PUBLIC INVESTOR PERCEPTION TOWARDS INTERNET FINANCIAL REPORTING IN MALAYSIA

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1 PUBLIC INVESTOR PERCEPTION TOWARDS INTERNET FINANCIAL REPORTING IN MALAYSIA Mohd Noor Azli Ali Khan & Lee Han Siang Department of Accounting and Finance Faculty of Management Universiti Teknologi Malaysia ABSTRACT The purpose of this study is to identify the most useful components of internet financial reporting (IFR) in Malaysia firms from an IFR s user point of view. This study uses the public investor from online forum in Malaysia. The components of IFR are compacted to 50 items only to represent the components in IFR for the purpose of optimization. The result of this study indicates that the top five components user s reading preference and usage are: (1) annual report, (2) dividend, (3) current share price, (4) balance sheet and (5) historical share price. On the contrary, the features deemed unnecessary in IFR consist of: (1) audio-visual (video) recording of meeting, (2) multilingual, (3) external links, (4) site map, and (5) corporate calendar. The researcher extends prior research by conducting a research regarding the user s opinion on each of the components in IFR. The component of IFR in this research is summarized from the multiple previous researches conducted regarding IFR. The study contributes to this literature on how user rates the components in IFR and it uses a compact checklist of 50 attributes as a proxy for IFR components. Field of Research: Internet Financial Reporting, User Perception, Public Investor and Malaysia Introduction The revolution of technology is causing a great impact on human being, such as making the human life easier and more comfortable (European Commission, 2010). The innovation of computer and Internet allows information sharing in just a few clicks. The most obvious example is Facebook, the social network used widely in this age, especially among younger generations. Lymer (1999) claimed that the Internet can extend the possibilities of business information management within and between businesses and offers new ways of undertaking commerce and the creation of wealth. When users of the Internet increase, it also arouses the adoption of Internet Financial Reporting (IFR) and it becomes the major trend for public listed company. Researchers have stated that the implementation of IFR in Malaysia is still in its infancy stage (Hassan et al., 1999; Khadaroo, 2005; Al Arussi et al., 2009). Previous researchers believed that the traditional printed financial report will gradually be replaced with IFR in the future (Beattie and Pratt, 2003). The importance of IFR cannot be denied, as it can increase the awareness of the greenhouse effect and encourage the implementation of environmental friendly annual report. Corporate is changing from solely printed financial disclosure in paper version to a mixed-mode of printed and electronic financial disclosure on the web (Debreceny and Grey, 1999). In developed or developing countries, such as Malaysia, firms are using their corporate website as an efficient and low cost distribution medium for information (Hedlin, 1999). Besides, IFR allows the firms to reach unidentified consumer, unlike paperbased annual report which only targeted selected group (Momany and Al-Shorman, 2006). According to Ashbaugh et al. (1999), the financial information given can be considered reliable if it has been certified by an independent auditor. Unfortunately, they may generate unreliable information by 2013, Langkawi, Malaysia. (e-isbn ). Organized by WorldConferences.net 230

