Internet financial reporting adoption: Exploring the influence of board role performance and isomorphic forces.
| Autor | Bananuka, Juma |
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Introduction
The usage of internet in financial reporting is on the increase among firms around the world (Dolinsek and Lutar-Skerbinjek, 2018; Mokhtar, 2017; Siala et al., 2014; Ettredge et al., 2002). According to FASB (2000), firms prefer the internet for financial reporting because of its low cost of disseminating information, providing timely information, enhancing the extent and type of information disclosed and improving access to potential investors. The use of firm's web site to disseminate information about its financial performance is termed as internet financial reporting (IFR) (Purba et al., 2013; Debreceny et al., 2002). IFR is thus preferred as compared to the manual (traditional) financial reporting because of its effectiveness in communication over a large group of people especially investors, lenders and other stakeholders at slightly a lower cost and in a timelier fashion (Dolinsek et al., 2014). Whereas there is an increased internet usage worldwide especially in the financial services firms, the usage of internet in emerging economies such as Uganda is still low. Internet usage in Uganda is at 31.4 per cent (about 13 million people) as compared to Africa's 35.2 per cent (Internet World Stats, 2017). According to Belson (2016), Uganda and Ethiopia are some of those countries with the lowest internet connectivity and this implies that firms must invest more resources in internet infrastructure to be able to upload financial reports on a timely manner. In the presence of low internet connectivity, there are financial services firms such as Stanbic Bank whose financial statements can be found on their websites while other financial services firms do not upload their financial statements on their websites. Questions thus continue to rise on what exact mechanism can be employed to ensure all financial services firms' financial statements are uploaded on their websites.
The current debate on IFR is on what determines its adoption. A number of studies have been conducted on the determinants of IFR but most of these studies have focused on firm specific characteristics (Aly et al., 2010; Dolinsek et al., 2014 Mokhtar, 2017), board independence (Abdelsalam and El-Masry, 2008), corporate governance efficiency (Botti et al., 2014) and Audit committee effectiveness (Bin-Ghanem and Ariff, 2016). The call for further studies by previous scholars is also common with the most recent being Mokhtar (2017) who called for further studies on the effect of corporate governance on internet reporting. In addition, Dolinsek and Lutar-Skerbinjek (2018) made a call for a study on IFR using perceptions since existent studies had relied on disclosure indices. In this study, a questionnaire survey is used to elicit views and opinions of chief internal auditors and chief finance officers. Mokhtar (2017) carried out a Meta analytic study on the determinants of IFR and his findings were that there is a significant positive association between firm size, profitability, leverage, auditor type and IFR. Mokhtar (2017) further found that investor protection, masculinity, economic development, construction of disclosure index and measurement proxies for independent variables moderate the association between profitability, leverage and IFR. In addition, Dolinsek et al. (2014) found that company size, ownership concentration, legal form and sector of operation have a significant relationship with IFR in Slovenia. Audit committee effectiveness was found to be significantly associated with internet financial reporting (Bin-Ghanem and Ariff, 2016).
There are hardly any studies that have linked board role performance and IFR. Available scant studies have linked board role performance in terms of strategic, control and service roles with internal controls over financial reporting (Nalukenge et al., 2017) and human capital (Nkundabanyanga et al., 2014). Nalukenge et al. (2017) found a positive significant association between board role performance and internal controls over financial reporting while Nkundabanyanga et al. (2014) found that board role performance is affected by prior decisions like investing in corporate social responsibility activities, targeting employees that augment firm characteristics like existence of appropriate human capital. Nkundabanyanga et al. (2014) argued that an improvement in the quality of human capital explains positive variances in board role performance. Studies that link isomorphic forces to IFR are uncommon. Isomorphic forces have been linked to voluntary disclosures by scholars such as Nyahas et al. (2017) who found that isomorphic forces are positively associated with voluntary disclosures of listed firms in Nigeria. DiMaggio and Powell (1983) categorize isomorphic forces into three: coercive, mimetic and normative. Given the scant literature on the contribution of board role performance and isomorphic forces using evidence from Uganda, this study aims to fill this gap. This is done through a questionnaire survey of 40 financial services firms in Uganda. Results suggest that, both board role performance and isomorphic forces (IF) are significant predictors of IFR and explain 23 per cent of the variance in IFR in Uganda.
