The Journal of Developing Areas

Volume 50 No. 4 Fall 2016

DETERMINANTS OF INTERNET FINANCIAL
REPORTING IN AFRICAN MARKETS: THE
CASE OF MAURITIUS
Mohamed A. Omran
Gulf University for Science and Technology, Kuwait
Dinesh Ramdhony
University of Mauritius, Mauritius

ABSTRACT
The Internet has revolutionized the way individuals and companies access and share information.
Companies can now disseminate more information on a timely manner to stakeholders. Using
mixed theoretical perspectives on corporate reporting including legitimacy, stakeholder, and
signalling theories, this study investigates the extent and determinants of corporate reporting on the
Internet by firms listed on the official market of the Stock Exchange of Mauritius (SEM). We use
content analysis to examine information disclosed on firms websites. Data is collected from 34
companies websites including includes companies on the Official Market of the SEM. A
disclosure index consisting of 52 items (mandatory and voluntary items) is constructed based on
previous studies and adapted to the Mauritian context is used to measure the extent of Internet
Financial Reporting (IFR). The results indicate that company size, board size, and liquidity are
significant explanatory variables for the level of IFR. However, we find no significant relationship
between other variables (leverage, profitability, and audit quality) and the level of IFR. To the best
of our knowledge, no prior studies on drivers of IFR in Mauritius is available. Therefore this study
contributes to the scarce literature on IFR in the African region and Mauritius. The findings of this
study are expected to benefit several stakeholders including firms, legislators, and investors. It
provides a broader picture of the characteristics of firms which use the Internet to report financial
and non-financial information. Firms subject to the study can benchmark their IFR practices with
the average of all firms and take appropriate actions to enhance their visibility to investors.
Regulators and legislators can compare the IFR performance of Mauritian listed companies with
emerging stock markets to issue guidelines for enhancing disclosure on the Internet. Investors
require information to make informed investment decisions. The findings of this study can guide
them as to which corporate characteristics are associated with higher Internet disclosures, thus
saving them time in screening investment options.

JEL Classification: G29; G30; M14

Keywords: Internet financial reporting, Emerging stock market, SEM, Mauritius
Corresponding Authors Email Address: d.ramdhony@uom.ac.mu

INTRODUCTION

The massive use of the internet has prompted companies to set up websites to disseminate
financial and non-financial information. This initiative is mainly undertaken to meet
stakeholders demand for timely information, in more effective ways (Willis et al. 2003).
Mauritius is among the top five countries in Africa in terms of Internet penetration rate
(Internet World Stats 2012). This suggests that there is an increasing demand by
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Mauritians for information on the internet. Foreign investors account for more than 40
percent of the daily trading activities on the Stock Exchange of Mauritius Access to both
financial and non-financial information about Mauritian leading firms and its
accessibility at a simple click of the mouse are therefore of utmost importance for
investors.
Most of the studies undertaken in the field of IFR have concentrated on
developed countries. Boubaker et al. (2011) study the determinants of IFR in France.
Abd- Elsalam and Street (2007), Xiao et al. (2004), and Martson (2003) undertake similar
studies in UK, USA, and Japan respectively. Haniffa and Cooke (2005) guards against
the evaluation of voluntary disclosures using norms prevalent in developed countries. A
few studies have been conducted in developing countries such as GCC countries
(Mohamed and Basuony 2014), Indonesia (Puspitaningrum and Atmini 2012), Egypt
(Aly et al. 2010), Moroccan and Tunisian (Henchiri 2011), and Saudi Arabia (Hussainey
and Al-Nodel 2008). Thus our paper bridges the gap in the literature to provide evidence
of the determinants of IFR in a developing African market and in the case of small island
developing state.
The rest of the paper is organized as follows. Section 2 provides a literature
review of the IFR. Section 3 covers the theory and research hypotheses. Followed by
variable measurement in Section 4. Section 5 provides the methodology used for this
study. Section 6 presents the results of the study. The Final section provides the
conclusions of the study and avenues for further research.