2 posting unaudited financial information and due to the faults of website security. Besides, inadequate website security will result in unreliable information, which is caused by immoral hacker activities (Ashbaugh et al., 1999). Worries will arise when irresponsible preparer intend to provide unaudited information on the web. Previous research shows that there is an obvious difference in approach taken between preparer and user towards IFR (Stainbank and Peebles, 2006). Preparer of IFR might provide inadequate IFR information, which may not meet the users needs (Baldwin and Williams, 1999).The understanding of the users perception on various aspects of Malaysian IFR is still indistinct (Ali Khan and Ismail, 2012c). In general, the objective of this study is to identify the most useful components of IFR in Malaysia firms from an IFR s user point of view. Understanding the user s needs is vital in order to provide a better vision for the preparer to plan and provide a better and useful financial statement for the sake of stakeholders and investor (IBFed, 2008; GAA, 2009). The paper contributes to the literature in two ways. First, it provides direct user rating to every each of the components in IFR. Second, it uses a compact checklist of 50 attributes as a proxy for IFR components. The remainder of the paper is organized as follows. Literature review is discussed in Section 2. Section 3 provides the description of research methodology. Empirical results of the study are display in Section 4. Lastly, Section 5 gives a conclusion and summary of this study, its limitation and recommendation for future research. 2. Literature Review IFR can be defined as the public reporting of operating and financial data of a business enterprise by the WWW or related Internet-based communications medium (Lymer et al., 1999). In this research, IFR is defined as information reporting activities of a corporation through their websites in the Internet to disclose corporate related information and financial information. In a study regarding user perception, Al-Htaybat et al. (2008) researched the user s perception on IFR in Jordan. The author discovered that the respondents from Jordan strongly agreed that IFR was being used, is assessable easily and is a clear source of information for user s decision making which is available at anytime and anywhere. They have also provided a link to future researches based on crosscountry comparison of user perception, which investigates the association of IFR and technology acceptance model (TAM) and examines the influence of perceived usefulness and perceived usability to the actual use of IFR. Furthermore, Ali Khan and Ismail (2012c) explored the perceptions of the benefits, factors, advantages and disadvantages of Malaysian IFR. The data were collected from four user groups that consisted of academic members, university students, organization managers, and bank officers. Their result showed that the three main benefits of companies adopting IFR are attracting foreign investors, promoting a company towards a wider range of public members and providing wider coverage for the organization. According to Stainbank and Peebles (2006) research in South Africa regarding the usefulness of corporate annual reports, preparers prefer the fair presentation of annual report, whereas users preferred comparability annual report. The financial information given by the preparer might not fit the user requirements. Various parties have criticized financial reporting worldwide in the past few decades for not adequately meeting the needs of users (Baldwin and Williams, 1999). The majority of users still rely on the annual report as their primary source of information, although the amount of information provided by annual reports is perceived to be inadequate (De Zoysa and Rudkin, 2010). The asymmetry of information may be caused by the preparers and users different approach towards information disclosed from a different point of departure. Meanwhile, asymmetry of communication occurs due to the fact that denominator is always taking the dominant role in deciding the nature and extent of information provision (Gowthorpe, 2004). 2013, Langkawi, Malaysia. (e-isbn ). Organized by WorldConferences.net 231

3 Ali Khan and Ismail (2013) revealed that the five most important IFR items that can explained the dimension of contents are income statement of current year, cash flow statement of current year, balance sheet of current year, annual report of current year and auditor report of current year. Meanwhile, the five most important item that can explained the dimension of presentation are annual report in PDF format, loading time of the website, link to homepage, hyperlinks inside the annual report and links to the table of contents. 3. Methodology This section outlines the sample selection procedure and the methodology of conducting the research. In this study, the respondents are selected from users of IFR in public investor groups and who also are Internet users. Hedlin (1999) revealed that the firms use Internet as a tool to communicate to public investor. Marston (1996) also noted that the purpose of investor relations information is to reach the financial community and public investors such that they are able to evaluate the company. However, Hamid (2005) concluded that Malaysian still yet fully utilize the potential of the internet by reaching out to foreign and public investor. The researcher believes that public investor group may provide valuable feedback such as the user group chosen by previous studies. Questionnaires will be published on the online forum e.g. investlah.com, lowyat.net, cari.com.my, carigold.com sahamas.net klse.i3investor.com, investalks.com and jbtalks.cc. Besides that, the sampling method will be based on non-probability sampling techniques due to the insufficient resources required to define the population (Chin, 2012). In this research, primary data will be collected through questionnaires. In this study, the questionnaire will be designed according to the self-administered type using Internet-mediated questionnaires and hard copy printed questionnaires which are delivered to each respondent and collected later. The questionnaire consists of questions regarding the level of interest and the usage of each component provided in IFR. The user will be asked to indicate the level of interest and the usage of each component provided in IFR. Items is answered in the form of 5-points Likert scales (1=Strongly Disagree, 2=Disagree, 3=Neutral, 4=Agree, 5=Strongly Agree). Previous research (Stainbank and Peebles, 2006) found that the preparers read the income statement more thoroughly but users prefer to focus on the cash flow statement in a corporate annual report. The previous research opens a window of opportunity for researchers to dig the similar questions which may be applied in this study. Knowing the user s behavior of interest and usage may provide an insight for the preparer focus on the particular components provided in IFR. Based on the literature reviews from previous studies, the research questionnaire consisted of 50 items that represent the components in IFR. The number of item was summarised from previous studies and a comparison was done in Table I. After summarizing all the items used to represent the components in IFR from previous studies, the components are compacted to 50 items only to represent the components in IFR for the purpose of optimization. The items were categorized into corporate information, financial information, information sharing and presentation and user support. Table 1: Components of IFR: A comparison with prior studies No Components A B C D E F G H I J Corporate information 1 Company history Shareholder structure Board of Directors Management Team 1 5 Vision Statement Information about managers (CV) Corporate social responsibility Financial information 8 Balance sheet / Statement of Financial Position Quarterly Reports Half Year Reports Interim Reports , Langkawi, Malaysia. (e-isbn ). Organized by WorldConferences.net 232

