An Econometric Analysis of Timeliness of Banking Sector in India

Dr. Amitabh Joshi*, Rashmi Sharma*, Paragg Nigam* , Priya Tiwari**, Preeti Sharma***, Rashmi Yadav**** & Heena Yadav****

Acknowledgement
The authors are thankful to Prof. Dr. R.C. Sharma (Dean, Dept. of Management Studies DAVV, and Indore), Prof. Dr. Rajendra Jain (Director PIM Dewas) and all the faculty members of PIM Dewas for helping and guiding us on this topic.

Abstract
The timeliness has been defined as the difference between the last day of the accounting year and the day of annual general meeting for finalization and display of final accounts. IASC on frame work for the preparation and presentation of financial statements states that if there is undue delay in reporting of information it may lose its relevance. Management may need to balance the relative merits of timely reporting and the provisions of reliable information. To provide information on timely basis, it may often be necessary to report before all aspects of a transaction or other events are known, thus enhancing reliability. In this paper, an attempt has been made to study the relationship between Experience & Earnings on Timeliness of Annual Reporting. Data was collected of 30 Banks for the year 2010. Linear Regression was applied on the sample and the results show that the Independent Variables does not affect the Timeliness of reporting in these banks. * Faculty, Prestige Institute of Management Dewas, ** Adjoint Faculty, Prestige Institute of Management Dewas, *** Faculty, Indore Institute of Science & Technology, Indore **** Student, Prestige Institute of Management Dewas,

Introduction:
Transparency is a very important component of financial reporting. Companies must disclose anything that might influence the investment decision of an informed investor. Nothing of consequence should be hidden. This rule is widespread and pervasive. Stock exchanges require it. Government agencies require it. Various accounting rule making bodies require it, including the Financial Accounting Standards Board in the United States and the International Accounting Standards Board. One aspect of transparency is timeliness. Timely disclosure and presentation of information improves the image of the corporate body. It shows managerial efficiency and effectiveness. It reflects swiftness in finalization of accounts and their presentation. It enriches the relationship among management and user groups. It has been pointed out by Bibuti Pradhan that Timeliness of annual reports is an important determinant of their usefulness. Value of information depends upon a particulars persons need of desire to use. However, economic and financial decisions by users of the annual reports are greatly influenced by the time value of information. In general, the value of the information diminishes with increase of time lag in publication of annual report of a concern. Their need for timeliness in corporate reporting has been recognized by company law, accounting profession, stock exchanges and other relevant acts of incorporation of corporate bodies. The information users should be able to reach information they need in a timely manner in the case where they are in a position to make a decision or anticipate. Within this context, timing of information is at least as important as the content of that for financial information users. Information users consider that timing of financial reporting is an important complementary factor of accounting information. In addition to this fact, stocks values of publicly held companies are assumed to be formed in the market by primarily being based on such disclosed information. Disclosure time of financial results, which are important indicators of firm performance, is a determining factor of firm value formed in the market.

Environments of Financial Reporting in India

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The financial reporting and disclosure of banking companies in India are regulated by the Companies Act 1956, the Banking Regulation Act 1949, the rules of the Securities and Exchange Board of India (hereafter SEBI), and the guidelines of the Reserve Bank of India (hereafter RBI), as well as the recommendations of the Institute of Chartered Accountants of India (ICAI). The Banking Regulation Act 1949 provides a framework for regulation and supervision of commercial banking activity. Section 29(1) of the Banking Regulation Act 1949 states that at the expiration of each calendar year, every banking company shall prepare a balance sheet and profit and loss account, in the forms set out in the Third Schedule Form A and Form B of the Act respectively. Section 30(1) states that the balance sheet and profit and loss account should be prepared in accordance with Section 29 and audited by a person duly qualified under law. Section 31(1) also states that the accounts and balance sheet, together with the auditor's report, shall be published in the prescribed manner and three copies thereof shall be furnished as returns to the RBI within three months from the end of the period. Section 32 requires that three copies of the accounts and balance sheet, together with the auditor's report, should be sent to the Registrar of Company Affairs.