LITERATURE REVIEW

There are many benefits of web-based reporting including ease of access, cost savings
associated with printing and sending paper based reports, widespread diffusion, and the
rapid comparison and analysis of data (Boubaker et al. 2011). The IFR is mainly
undertaken to meet stakeholders demand for timely information, in more effective ways
(Willis et al. 2003). In most instances this type of disclosure is voluntary and unregulated
(Martson 2003). Research on IFR has focused on Corporate Social Responsibility (CSR)
and environmental disclosure (Dutta and Bose 2008; Cho and Roberts 2010).
Studies on IFR can be traced back to 1996-1997, only one year after the start of
commercial interest in the Internet (Allam and Lymer 2003). The first set of studies
mainly focused on the existence of a corporate website and the type of information
disclosed (Debreceny and Gray 1999; Lymer 1999). The focus changed at the beginning
of the twenty first century. Researchers concentrated on the extent of IFR and the modes
of financial information disclosed on the Internet (Bonson and Escobar 2006; Abd-El
Salam and El-Masry 2008).
A number of empirical studies have investigated the link between corporate
characteristics (for instance, firm size, auditor quality, ownership dispersion, firm
performance, and cross listing) and IFR (Boubaker et al. 2011; Puspitaningrum and
Atmini 2012). However, these studies neglect one important element, which relates to the
responsibility of the information being published. Firms provide a vast amount of
information online ranging from description of products/ services to financial statements
and CSR information. The question, which arises, is: who bears the responsibility for the
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credibility of the information disclosed? Consequently, we include in our set of

explanatory variables, board size, as the board is ultimately accountable for information
disclosed on the Internet.

THEORY AND HYPOTHESES

Theory
According to Deegan (2002), legitimacy is a generalized perception or assumption that
the actions of an entity are desirable, proper, or appropriate within some socially
constructed system of norms, values, beliefs, and definitions. However, it is not a static
state as expectation of the community change over time. Therefore, IFR, which is
dynamic in nature, can help firms to discharge their duty towards the community. The
stakeholder theory is closely linked to the legitimacy theory. Whatever be the aims of the
organization, management must take into account the interest of those who affect and
those who are affected by the firms decision. The more powerful the stakeholders, the
more the company must adapt. As a result, IFR can be used as a tool to influence the
perception of stakeholders about the company (Willis et al. 2003).
According to Alavez et al. (2008), the disclosure of voluntary information is a
signal sent to capital markets to decrease information asymmetry between management
and other individuals in order to minimise finance costs and increase corporate value. In
line with the signalling theory, Craven and Marston (1999) assert that firms in the same
industry try to maintain the same level of disclosure so as not to be perceived by
stakeholders to hide bad news. They further point out that IFR is a sign that the firm is
modern and keeps abreast of new technology. In an attempt to reduce cost and contribute
towards a sustainable environment, listed firms can publish their annual report online or
send a PDF copy of the annual report to their shareholders. IFR can be one of the
signaling means, where companies would disclose more voluntary information than the
mandatory ones required by laws and regulations in order to signal that they are better
(Mahoney 2012; Thorne et al. 2014).

Hypothesis Development

Firm Size
Firm Size seems to have an important influence on the level of IFR. Results from prior
studies have confirmed a positive association between firm size and the level of IFR
(Debreceny and Rahman 2005). Large firms more likely use information technology to
improve financial reporting to meet great demand for their information. It is easier for
large firms to adopt an innovation, such as IFR and disclosure, as they have adequate
personnel as well as the necessary resources to adopt it. Moreover, large firms usually
have more current and potential shareholders than small firms, thus providing great
interest in publishing financial reports on the Internet (Xiao et al. 2004). Furthermore,
large firms attract more analysts than small ones; therefore their private information is
subject to more demand (Hope 2002). Signalling theory states that high profile
organizations like multinational firms provide enhanced disclosures (Martson 2003). A
spectrum of indicators can be used as yardstick to measure size such as turnover, total
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assets, number of employees, and number of shareholders among others. There is no clear
overriding reason for the choice of a particular indicator (Martson 2003). In this paper,
firm size will be measured by total assets. In the light of above discussion the first
hypothesis can be established as follows.
H1: There is a positive association between firm size and the level of IFR.

Profitability
Firms have an incentive to disclose more information, to signal the firms profitability to
investors in order to support management continuation of their positions and
compensation (Oyelere et al. 2003), and to raise capital at the lowest price (Marston and
Polei 2004). According to Stolowy and Breton (2004), when profitability is low,
managers are likely to disclose less information to conceal the reasons for losses or
declining profit and to avoid the negative effect on the firms market value. Empirical
results of the association between profitability and the level of IFR have yielded mixed
results. Pirchegger and Wagenhofer (1999) find a positive relationship between
profitability and the level of IFR for Austrian firms. The same association was found in
the case of Egyptian firms by Aly et al. (2010). However, the positive association is not
supported in the case of Japanese firms (Matson 2003), and of USA firm samples (Xiao
et al. 2004). In the light of the above, we therefore put forward the following non
directional hypothesis:
H2: There is a positive association between firm performance and the level of IFR.

