Voluntary Disclosure

Concept of voluntary Disclosure

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The law requires all companies to disclose their financial information, together with additional information either in annual, half-yearly and quarterly financial reports. In this case, the description that best fits such law a requirement is a typical example of mandatory disclosure of information. Apart from the mandatory disclosure of information, the annual report contains the voluntary disclosure of information. Notably, there are other opportunities that can be used for voluntary disclosure including conference calls, press releases, websites, and other corporate reports (Sharma, 2013). There are several definitions on voluntary disclosure, but this paper borrows a definition postulated by a FASB committee, which defined voluntary disclosure as, disclosures, mainly outside financial statements, which are not explicitly required by GAAP or an SEC rule.

Notably, in practice, the difference amid mandatory disclosure and voluntary disclosure is not crystal. For instance, it is possible for companies to be under obligation by law to disclose information concerning environmental issues, but such information required for disclosure may not be defined. Owing to the definition provided by FASB, such disclosure requires a voluntary drive because the information that requires disclosure does not have a detailed description. It is possible to argue that there is an obligation to disclosing the information, which suggests that disclosing is a mandatory practice. In addition, information disclosure qualifies as information publicity, and the motive is to publicize information on securities in respect to the method of providing stocks, listing on the market as well as trading (Tian and Chen, 2009).

When companies issues security publicly to execute the information disclosure system, they act in line with the requirements of modern securities in the market. The disclosure system covers the whole process of securities’ issue and circulation. Notably, prior to the issue of stocks, the firms publicize stock-issuing introductions, listing announcements, interim reports, annual reports, and grave affair reports, which primarily include the firm’s operations and financial statements. Currently, voluntary disclosure is dominating in the securities market, primarily due to the interests, participator’s trading activities that made the securities identify a balance where disclosure of information completely and effective allocation of resources. Most importantly, the compulsory disclosure of information suggests that relevant laws and rules, clearly regulate the listed firms must actualize information disclosure.

In the case of voluntary disclosure, companies disclose the information voluntarily as a way to protect the company’s images, investors and avoid risks concerning accusation. The aim of voluntary disclosure is to introduce and elaborate the companies’ capabilities to the investors, drive the fluidity of capital market, decrease capital costs and guarantee effective allocation of capital. Nevertheless, the development of the information disclosure system suggests, voluntary disclosure of information emerges after compulsory disclosure of information. In this context, voluntary disclosure appears to be an extension and complement of the mandatory information disclosure. Historically, the two appeared to have different concepts; however relevant laws and regulations, comment that it is possible to transform the two mutually.

Nevertheless, in different economic, political, legal, and social settings, different states may face varied conditions in relation to voluntary disclosure mainly because of the different relevant laws. Notably, compulsory disclosure can influence the voluntary disclosure, although it cannot stop the disclosure of invalid information (Sharma, 2013), it can restrain the voluntary disclosure. Owing to this, it is possible for companies to adopt a partial disclosure strategy, which will give them a privilege to disclose positive or negative news, at their convenience. Compulsory disclosure and relevant market laws can influence voluntary disclosure in the following ways; firstly, reduce listed companies’ voluntary disclosure. This means that if companies’ should disclose additional information the voluntary disclosure will increase the costs incurred by the company, owing to processing of information, accusation risks, and loss of competitive advantage.

Secondly, poor quality of compulsory disclosure and inadequate market laws, company managers may adopt voluntary disclosure to send signals to the market, hoping to get positive feedback, which makes them disclose more information voluntarily. In addition, some scholars have studied the credibility of voluntary disclosures; the results suggest that along with progress on the quality of information in compulsory disclosure the quality of information on voluntary disclosure will also improve. In addition, if the period is long, punishment is effective, and the quality of information in compulsory disclosure can work well to evaluate the standards for the voluntary disclosure, which will make the company’s manager to provide valid information voluntarily (Tian and Chen, 2009).

