Raising Finance and Firms' Corporate Reporting Policies

The major purpose of a corporate annual report is to convey information about the company's affairs to outside parties. The information can be used both to monitor agency relationships (Jensen and Meckling 25; Watts 32) and to provide inputs into user decision models (e.g. Altman 3). Until recently, however, very little research had been conducted into annual reports in the U.K. and hence little was known about their effectiveness. This has been remedied, to some extent, in the last few years and there is now a growing body of literature relating to annual reports. For example, the major professional British accounting bodies commissioned a study to examine‘the scope and aims of published financial reports in the light of modern needs and conditions’. This resulted in the publication of The Corporate Report (ASSC 1), a document which recommended a number of radical changes. Other studies have investigated the degree of understanding of annual reports by private shareholders (Lee and Tweedie 26), the degree of consensus about the usefulness of annual report data (Firth 21), the actual degree of disclosure by British companies (Firth 22, 23), and the impact of accounting information on share prices (see Firth 20).1 The purpose of this paper is to add to the literature by reporting the results of an empirical study which examined one aspect of the corporate reporting policies of British firms, namely the changes in the quality and extent of voluntary financial disclosure when raising finance in the stock market.