Leverage
From an agency theory perspective, firms with high debt to equity ratio will voluntarily
disclose more information on the Internet in an attempt to reduce agency costs
(Debrecency et al. 2002). Though IFR involves extra cost, it enables companies to
provide timely reliable information (Ismail 2002). A higher leverage ratio increases
financial risk therefore shareholders will require more information on the firms financial
health (Xiao et al. 2004). Conversely, Oyelere et al. (2003) assert that leverage does not
provide sufficient explanation for the use of IFR. Instead they believe that differences in
traditional print based financial reporting environment and Internet reporting
environment and culture results in differences in costs, benefits, and demand and supply
structures of the two environments. Empirical evidence on the link between the level of
IFR and leverage is inconclusive; Xiao et al. (2004) and Ismail (2002) find a positive
association between leverage and IFR, while no relationship is found by Oyelere et al.
(2003). Therefore, we hypothesise that:
H3: There is a positive association between leverage and the level of IFR.

Liquidity
Agency theory states that firms with low liquidity ratio will disclose more information to
satisfy the needs of creditors. In contrast, signalling theory suggests that firms with high
liquidity ratio will disclose more information compared to companies with less favorable
liquidity ratio (Hassan et al. 2006). Mixed results are found by authors examining the
association between liquidity and level of IFR. Oyelere et al. (2003) investigate the
relationship between liquidity and IFR for New Zealand companies. They conclude that a
 5

positive association exists between the two variables. However, Abd- El Salam and El-
Masr (2008) find no association between liquidity and level of IFR. We put forward the
following hypothesis:

H4: There is an association between liquidity and the level of IFR.

Board Size
Appointment of a board of directors is one of the monitoring costs which a firm incurs to
ensure managers provide credible information to shareholders (Deegan 2002). The Board
of Directors bears the responsibility of the contents of the firms website. The size of the
board is critical in monitoring the performance of the organization. The larger the board
the wider are the perspectives brought to boards discussions. Larger boards bring more
experience and better advice (Ezat and El-Masry 2008). However, several authors outline
the drawbacks of large boards claiming that; it slows the decision making process, brings
lack to unanimity, which impacts on board effectiveness; diminished monitoring abilities
due to dispersed opinions (Rao et al. 2012). Said et al. (2009) and Rao et al. (2012) report
a positive association between board size and IFR, which is contrary to their prediction.
Our fifth hypothesis can be developed as follows.
H5: There is a positive association between board size and the level of IFR.

Auditor Quality
According to the signaling theory, firms, which use the services of Big 4 accounting
firms, send the message that they are committed to high quality disclosures (Healy and
Palepu 2001). Xiao et al. (2004) contend that international audit firms are diffusers of
innovative technologies. For instance, Price Waterhouse Coopers has developed a
system, which enables the comparison of financial statements of different companies.
The Big 4 accounting firms are also partners of Extensible Business Reporting Language
(XBRL). Thus, they are in a better position to advise their clients on IFR. Previous
research investigating the relationship between clients of large accounting firms and the
level of IFR has shown mixed results. Boubaker et al. (2011) and Xiao et al. (2004) find a
positive association between audit type and the level of IFR. While Aly et al. (2010) finds
no significant association between the two variables. Based on the above arguments, we
put forward the following hypothesis:
H6: There is a positive association between auditor quality and the level of IFR.

Industry Type
Signalling theory states that firms in the same industry tend to maintain the same level of
disclosure including IFR. If a company does not maintain the same level of disclosure as
its counterparts it could be interpreted as the company is concealing bad news (Craven
and Marston 1999). Cooke (1992) adds that differences in disclosure levels between
industries could also be attributed to the high level of voluntary disclosure by a dominant
firm within an industry, which leads to a bandwagon effect. Ferguson et al. (2002) claim
that IT firms are inclined to disclose more information and on a more regular basis
compared to other firms because they face larger risk of price fluctuation which compels
them to report information frequently. Martson (2003) states that industry differences in
 6

the level of IFR are expected to occur as high tech industries might wish to demonstrate
their technological awareness. Hussainey and Al-Nodel (2008), and Aly et al. (2010) find
a significant association between industry type and the level of IFR. On the other hand,
Martson (2003) and Craven and Martson (1999) find no significant association between
the two variables in the case of Japanese and UK companies respectively. Therefore, the
following hypothesis can be established:
H7: There is an association between industry type and the level of IFR.

