Information disclosure by family-controlled firms : The role of board independence and institutional ownership

The purpose of this paper is to investigate the influence of family control on the extent of voluntary disclosure in the annual report of Indonesian listed firms. Further, it seeks to investigate the role of corporate governance mechanisms in explaining the association between family control and voluntary disclosure. Governance mechanisms addressed here include board independence and institutional ownership.

This study employs a sample comprising non-financial firms on the Indonesia stock exchange that published the 2010 annual report. The voluntary disclosure index is computed for each sample firm, based on content analysis of the annual report. Cross-sectional regressions are performed to test research hypotheses.

Our evidence reveals that family control negatively and significantly influences the extent of information disclosure. This finding suggests that family-controlled firms have lower motivation to disclose additional voluntary information, which might unexpectedly expose private benefits maintained by the controlling family. We also find that the relationship between institutional ownership and disclosure is stronger in family firms. However, independent commissioners do not contribute to improving the extent of disclosure by family firms.

The present study contributes to the rare existing literature addressing the relation of family control to information disclosure. Further, the role of corporate governance mechanisms in promoting greater information transparency in family-controlled firms is still very rarely examined.