Theoretical Framework

There are literatures conducted on corporate social responsibility. Some literatures report on the relationship between social performance and social disclosure, social performance and economic performance, and social disclosure and economic performance. The main problem in the studies is the conceptualization of the main issues because there is no consensus on the case of methodology and results, when compared. Therefore, it is not apparent whether it is feasible to use similar models for financial disclosure and social disclosure. Nevertheless, the nature of the relationships between social disclosures, economic and social performance require deep studies taking into consideration strategies of different companies, focusing on how the companies deal with demands of their stakeholders. Studies on social disclosure, which utilize economic theory, have been in the periphery of accounting theory. There are political studies applied legitimacy theory and stakeholder theory; however, in most cases legitimacy theory is predominantly used, when compared to stakeholder theory. In addition, the concept of theories in voluntary disclosure research is central to authors of substantial literatures (Orij, 2007).

Stakeholder Theory

There have been considerable debates concerning accountability of a given firm. The issue is whether a company’s liability should include parties in comparison to shareholders. Some of the theories, based on the primacy of interest of shareholders, ignore the non-shareholder parties with a stake in the events of a company. If the managers can maintain a good relationship with their stakeholders by improving the quality of disclosures to stakeholders, this will work well in generating a valuable status. Stakeholders refer to individuals, or group of people who can affect, or feel the effect of the company’s objectives. They include shareholders, employees, customers, suppliers, competitors, lenders, communities, government, and various groups, such as environmentalists, media and consumer advocates (Oliveira, Rodrigues and Craig, 2013).

Stakeholder theory is a system oriented theory because a company is part of a society, but represents the broader social system. The company operates within this society, and it operates to achieve a positive accountability to the stakeholders for its strategic view. The stakeholder theory has an ethical approach, which aims to prompt managers in order to recognize the legitimacy of different stakeholder interest. It also has a managerial branch, which stresses the need to manage the stakeholders. This means that the more crucial stakeholder resources are to the continued growth of a company, the greater the expectation that the company will address the stakeholder’s demands. Most importantly, the relationships between companies and their stakeholders are very vital because stakeholders are sources of wealth.

One way that companies strengthen the stakeholder relationship is by disclosing their company information voluntarily. Furthermore, sound stakeholder relationship is valuable, as it will assist the company to survive and prosper. On the other hand, intangibles and intellectual capital are valuable because they help the company achieve a competitive advantage. However, it is difficult to measure, categorize, and define the two aspects in financial statements. Owing to this, scholars suggest that disclosure should extend beyond the in order to . From the , a corporate disclosure helps in building the relationship between the company and stakeholders. This is because it is a strategy, which can help in managing or manipulating the demands of the diverse stakeholders (Oliveira, Rodrigues and Craig, 2013).

Nevertheless, many companies who have developed corporate reporting are central to a stakeholder perspective. These include intellectual capital reporting, triple bottom line form of reporting, social and environmental reporting, sustainability reporting, and integrated reporting, which combines the report on financial, intellectual capital and sustainability issues. However, there are some corporations, which have advocated guidelines that have advocated for voluntary disclosure of financial and non-financial information (Sharma, 2013), regarding intangibles and capital. In this context, it is likely that companies expect good stakeholder relations to be sound in an attempt to develop its reputation by differentiating it from its competitors. Nevertheless, these valuable intangible resources have the capacity to reinforce and strengthen relations with all the stakeholders.

Legitimacy Theory

Although there are several theories, which try to elucidate CSR disclosure practices, prior studies suggest that literatures on CSR mainly rely on legitimacy theory. Therefore, the theory is the most used in explaining corporate disclosures. In support of this, some scholars suggest that legitimacy theory has an advantage over other theories because it provides some disclosing strategies, which companies adopt to legitimate their existence. The theory emerges from the concept of organizational legitimacy. In addition, the theory postulates the companies will continually seek to ensure that they function within the boundaries of their respective societies (Bagnoli and Watts, 2005). Furthermore, companies would voluntarily report on activities if the firm perceives the activities were expected by the society within, which it operates. In addition, the theory depends on the idea that there exists a social contract between the company and its society.