VARIABLE MEASUREMENT

Dependent Variable IFR

In this study, the IFR disclosure index constructed by Xiao et al. (2004) with its 82 items
and based on frameworks of web-based disclosure by Deller et al. (1999), Pirchegger and
Wagenhofer (1999), Debreceny et al. (2002), and Marston and Polei (2004) has been
modified to suit the Mauritian context with 33 items of disclosure content and 19 items of
presentation format and accessibility factors (including both mandatory and voluntary
items). This index is chosen because it has proven its effectiveness and success in five
previous studies, its inclusion of both content and presentation format and its quick
comprehensiveness. Content denotes variation of information disclosed by companies in
their websites, while presentation characterises information appearance and technology
sophistication used in the companies websites (Puspitaningrum and Atmini 2012). The
use of both content and presentation can be suggestive of a firm not merely focusing on
reporting what is traditionally disclosed in paper-based statements and reports but also
embracing information technology support disclosure. A score of one is awarded if the
item is present; else, a score of zero is given. This unweighted dichotomous index was
selected as it does not focus on a single user group (Elsayed and Hoque 2010). Moreover,
it does not favour subjectivity as weights usually prove to be critical in developing
scoring systems and there are no significant differences in results obtained for both
weighted and unweighted indices (Xiao et al. 2004). The IFR disclosure index for each
company is calculated simply by dividing its actual score by the maximum possible score
a company can obtain. The maximum score reachable for this modified index is 52 (see
next page).

Independent Variables

The ways the independent variables are measured in this study can be shown as follows.
Variables Expected Sign Measures
Firm size + Natural logarithm of total assets
Profitability + Net Profit/Equity
Leverage + Total Debt/Total Equity
Liquidity - Current Assets/Current Liabilities
Board size + 1 for companies that have 9 members of board
directors or more; 0 otherwise
Auditor quality + 1 for companies that are audited by one of the Big
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4 Firms; 0 otherwise
Industry type 1 for manufacturing company; 0 otherwise

IFR DISCLOSURE INDEX

Disclosure Content Items

General Information Past and Complete Set of Financial Information

1. Background or history of the organization 13. Statement of Financial Position

2. Services or products provided 14. Statement of Comprehensive Income
3. Market share of key products 15. Statement of Changes in Equity
Current and Complete Set of Financial Information 16. Statement of Cash Flows
4. Statement of Financial Position 17. Notes to the accounts including accounting policies
5. Statement of Comprehensive Income 18. Annual Report
6. Statement of Changes in Equity 19. Quarterly Reports
7. Statement of Cash Flows 20. Auditor's Report
8. Notes to the accounts including accounting policies 21. Share Prices
9. Annual Report
10. Quarterly Reports
11. Auditor's Report
12. Share Prices

Financial Indicators

22. Usage of comparative figures 28. Other ratios

23. Summary of financial data over a period of at least
29. Press releases
three years
24. Segmental reporting 30. Financial calendar
25. GAAP basis in the year reported 31. Share price performance in relation to stock market index
26. Disclosure of risk or risk management 32. Auditors signature
27. Earnings per share 33. Auditors name printed

Presentation Format Items

Investor Relations and Related Conveniences Technology and User Support

7. One click to get to investor relations or financial

1. Contact us
information
2. E-mail 8. Internal Search Engines
3. Postal address 9. Table of content/sitemap
4. Telephone number 10. Hyperlinks inside the annual report
5. Frequently asked questions 11. PowerPoint or presentation of financial data
6. Link to the stock exchange web sites 12. Use of frames and clear boundaries for annual reports
13. Analysis tools and advanced features
Material Processable Formats
 8

