Corporate Governance

Purpose – The purpose of this paper is to provide Australian evidence on both the extent and key determinants of discretionary disclosure in company annual reports of information about top executives' share rights, options and termination entitlement. Such information has value-relevance to shareholders and the public, but prior evidence is lacking about the factors that influence top managements' decisions to voluntarily disclose or withhold personally sensitive details about their own remuneration.

Design/methodology/approach – The extent and nature of executive remuneration disclosure are obtained from the content analysis of annual reports of 191 Australian listed companies for the years 2003 and 2004, prior to a more detailed prescriptive regulatory environment occurring in this area when international financial reporting standards became effective in 2005. To explain the factors that could influence managements' decisions about the extent of discretionary disclosure details concerning their own remuneration, the perspectives of legitimacy theory and corporate governance structures are invoked. Relationships are hypothesized and tested between the extent of remuneration disclosure and the following variables: shareholder activism, media attention, company size, board composition and existence of a remuneration committee.

Findings – Regression results reveal significant relationships between these determinants and the extent of disclosures of rights, options and termination benefits of executives. These results suggested that, under a relatively unregulated environment, corporate management will react to community and shareholders' expectations by revealing personally sensitive information when their company is placed in a situation of higher shareholder and public scrutiny and when it is structured to meet expectations of good corporate governance.

Originality/value – This study advances knowledge of the influence that companies' legitimation circumstances and corporate governance structures can have on public disclosure decisions by management about the level of detail of their remuneration – information that is of high interest to shareholders and personally sensitive to management.