Review of literature:
Joshi (2005) observed that all the hypothesis are accepted i.e. various company characteristics doesnt affect Auditors time lag, Reporting time lag and Total time lag except the effect of Share Capital on Reporting time lag and total time lag. This can be minimized, if government allows non-voting shares. This will ease the pressure on companies and the effect of share capital on total time lag and Reporting time lag. Dogan et al (2007) They examined the relationship between a set of explanatory variables (such as good or bad news, financial risk, size, industry) and the timing of annual report releases in ISE listed companies. The results of regression show that timeliness in reporting by ISE listed companies is influenced by their profitability. They found that good news firms (measured by ROE and ROA) release their annual reports earlier than bad news firms. In addition, the results indicate that the timing of annual report releases is significantly affected by company size, increased financial risk, timing policy of past years, and companies characteristics. Timing of disclosing financial information is also important for preventing trading activities of insiders, unofficial disclosure of news and market rumors (Ansah, 2000: 241). As compared with developed markets, protective measures and sanctions regarding prevention of trading 3

activities of insiders can be insufficient in emerging markets. Nevertheless, while doing this, companies of emerging markets are in a tendency to disclose less information and to behave slowly as compared with that of developed markets. Influences of timing of financial reporting should be expressly stated to minimize such activities which damage the efficacy of market in emerging markets (Lewentis ve Weetman, 2004:43). Relationship between disclosure timing of companies financial statements and content of disclosed information, and response given by market with respect to this relationship constitute subject of most of examination. It is possible to analyze studies regarding timing of financial statements in two groups. The first group is response made by market with respect to disclosure timing of financial statements (Begley and Fisher, 1998; Chambers and Penman, 1984; Patell and Wolfson, 1982; Kros and Schroeder, 1984; Zeghal, 1984) and the second group is related to variables affecting disclosure timing (Ansah, 2000; Givoly and Palmon, 1982; Chen and Mohan, 1994). For developed markets studies of Givoly and Palmon (1982) and Chambers and Penman (1984), and for emerging markets studies of Begley and Fisher (1998), How, Qi and Wu (2000) Leventis and Weetman (2004) can be given as examples which examine reporting delay hypothesis. As a result of studies carried out, it was concluded that administrators are in a tendency to disclose good news before expected disclosure date but to disclose bad news after expected disclosure date. In the studies it was further concluded that good news and bad news are measured depending on company performance and thus on profitability, and that financial statements of high profit companies are disclosed earlier (Bagnoli vd, 2002; Begley and Fischer, 1998; Chambers and Penman, 1984; Givoly and Palmon, 1982; Kross and Schroeder, 1984). Findings obtained from these studies show that benefits gained through a delay by administrators in disclosure of financial statements are greater than the cost. Similar results are obtained from limited studies carried out for markets. How vd (2000) has come to the conclusion that companies, which will disclose good news, are in a tendency to make this disclosure earlier than companies, which will disclose bad news or loss, in China being an emerging market. Another study, which examines timing of financial statements reporting for emerging markets, was performed by Ansah (2000). In this study, in which 47 enterprises out of financial sector were examined, there was a relationship detected between scale, profitability, company age and timing of financial statements. In addition, it was concluded that auditing delay is an important timing delay factor. However, the study of Kahl and Belkaoui (1981) was comprehensive, investigating the overall extent of disclosure by 70 banks located in 18 countries. Their results indicated that the extent 4

of disclosure was different among the countries examined, and that there was a positive relationship between size of the bank and the level of disclosure indicated. Hossain (2001) empirically investigates the extent of disclosure of 25 banks in Bangladesh and associations between company size, profitability, and audit firm with disclosure level. A total of 61 items of information, both voluntary and mandatory, were included in the disclosure index, and the approach to scoring items was dichotomous. The results showed that size and profitability of the banks are statistically significant in determining their disclosure levels. Age The extent of a companys disclosure may be influenced by its age, i.e. stage of development and growth (Owusu-Ansah, 1998; Akhtaruddin, 2005). Owusu-Ansah (1998, p. 605) pointed out three factors that may contribute to this phenomenon. Firstly, younger companies may suffer competition, secondly, the cost and the ease of athering, processing, and disseminating the required information may be a contributory factor, and finally, younger companies may lack a track record on which to rely for public disclosure. Kakani et al. (2001) pointed out that newer and smaller firms, as a result, take to the market in spite of disadvantages like their lack of capital, brand name and reputation with older firms. However, it is not possible to reach a conclusion that long-established banks can disclose more information or be more compliant than newly-established banks. This leads to the following hypothesis: Size The size of the bank is a potentially important explanatory variable in relation to the extent of disclosure. Most researchers in this area find a close relationship between these two variables, both in developing and developed countries. (See for example, Singhvi and Desai, 1971; Kahl and Belkaoui, 1981; Cooke 1989a, 1992; Ahmed and Nicholls, 1994; Hossain et al., 1994; Wallace et al., 1994; Craig and Diga, 1998; Hossain, 2000; Hossain, 2001). In this body of a research, a positive relationship has been found between company size and the extent of disclosure. A number of reasons have been advanced in the literature in an attempt to justify this relationship on a priori grounds. For example, Singhvi and Desai (1971, p.131) offered three justifications for the variations in the extent of financial disclosure in firms of different sizes. Firstly, the cost of accumulating certain information is greater for small firms than for large firms. Secondly, larger firms have a greater need for disclosure because their securities are typically distributed via a more diverse network of exchanges, and thirdly, management of a smaller corporation is likely to believe more strongly than the management of a larger corporation, that the full disclosure of information could endanger its competitive position. 5

Rationale of the study:

There are many independent factors affecting a companys timeliness in reporting. External factors like government polices, competitors policies as well as internal factors like company characteristics affect timeliness. Thus a need was felt to study the effect of company characteristics on timeliness of disclosure.