14. Financial data in Excel 15. Financial data in Word

16. Financial data in PDF format 17. Graphics or diagrams
18. Financial data in HTML 19. Video or audio files

RESEARCH METHODOLOGY

The SEM is made up of the Official Market and the Development and enterprise market
(DEM). A total of 42 companies are listed on the Official Market of the SEM. A Google
search is made to identify the websites of companies in our sample. In case of failure, the
companies are contacted by phone using the Mauritius Telecom directory and asked to
provide their website address if any. Data is collected from 34 companies websites. A
disclosure index (IFR) consisting of 52 items (mandatory and voluntary items) was then
constructed based on previous studies. The sample for this study includes all companies
on the Official Market of the SEM. The highest represented sector is investment (26
percent or 9 companies) followed by both commerce (17 percent or 6 companies) and
industry (17 percent or 6 companies). On average, firms have a score of 37.59 out of 52
IFR items (72.29 percent) indicating that they still have improvements to make,
especially in their use of technology. Table 1 provides the total IFR disclosure index
(IFR) and the subcategories disclosure index for each industry type. There have been
seven types of variables investigated in the context of financial reporting online and they
are formed in two groups; Disclosure Content Items (DCI) and Presentation Format Items
(PFI). DCI include GI, CCSFI, PCSFI, and FIND. Whereas PFI contains IRRC, TUS, and
MPF.

TABLE 1. IFR AND ITS SUBCATEGORIES FOR EACH INDUSTRY TYPE

Industry Type N GI CCSFI PCSFI FIND IRRC TUS MPF IFR

(34) (3) (9) (9) (12) (6) (7) (6) (52)
Banks and Insurance
5 3.00 8.20 7.80 8.80 4.60 4.00 2.80 39.20
and others finance
Commerce 6 2.80 7.40 7.20 8.60 3.80 3.60 2.60 36.00
Industry 6 2.33 7.50 7.17 8.17 3.33 3.00 2.67 34.17
Investments 9 2.78 8.33 8.11 9.11 4.33 2.89 2.89 38.44
Leisure and Hotels 4 3.00 8.25 7.75 9.50 4.50 3.25 3.50 39.75
Sugar 2 3.00 8.00 8.50 10.00 4.50 4.00 3.00 41.00
Transport 1 3.00 8.00 8.00 9.00 5.00 4.00 3.00 40.00
Foreign 1 3.00 6.00 7.00 9.00 4.00 3.00 3.00 35.00
Global and Specialised
1 3.00 7.00 6.00 8.00 4.00 3.00 4.00 35.00
Funds
Note: IFR: Total internet financial reporting disclosure index; GI: General information; CCSFS:
Current and complete set of financial information; PCSFI: Past and complete set of financial
information; FIND: Financial indicators; IRRC: Investor relations and related conveniences; TUS:
Technology and user support; MPF: Material processable formats
 9

Table 2 provides the descriptive statistics for dependent variable (IFR) and its
two subcategories. The mean score obtained for DCI is 27 items (81.81 percent) form 33
information items whilst the mean score for PFI is 10 items (52.63 percent) form 19
information items. For DCI, companies highly disclose GI, followed by FIND, CCSFI,
and PCSFI. For PFI, companies disclose most of IRRC TUS, followed by MPF, and
TUS.

TABLE 2. DESCRIPTIVE STATISTICS FOR VARIABLES OF THE STUDY

Minimum Maximum Mean Std. Dev. Skewness Kurtosis

Variables
Statistic Statistic Statistic Statistic Statistic Std. Err. Statistic Std. Err.
Dependent variable and its categories
IFR (52) 28 44 37.59 4.560 -0.527 0.403 -0.630 0.788
G I (3) 1 3 2.79 0.592 -2.728 0.403 6.050 0.788
CCSFI (9) 6 9 7.88 0.946 -0.438 0.403 -0.655 0.788
PCSFI (9) 6 9 7.65 0.981 -0.234 0.403 -0.860 0.788
FIND (12) 7 10 8.88 1.008 -0.506 0.403 -0.771 0.788
IRRC (6) 2 6 4.15 0.925 -0.552 0.403 0.141 0.788
TUS (7) 1 5 3.32 1.007 -0.524 0.403 0.145 0.788
MPF (6) 2 4 2.91 0.621 0.053 0.403 -0.232 0.788
Independent variables
SIZE 7.56 11.40 9.582 0.841 -.068 0.403 0.442 0.788
PROF -2.70 -0.16 -1.05 0.530 -1.151 0.403 2.488 0.788
LEV 0 1 0.21 0.227 1.250 0.403 1.129 0.788
LIQ 0 10 1.98 2.485 2.258 0.403 4.295 0.788
BRD 0 1 0.68 0.475 -.790 0.403 -1.466 0.788
AUD 0 1 0.53 0.507 -0.123 0.403 -2.113 0.788
INTY 0 1 0.24 0.431 1.306 0.403 -0.315 0.788
N (listwise) 34 34 34 34 34 34 34 34
Note: For definitions of dependent variables, see Table 1.
SIZE: Firm size; PROF: Probability; LEV: Leverage; LIQ: Liquidity; AUD: Auditor quality; BRD:
Board size; INTY: Industry type.