4 12 Annual report Auditor's report Income Statement/ Statement of comprehensive Income Cash flow statement Notes to financial statement Previous years Balance sheet Previous years Interim Reports Previous year s Annual Report Previous years Auditor's report Previous years Income Statement Previous years Cash flow statement Previous years Notes to financial statement Financial Summary for at least 3 years Financial ratios Financial data time series 1 27 Statements of changes in equity Financial highlight Segmental reporting Projected financial statements and forecasts 1 31 Financial data in processable format (e.g. Excel) Management report / Analysis Information sharing 33 Current Share price Historical share prices Share price performance for at least 3 years Dividend Analyst report/ Analyst Coverage 1 1 Presentation and user support 38 Industry Statistics or data Investor presentation Corporate calendar / Financial calendar Bursa announcements Corporate governance Information request/contact Press releases/information about the company in informative media 45 Frequently asked questions/ Help section Site map External links to related websites Search engines Audio or video files Multilingual A = Pervan (2006), B = Gakhar (2008), C = Desoky (2009), D = Aly, Simon and Hussainey (2010), E = Turel (2010), F = Al Arussi et al. 2011, G = Al-Htaybat (2011), H = Bozcuk, Aslan Arzova. (2011), I = Ali Khan and Ismail (2012a), J = Nurunnabi and Hossain (2012). 4. Empirical Results and Discussion Based on the 90 sets of usable data collected, 78.9% of the respondents are male respondents and only 21.1% are female respondents. About 16.7% of the respondents age is below 25 years old and 70% of the respondents are between years old. About 8.9% of the respondents are aged from years old and 4.4% of the respondents are more than 56 years old. 11.1% of the respondents have a secondary school level of education, 17.8% have a diploma certificate and about 61.1% of the respondents are degree or professional certificate holders. 6.7% of the respondents have a master degree and 3.3% have a doctorate degree. Furthermore, 87.8% of the respondents are working in a private sector, followed by 6.7% who are working in other organizations, such as non-profit organization and 5.5% who are working in the public sector, such as government. About 63.3% of the respondent are using IFR information as their primary decision making instrument and 24.5% are still using the traditional hard copy annual report. The remaining 12.2% of respondents are using another source of information such as research report, news, 2013, Langkawi, Malaysia. (e-isbn ). Organized by WorldConferences.net 233

5 forum, investment information website and newspaper. Table II show the profile of the respondent taken part in the study. Table 2: Profile of Respondent Demographic Item Frequency Percentage (%) Gender Male Female Age Below 25 years old years old years old years old and above Education Level Secondary school Diploma Degree/ Professional Master PhD Organization Public sector (e.g. government) Source of Information Private sector (e.g. most businesses & individuals) Other Hard copy Annual Report Corporate website / IFR information Other To determine the rating of components in IFR, respondents were required to provide feedback on 50 components based on how likely they would read and use the IFR provided on corporate websites. Respondents opinions were measured by using 5-points Likert scales whereby 1 represent very unlikely and 5 represents very likely. Table III presents the ratings of IFR components based on the value of the mean, similar to a previous study conducted by Ali Khan and Ismail (2012a). Table 3: Rating of Components in IFR Components Mean SD Rank Annual Reports Dividend Current Share Price Balance Sheet Historical Share Prices Income Statement Cash Flow Statement Analyst Coverage Quarterly Reports Half Year Reports Share Price Performance for at least 3 Years Previous Years Balance Sheet Financial Summary for at least 5 Years Previous Years Income Statement Previous Year s Annual Report Interim Reports Previous Years Cash Flow Statement Financial Highlight Auditor's Report Previous Years Auditor's Report , Langkawi, Malaysia. (e-isbn ). Organized by WorldConferences.net 234

