6.3 and 6.4 show that both t-test and Wilcoxon Rank Sum test give the same results regarding acceptance and rejection of the hypothesis. Results in Table 6.3 show that there are significant difference between Japan and UK in disclosure score of Organizational Overview and External Environment (1%
significance level), Governance (1% significance level), and Risks and Opportunities (1% significance level). Therefore, hypotheses H2, H3, and H5 are supported. Statistical results do not provide evidence to support H1, H4, H6, H7, H8, and H9. It implies that there is no significant difference between Japan and UK in Overall disclosure score of integrated reports, Business Model, Strategy and Resource Allocation, Performance, Outlook, and Basis of Preparation and Presentation.
The above results show that there is significant difference between Japanese and UK annual reports in disclosure quality of Organizational overview and external environment. The core reason for this difference could be the difference in disclosure of Key Quantitative Information or KPIs. Based on disclosure checklists (IV) and (VI), the item titled ‘Key Quantitative Information’ has an average disclosure quality of 66.67% for Japan and 88.33% for UK. Although the sampled reports make good disclosure on financial and non-financial KPIs, the level of creating linkages between KPIs and other elements such as, strategic objectives, materiality or value creation process is not similar for the sampled
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reports of two countries. The current study finds that while 20% of the Japanese companies try to make some linkages between their KPIs and objectives or value creation processes, 65% of the UK companies try to do that.
Governance is another Content Element where significant difference is evident between disclosure practices of this two countries’ listed companies. There are six items that are analyzed under the Content Element Governance in the proposed disclosure checklist of this study. Disclosure checklists (IV) and (VI) show that the item titled ‘How remuneration and incentives are linked to value creation?’ has an average quality of 37.5% for Japanese companies and 100% for the UK companies. The sampled annual reports of Japanese companies have made very generic and minimum disclosure on this point. The regulatory bodies of Japan should investigate into this issue and can advise listed companies to make improved disclosure on it.
The third Element where significant difference is observed between the two countries’ sampled annual reports is Risks and Opportunities. The current study finds that the sampled reports of the UK, in general, have made better disclosure on all items of this Content Element than their Japanese counterparts.
Specifically, the sampled UK corporate reports made a considerable disclosure on their risk management approaches, principal risks with explanations and updated status, and actions taken for mitigation.
However, regarding opportunities, the sampled reports of two countries have similar quality of disclosure.
Therefore, the difference in disclosure quality between these two countries’ corporate reports is basically due to disclosure on principal risks, their impacts and management issues and how these risks are linked to the strategic objectives and value creation of the business.
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