An Agency Theory and Probit Analytic Approach to Corporate Non-mandatory Disclosure Compliance

Using the agency theory framework, this study examines the impact of corporate size, profitability, solvency, operational complexity, industry and auditor on the compliance with non-mandatory accounting pronouncements. Results of the probit analysis of 106 listed companies are generally consistent with agency theory hypotheses. In particular, companies that are large, profitable and highly geared are more likely to comply with non-mandatory accounting pronouncements. Also, companies in the industrial and commercial sector and companies audited by large public accounting firms are more likely to comply with nonmandatory pronouncements than do their counterparts. The hold-out accuracy rates of the probit model are 78.6% for non-compliance, 87.5% for compliance, and 84.0% overall.