Table 2 indicate that the overall IFR and all its categories (except GI) are
normally distributed because both Skewness and Kurtosis coefficients are not
significantly different from zero at the 0.05 level of significance (z value is between -1.96
and + 1.96). It is also observed that three independent variables, namely firm size,
leverage, and auditor quality are normally distributed. Therefore, the method of linear
regression would seem quite appropriate.
The correlation matrices presented in Tables 3, 4 and 5 indicate many interesting
relations between variables within each of the two variable categories in the study (DVs,
and IVs). From these Tables it can be seen the correlation between different proxies for
the IFR and their expected determinants as well as the correlations among the
 10

explanatory variables. Table 3 presents the correlation matrix for IFR and its categories.
Overall, the level of IFR has a positive and significant correlation with all subcategory
disclosure indexes. FIND, CCSFI, and PCSFI have higher correlation (0.904, 0.881, and
0.825 respectively) than other categories of IFR at the 0.01 level. On the other hand, MPF
have positive correlation (0.420) with IFR at the 0.05 level.

TABLE 3. CORRELATIONS MATRIX FOR IFR AND ITS CATEGORIES

Variables IFR GI CCSFl PCSFI FIND IRRC TUS MPF

IFR 1
GI 0.254** 1
**
CCSFI 0.881 0.118 1
PCSFI 0.825** 0.289* 0.624** 1
FIND 0.904** 0.415** 0.830** 0.612** 1
IRRC 0.544** 0.555** 0.405* 0.419* 0.364* 1
TUS 0.713** 0.522** 0.482** 0.473** 0.579** 0.426* 1
MPF 0.420* 0.279 0.265 0.333 0.371* 0.058 0.324 1
N 34 34 34 34 34 34 34 34
**. Significance at the 0.01 level.
*. Significance at the 0.05 level.
Note: For definitions of variables, see Table 1.

Table 4 reveals that there are also some significant correlations across the
independent variables. SIZE positively and significantly correlates with both LEV and
BRD (0.477 and 0.530 respectively) at the 0.01 level. Given the magnitude of these
correlations among the independent variables, it is difficult to draw inferences when all of
the variables are included in a multivariate regression if the correlations are more than
0.80 (Groebner et al. 2005). While the results confirm some significant correlations
among the explanatory variables, the magnitude of these correlation coefficients, which
does not exceed 0.53, does not indicate a serious collinearity problem.

TABLE 4. CORRELATION MATRIX FOR INDEPENDENT VARIABLES

Variables SIZE PROF LEV LIQ AUD BRD TYPE

SIZE 1
PROF 0.009 1
**
LEV 0.477 -0.223 1
LIQ 0.043 0.146 -0.258 1
AUD -0.025 0.173 0.170 -0.085 1
**
BRD 0.530 -0.275 0.286 0.089 -0.148 1
INTY -0.039 0.156 0.042 -0.036 -0.033 0.087 1
**. Significance at the 0.01 level.
Note: For definitions of variables, see Table 2.
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Table 5 provides a preliminary indication that several of the independent

variables interactions are associated with both of the overall IFR and subcategory
disclosure indexes. Three independent variables are significantly and positively
correlated with the overall IFR. SIZE and BRD have higher correlations than other
variables (0.660 and 0.482 respectively) at the 0.01 level. While LEV positively and
significantly correlates with the level of IFR (0.433) at the 0.05 level. These variables
also are significantly and positively correlated with CCSFI, PCSFI, FIND, IRRC, and
TUS. However, the rest of independent variables (PROF, LIQ, AUD, and INTY) have
negative but insignificant correlation with the level of IFR.