This contract represents the expectations on how the company should conduct its routine operations. In this context, the company’s prosperity might be in threat if the society perceives that the company has violated this contract. Therefore, where the society feels dissatisfied with the company is operating in an unlawful manner, the society can revoke the social contract. In this context, consumers who comprise the society can reduce the demand for goods or services from the company; suppliers may reduce the supply of labor and financial capital to the company, or the stakeholders, specifically interest groups may lobby the government for increased taxes, fines, or regulations to forbid such actions, which do not comply with the society’s expectations. In addition, societal expectations may change over time; therefore, the company should make disclosures to be in line with the change (Sharma, 2013).

Most importantly, legitimacy is a resource, which every organization depends on for its survival. Legitimacy theory suggests that when companies consider a given resource as crucial, they will pursue strategies to ensure a continuous supply of the resource. In addition, such may include disclosures, or collaborations with parties considered legitimate. Furthermore, in a case where the company perceives that the organization’s operations do not comply with the society’s expectations, then the pursuant of legitimacy theory, companies may take precaution measures to achieve legitimacy. Owing to the reliance on perceptions by the theory, for the precautions to be in line with legitimacy, the company should opt for publicized disclosure as a measure. This shows the importance of public disclosures, such as those made by corporations in annual reports or other resources (Guthrie, 2006).

Accountability Theory

In economics, accountability is a concept in ethics, but it has several meanings. In the context of corporate governance, accountability refers to ethical liability to provide an account of the actions for which to be responsible. The essence of the accountability theory is that it is important in defining the nature of the association between corporate managers and the society. In addition, it develops the arguments as to why the corporations should report about their social, environmental, financial, and environmental performance. Nevertheless, the theories surrounding the concept of accountability serve as alternatives to the legitimacy theory. The theory perceives that firms are in a consensus that they are accountable to stakeholders. Therefore, they should recognize and accept responsibility voluntarily, which should reflect by disclosing their performance (Sharma, 2013).

In addition, the disclosure, from a stakeholder’s perspective is a right, which the firm should show by reporting their information to them. From an ethical perspective, when the firm voluntarily discloses their information, this is an act of accountability to the stakeholders. Most importantly, the accountability theory is central to concepts of inclusiveness, and stakeholder dialogue. However, prior studies recognize that there are difficulties when soliciting the views of stakeholders, hence, develop a model to establish a consensus on social responsibilities. Notably, the studies recognize that power is a barrier to stakeholder dialogue and accountability, hence questions whether organizations perceive they require being responsible. Owing to the barrier, which exists in establishing dialogue, makes the organization fail to recognize stakeholders.

Accountability theory focuses on notions of transparency, responsibility, consultation, and stakeholder engagement. In this context, prior studies suggest that firms rarely consult and most of their disclosures are not of the purpose of accountability to their stakeholders. Although the studies suggest that companies are not disclosing to be accountable, this notion requires testing (Sharma, 2013), but there is empirical evidence, which suggests that it is possible that companies use voluntary disclosures to gain legitimacy, but not to show their accountability (Deagan and Samkin, 2006). However, companies that are in line with corporate social responsibility are consistent with the idea of accountability because of the actions reflected (Sharma, 2013). When the society feels the concerns of a company in terms of social care, environmental care, charities, or any activity, whose action is for the good of the society, then the perception created is that of social responsibility. In addition, when such an organization lists of provide their voluntary disclosures in such a context; it is possible that the company has aspects of accountability.