The results in this paper are particularly important for several reasons. First, they contribute to existing literature by providing initial empirical evidence on the contribution of board role performance and isomorphic forces on IFR. This is important for regulators like the Bank of Uganda and Insurance Regulatory Authority to encourage financial services firms to disseminate financial performance information on their websites and for supervision purposes. Second, the results suggest to management of financial services firms to respond to pressures from various stakeholders, as this will enable them to enjoy the benefits of adoption of IFR. Finally, the results suggest that, the community and other external stakeholders can always demand for financial information via the internet as this saves the various stakeholders the cost of walking into bank premises to seek for information.
The rest of the paper is organized as follows. Section 2 reviews literature and develops hypotheses. This is followed by a discussion of the research methodology in Section 3. Section 4 presents results. Section 5 is discussion of findings while the final section is summary and conclusion.
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Literature review
2.1 Theoretical foundation
IFR is the distribution of corporate financial performance information through the entity's website to a wide range of users for timely decision making. IFR is a topical issue in the accounting arena, and we utilize the diffusion of innovation (DOI) theory and institutional theory to inform our study. The theory of DOI asserts that innovation diffusion is a general process not bound by the type of innovation studied, by whom the adopters are, or by place or culture (Rogers, 2003). Rogers (1995, p. 5) defined diffusion as the process by which an innovation is communicated through various channels overtime among the members of a social system. In accounting literature, DOI has been used in IFR and integrated reporting. In the context of accounting, diffusion refers to the spreading of new accounting procedures to and within organizations where they had not previously been present (Mellett et al., 2009, p. 747). Rogers' DOI theory is the most appropriate for investigating the diffusion of IFR among financial services firms since IFR is still new in the accounting arena especially in developing countries. Sahin (2006) further suggests that, for one to adopt an innovation, he or she will have the knowledge of what should be adopted, persuaded to adopt an innovation and a decision to adopt an innovation will be taken. Rogers (2003) further argues that uncertainty curtails the speed of adopting innovation but suggests that the adopters of a given innovation should be alerted on the benefits and dangers of such an innovation. DOI theory recognizes that the fact that in any firm, there should be those individuals who may spearhead an innovation and those individuals have been termed as change agents. DOI identifies managers or heads of institutions to spearhead an innovation among a social system. Management and board of directors who are the internal stakeholders will make decisions that aim at ensuring that the new accounting system is adopted and used if it can be beneficial to the entity. In the context of this study, the board can be the propagators of IFR if they perform their control, service and strategic roles.
The institutional theory is based on the key idea that the adoption and retention of many organizational practices are often more dependent on social pressures for conformity and legitimacy than on technical pressures for economic performance (Kessler, 2013; DiMaggio and Powell, 1983). The institutional theory is the most influential theory in recent decades addressing issues of institutional development (DiMaggio and Powell, 1983; Meyer and Rowan, 1977). This theoretical approach was developed in connection with the study of organizations (DiMaggio and Powell, 1983) but has since been expanded to cover the analysis of institutional change (Meyer and Rowan, 1977). The institutional theory suggests that organizations respond to pressures arising from both their external and internal business environments and adopt structures and practices that are accepted as appropriate organizational choices and considered legitimate by other organizations in their fields (DiMaggio and Powell, 1983; Meyer and Rowan, 1977). Similarly, Hoffman (1999) urges that institutional theory deals with how organizations are affected by external and internal forces which locate beyond their own control. These forces cause them to adopt similar structures and practices. Hence over time, the organizations tend to become similar or isomorphic (Hoffman, 1999; Meyer and Rowan...
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