TABLE 5. CORRELATION MATRIX FOR DEPENDENT AND

INDEPENDENT VARIABLES
Variables IFR GI CCFSI PCSFI FIND IRRC TUS MPF
** ** ** ** ** **
SIZE 0.660 0.183 0.805 0.566 0.547 0.510 0.460 0.159
PROF -0.245 -0.214 -0.210 -0.338 -0.181 -0.196 -0.086 -0.014
* * * * *
LEV 0.433 0.032 0.435 0.325 0.415 0.379 0.364 0.145
**
LIQ -0.241 0.166 -0.141 -0.327 -0.459 -0.257 -0.027 -0.023

AUD -0.034 -0.131 0.071 -0.100 -0.052 -0.042 0.070 -0.040

** ** ** * * *
BRD 0.482 0.295 0.452 0.463 0.361 0.387 0.352 0.106

INTY -0.212 -0.280 -0.153 -0.084 -0.144 -0.318 -0.041 -0.147

**. Significance at the 0.01 level.
*. Significance at the 0.05 level.
Note: For definitions of variables, see Table 2.

RESULTS

To test the hypotheses of this study, multiple regression model to be estimated is based
on the following equation:

IFRi = 0 + 1 SIZE + 2 PROF + 3 LEV + 4LIQ + 5 BRD + 6 AUD + 7 INTY + e

Where IFR Total Internet financial reporting disclosure index for the participant, 0 =
Constant (Intercept), SIZE = Firm size, PROF = Profitability, LEV = Leverage, LIQ =
Liquidity, BRD = Board size, AUD = Auditor quality, INTY = Industry type, and e = the
difference between the predicted and observed value of TDI for th participant (the error
term). The expected signs of the coefficients are 1 > 0, 2 > 0, 3 > 0, 4 > 0, 5 > 0, 6 >
0, and 7 > 0 respectively.
Panel A in Table 6 shows that the coefficients SIZE is positive and highly
significant for the level of IFR at p< 0.01 level. While the coefficient of LIQ is negative
and significant at p< 0.05, the coefficient of BRD is positive but not significant. While
the coefficients of AUD and INTY are negative but not significant. Finally Panel A in
 12

Table 6 provides that the model is significant at a p< 0.01 level (F = 5.637). The adjusted
R reveals that, 0.496 of IFR is explained by the explanatory variables.
A summary of the regression procedures is shown in Panel B in Table 6. Seven
explanatory variables are added to the model one by one to determine the change in the
explanatory power (R2) of the regression equation (at a p< 0.05 level). FQ determines the
influence of each additional independent variable to R2. Note that, three independent
variables (PROF, LEV, and AUD are not included in the model because their inclusion
does not increase R2. The results show that by omitting these variables from the model,
R2 does not fall significantly (0.602 to 0.589). These results indicate that, PROF, LEV,
and AUD have no influence on the level of IFR for the SEM. Thus these results provide
no support for hypotheses Two, Three, and Six.

TABLE 6. RESULTS OF REGRESSION TEST

Panel A: Result of Multiple Regression Analysis

IFR = 8.013 + 0.550 SIZE - 0 .120 PROF + 0.031 LEV - 0 .263 LIQ + 0.189 BRD 0 .005 AUD - 0.199 INTY

Variables Predictor Coefficient Std. Error T- Value P- Value

SIZE + 0.550 0.992 3.239 0.003***
PROF + -0.120 1.137 -0.838 0.409
LEV + 0.031 3.172 0.196 0.856
LIQ - -0.263 0.242 -1.995 0.050**
BRD + 0.189 1.553 1.181 0.248
AUD + -0.005 1.182 0.042 0.967
INTY -0.199 1.369 -1.537 0.136
Constant .013 8.666 0.925 0.364
S.E of regression 3.238
R 0.603
Adjusted R 0.496
F Value 5.637; P = 0.000
DF - Model 7
DF - Error 26

Panel B: Summary of Stepwise Regression Results for IFR

IFR = 8.013 + 0.550 SIZE - 0 .120 PROF + 0.031 LEV - 0 .263 LIQ + 0.189 BRD 0 .005 AUD - 0.199 INTY

Model Variable R Adjusted R F-Value

1 SIZE 0.436 0.418 24.754***
2 LIQ 0.509 0.477 16.057***
4 INTY 0547 0.502 12.070***
5 BRD 0.589 0.532 10.381***

Panel C: Results of the Final Regression Routine for IFR

IFRi = 9 .812 + 0 .535 SIZE 0.294 LIQ 0.222 INTY + 0.244 BRD

Variables Coefficient Std. Error T- Value P- Value

SIZE 0.535 0.766 3.789 0.001***
LIQ -0.294 0.220 -2.453 0.020**
INTY -0.222 1.274 -1.849 0.075*
BRD 0.244 1.364 1.719 0.096*
Constant 9.812 6.957 1.410 0.169
 13

S.E of regression 3.119

R 0.589
Adjusted R 0.532
F Value 10.381; P = 0.000
DF - Model 4
DF - Error 29

***: p< 0.01. **: p< 0.05. *: p< 0.10.

Note: For definitions of variables, see Table 2.