The Gunn Limited

Voluntary Disclosures Relating to Financial Performance

Voluntary Disclosure

Page Number

Identified Theory

Positive or Negative

Injury and management

Page 10

Accountability theory

Negative: During injuries, employees will be out of work and this will negatively affect the financial performance

Exit native forestry

Page 22

Accountability theory

Negative: Initially, the forestry earned the organization substantial revenue

Approval of the mill project to proceed

Page 23

Legitimacy theory

Positive: The project would earn substantial revenue

The company is central to ethical and responsible decision-making

Page 33

Accountability theory

Positive: When the management works under guidance of ethics, corruption will lack, hence increase revenues

Communications with the shareholders

Page 33

Stakeholder theory

Positive: Including the stakeholders in company affairs can result to increased revenues


In the above table, the identified disclosures, best fit the financial performance category, mainly because the subsequent actions have an influence on the performance of the company. In the case of injury and management, employees might face injuries, which may influence the job performance. When there is an influence on job performance, this will influence the productivity of the firm, which in turn will influence the revenues of the company. The company is concerned for the injured employees, and this makes them accountable. Nevertheless, the trend on injuries shows a decrease from previous years, hence, does not give a poor financial performance in the future (ASX, 2014).

The company carried out successful hydrodynamic modeling tests, and wit gained the approval by the Commonwealth Environmental Minister Tony Burke in March 2001 for the mill project to progress. This approval will work well for the organization in the sense that the society together with the stakeholders, perceive the organization as legitimate. The approval was a strategy, which serves as a disclosing strategy and the organization operates within the bounds of the society, which the society will view as right and legitimate (Guthrie, 2006). This is a new venture, or project carried out by the company, moreover, it has the capacity to generate additional revenue for the company. In addition, this project will help the organization achieve a high and better financial performance in the future (Gunns Limited, 2011).

Communications with shareholders is a significant strategy, which has the capacity to develop sound stakeholder-company relationship. This shows that the company values the many stakeholders, mainly because the management knows the benefits of stakeholder inclusion. In addition, when stakeholders such as consumers may continue purchasing products from the firm, or can choose to boycott the products. Therefore, the stakeholders have substantial power, which may influence the company either positively or negatively, in the sense of financial performance. If consumers boycott products, it will influence financial performance negatively, whereas if the consumers continue purchasing products, it will influence financial performance positively. Most importantly, when the firm values the stakeholder’s views, it is in line with the stakeholder theory (Oliveira, Rodrigues and Craig, 2013).

Notably, stakeholders evaluate the organization’s financial performance by looking at the financial statements, and comparing the financials or fiscal years of the preceding years. It is a good way to monitor the growth of a company because stakeholders can gain an insight about the future financial performance of the company (Gunns Limited, 2011). In comparison to the disclosures identified for this paper, it is clear that they are effective in establishing the financial performance of the firm. In the annual report, the disclosures are reliable in determining the future financial performance of the firm (Merkely and Ross, 2010). The events that led to the appointment of an administrator for Gunn ltd, was due to the loss of $900 million. This appointment was predictable, and the company should have analyzed the situation at hand before matters got worse.

For instance, the company should have engaged the investors in the idea of its $2.3 billion pulp mill project. The analysis would have helped the company gain an insight on the perceptions of the stakeholders, especially the investors. In so doing, the investors would either support the project or reject the project. In addition, the company faced poor market conditions, and it had many debts. Nevertheless, it was clear that shifting from the would have adverse financial effects (ASX, 2014). This was a predictable case, which the company should have recognized if it has carried out analysis to determine the impacts of the same. Owing to this, the company appointed a voluntary administrator to help stabilize the company.


When the law requires companies to disclose their information, this is a mandatory disclosure of information. Firms can disclose their information such as, annual reports, websites, press releases, and many others in various ways. This paper makes it clear that this practice of disclosing information is strategic because it helps organizations gain legitimacy, and sound relationships with stakeholders and gain competitive advantage over other firms in the same line (Bagnoli and Watts, 2005). There are several theories, which have tried to explain voluntary disclosure, but of the many theories, legitimacy theory is the most popular. Research suggests that firms do not disclose their information as an act of accountability, rather than gain legitimacy from the diverse stakeholders.


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Gunns Ltd. (2011). Annual Report 2011. Retrieved from http://gunns.com.au/Content/uploads/documents/ASX_RELEASE_-_2011_10_24_-_2_-_Gunns_Limited_-_Annual_Report_-_2011.pdf

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