6 Notes to Financial Statement Financial Ratios Previous Years Interim Reports Bursa Announcements Management Team Projected Financial Statements and Forecasts Press Releases/Information about the Company in Informative Media Previous Years Notes To Financial Statement Corporate History Shareholder Structure Management Report / Analysis Statements of Changes in Equity Industry Statistics or Data Board of Directors Segmental Reporting Financial Data Time Series Investor Presentation Vision Statement Financial Data in Processable Format (e.g. Excel) Corporate Governance Information Request/Contact Information about Managers (CV) Corporate Social Responsibility Frequently Asked Questions/ Help Section Search Engines Corporate Calendar Site Map External Links Multilingual Audio-visual (video) Recordings of Meetings When two components have equal mean value, the ranking is decided on smaller standard deviation. Smaller value of standard deviation means smaller variability and the data are close to the mean. Based on the finding, 11 out of 50 components of IFR show a mean score of 4.00 and above. The higher mean score can be interpreted to be of more importance to the user of IFR (Ali Khan and Ismail, 2012a). The ranking of the top five components of user s preference is: (1) annual report, (2) dividend, (3) current share price, (4) balance sheet and (5) historical share price. On the other hand, the features deemed unimportant in IFR consist of: (1) audio-visual (video) recording of meeting, (2) multilingual, (3) external links, (4) site map, and (5) corporate calendar. 5. Conclusion and Future Recommendation The result of this study gives a constructive output for the preparer to produce a better IFR presentation. The researcher extends prior research by conducting a research regarding the user s opinion on each of the components in IFR. The components of IFR in this research is summarised from the multiple previous researches conducted regarding IFR (Pervan, 2006; Gakhar, 2008; Desoky, 2009, Aly et al., 2010; Turel, 2010; Al Arussi et al., 2011; Al-Htaybat, 2011; Bozcuk et al., 2011; Ali Khan and Ismail, 2012a; Nurunnabi and Hossain, 2012). Unlike the previous researches which focused more on the disclosure index of IFR in a country; this study focuses on the IFR user s perception towards the usefulness and quality of IFR. It is observed that the top five components user s reading preference and usage are: (1) annual report, (2) dividend, (3) current share price, (4) balance sheet and (5) historical share price. On the contrary, the features deemed unnecessary in IFR consist of: (1) audio-visual (video) recording of meeting, (2) multilingual, (3) external links, (4) site map, and (5) corporate calendar. The preparer is urged to take 2013, Langkawi, Malaysia. (e-isbn ). Organized by WorldConferences.net 235

7 notes on these components as well as other components in IFR so that the usage of IFR will be promoted. Compared to the previous studies conducted by Ali Khan and Ismail (2010), they discovered that the income statement of current year, balance sheet of current year, cash flow statement of current year, auditor report of current year and annual report of current year are the top five important items in the content of IFR, from a preparer s perspective. The comparison shows that the preparer and user have different perceptions towards the importance of the IFR components. Based on the result of this study, the preparer of IFR may consider enhancing the presentation format and content of IFR based on the user s preference. The preparer may take the initiative to update the top five components listed in the result more frequently. For the five components with the lowest score, the preparer may seek the ways to improve the presentation of the components. The rating of IFR components in this study can be used as a guidance to indicate the user s preference. For example, the preparer can use more attractive features to present the user s preferred components of IFR. As with any study, there are limitations to this research. First of all, the research is carried in the context of users, specifically to stock investors in Malaysia only. Stock investors are the respondents in this study; therefore, the result of this study may not be applicable to other stakeholders of IFR. The future research can focus on the extensions of the current study. For example, it is interesting to perform a comparative study between countries, for example, users of Malaysia and users of other country. Acknowledgement The financial support for the research from Ministry of Education (MOE), Malaysia, Research Management Center (RMC), Universiti Teknologi Malaysia, Johor Bahru, Johor and Faculty of Management, Universiti Teknologi Malaysia, Johor Bahru, Johor. The authors also gratefully acknowledge the contribution of Norhayati Salleh and Nurul Ain Omar for completing this manuscript. References Al-Htaybat, K. (2011). Corporate online reporting in 2010: a case study in Jordan. Journal of Financial Reporting and Accounting, 9(1), Al-Htaybat, K., Alberti-Alhtaybat, L. v., & Hutaibat, K. A. (2008). Users' Perceptions on Internet Financial Reporting Practices in Emerging Markets: Evidence from Jordan. International Journal of Business and Management, 6(9), Al Arussi, A. S., Selamat, M. H., & Hanefah, M. M. (2009). Determinants of financial and environmental disclosures through the internet by Malaysian companies. Asian Review of Accounting, 17(1), Al Arussi, A. S., Selamat, M. H., & Hanefah, M. M. (2011). The Determinants of Internet Financial Disclosure: The Perspective of Malaysian Listed Companies. International Journal of Management Studies (IJMS), 18(1), Ali Khan, M. N. A., & Ismail, N. A. (2010). Kajian awal terhadap kepentingan item pelaporan kewangan menerusi internet. International Journal of Management Studies (IJMS), 17(2), Ali Khan, M. N. A., & Ismail, N. A. (2012a). An empirical study on the indexes of internet finacial reporting: The case of Malaysia. African Journal of Busines Management, 6(5), Ali Khan, M. N. A., & Ismail, N. A. (2012b). A review of e-financial reporting research. Journal of Internet and e-business Studies, 2012(2012), , Langkawi, Malaysia. (e-isbn ). Organized by WorldConferences.net 236

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