To select the optimum model, further iterations are done by omitting SIZE first,
and then LIQ, INTY, and BRD from the model to assess their impacts on R 2 of the
model. The results show that, by omitting any of these variables from the model, R 2 drops
significantly. These results indicate that SIZE, LIQ, and BRD have significant influence
on the level of IFR for the companies listed on the SEM. Consequently, hypotheses One,
Four, and Five are accepted. The insertion of INTY to the model increases R2
significantly, and its estimated beta coefficient in the model is negative and significant at
a p< 0.10 level. This indicates that INTY has influence on the level of IFR. As a result,
SIZE, LIQ, BRD, and INTY are incorporated in the final result of the model.
Panel C in Table 6 shows the final results of the regression analysis. The level of
IFR is positively and significantly associated with the SIZE and BRD (p< 0.01 and 0.10
respectively). It is also negatively and significantly associated with the LIQ (p< 0.05) and
INTY (p< 0.10). The Model is significant at a p< 0.01 level (F = 10.381). The adjusted
R2 statistic (0.532) is consistent with other studies related to IFR in developing counties,
for example Al Arussi et al. (2009) in Malaysia (adjusted R2 = 0.43) and Henchiri (2011)
in Tunisia and Morocco (adjusted R2 = 0. 504).
Finally, the results of this analysis reveal that many variables are associated
significantly (p< 0.01) with the level of IFR for the SEM and are consistent with the
hypothesised directions (H1, H4, H5, and H7). However, these result are valid only to the
extent of the disclosure index used (a partial index) and to the time period of this study.

CONCLUSIONS

The study investigates the relationship between corporate characteristics and the level of
IFR for firms listed on the official market of the SEM. The results show that size is
significantly and positively associated with the extent of IFR. The findings concur with
studies conducted by Martson and Polei (2004) and Sriram and Laksmana (2006). The
results add evidence to the signalling effect of IFR by larger sized firms to demarcate
themselves from smaller firms. The level of IFR is significantly and positively associated
with board size showing that a larger board size is in a better position to monitor
disclosure on the internet. The results are also in line with the agency theory which
claims that a larger board will avoid agency problems by enhancing disclosures. We
report a negative significant relationship between liquidity and the level of IFR. A
possible explanation could be that firms which are highly liquid do not have to reassure
stakeholders about their liquidity position and as such would make less disclosure.
Moreover, firms with low liquidity ratio make more disclosure to meet the needs of
creditors which are in line with the stakeholder theory.
 14

The findings show no significant relationship between profitability and the level
of IFR of firms listed on the official market of the SEM. The results are in accord with
Xiao et al. (2004). However, the results are contrary to the prediction of the signalling
theory, which claims that highly profitable firms show good news by making more
disclosures. The results exhibit no significant relationship between leverage and IFR. The
results match those of Oyelere et al. (2003) and Aly et al. (2010). The findings of our
study contradict the agency theory, which posits that highly geared firms will provide
more disclosures to suppliers of finance to help them understand the firms ability to meet
debts. Unlike Anglo-American countries the main source of debt in Mauritius comes in
the form of bank loans and corporate bonds are quasi inexistent. Since banks can request
special purpose reports to monitor the ability of businesses to meet their debts, highly
leveraged firms find no benefit in increasing disclosures as extra costs are involved.
Using the services of a Big 4 accounting firm is not found to significantly influence the
level of IFR.
The findings of this study have several practical implications. It opens a window
for promoting investment on the SEM, which is unknown to many potential investors.
The dissemination of findings about listed companies can increase the awareness of the
SEM among investors which have an interest in emerging markets. The SEM can use the
findings to improve the level IFR of listed firms. The SEM can issue guidelines on
aspects of disclosure which need improvement. Firm subject to the study can compare
their IFR practices with the average of all firms which can act as a benchmark for them to
identity areas of strength and weaknesses in disclosures.
Conclusions drawn from the findings are limited to firms listed on the SEM at
the time of the study and cannot be extended to all firms operating in Mauritius. Only
53.2 percent of the variation in IFR is explained by the independent variables under
consideration. This indicates that there are other variables which affect the level IFR,
which have not been included in the model. Future research can consider including other
variables such as ownership structure and corporate governance characteristics that can
potentially affect the level of IFR. The economic consequence of IFR in terms of effect
on share price and profitability can also be the subject of future research.

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