Objectives of the study:

Primary objective of this paper is to find the effect of Age and profit turnover on total timeliness of the of 30 banking sector companies. Secondary objective is to find whether any difference in timeliness of private and public sector banks is there or not.

Methodology:
The study:
This study aims at analyzing the 30 Banks which are part of banking sector on the basis of Timeliness in reporting with characteristics of Banks namely Age and Profit Turnover.

The Sample:
An attempt has been made to identify total time lag of information disclosure for 30 banks for the year 2010. H01: Age of the organization does not influence the timeliness of the banks Ho2: Profit Turnover does not influence the timeliness of the banks Ho3: There is no relation in between the public sector and private sector banks

Tools used: Data Collection:

Sample consists of secondary data collected from the annual reports of 30 banks for the year 2010. The names of the banks are as follows:
serial no Name of bank 1 Allahabad bank

2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Andhra bank Axis bank Bank of Baroda Bank of India Canara bank HDFC bank kotak mahindra bank Punjab national bank syndicate bank Union Bank of India IDBI bank ICICI bank Karnataka bank vijaya bank Dena bank United bank of India Bank of Maharashtra Fedral bank ING Viyasa bank State Bank of India State Bank of Travancore UCO Bank Indian bank Indian Overseas bank Bank of Rajasthan corporation bank Indusland bank Oriential Bank of Commerce Development credit bank

Data Analysis:
A causal study has been undertaken to study the relation between various company characteristics and timeliness in reporting. The contributory factors to total time lag has been identified Total Time Lag (The total time lag of corporate reporting is identified as difference between the last day of the accounting year and the day of annual general meeting for finalization and display of final accounts)

Results and Discussion:

H01: Age of the organization doesnot influence the timeliness of the banks 7

ANOVAb Model 1 Regression Residual Total Sum of Squares 16309.505 313161.695 329471.200 df 1 28 29 Mean Square 16309.505 11184.346 F 1.458 Sig. .237a

a. Predictors: (Constant), experience b. Dependent Variable: timeliness Coefficientsa Model Unstandardized Coefficients Std. B 1 (Constant) experience Error Beta t Standardized Coefficients 95.0% Confidence Interval for B Lower Sig. Bound Upper Bound Correlations Zeroorder Partial Part Tolerance VIF Collinearity Statistics

187.147 46.850 -.722 .598 -.222

3.995 .000 91.179 283.114 - .237 1.208 -1.947 .503 -.222 -.222 -.22 2 1.000 1.000

a. Dependent Variable: timeliness

Y= a+bx is the linear equation in which, the Y is the dependent variable i.e. timeliness and x is the independent variable. The value of a= 187.147 and the value of b is = -.722 The equation becomes: Y= 187.147-.722X The significance level of F test is 23.7%, hence it can be concluded that there is no significant difference in between variables. Thus it can be concluded that Age of the organization doesnot affect the timeliness. The result are in support of KAkani (2001) that the long established banks disclose more information in timely manner.

Ho2: Profit Turnover does not influence the timeliness of the banks

ANOVAb Model 1 Regression Residual Total Sum of Squares 21777.796 307693.404 329471.200 df 1 28 29 Mean Square 21777.796 10989.050 F 1.982 Sig. .170a

a. Predictors: (Constant), profit TO b. Dependent Variable: timeliness

Coefficientsa Model Unstandardize d Coefficients Standardize d Coefficients 95.0% Confidence Interval for B Correlations Zero Lower Std. B 1 (Constan t) profitTO 186.10 0 -.118 Error 40.65 9 .084 -.257 Beta t 4.57 7 1.40 8 a. Dependent Variable: timeliness .170 Sig. Boun d Upper Bound orde Partia r l Part Toleranc e VIF Collinearity Statistics

.000 102.8 269.38 14 -.290 7 .054 -.25 7 -.257 -.25 7 1.000 1.000

Y= a+bx is the linear equation in which, the Y is the dependent variable i.e. timeliness and x is the independent variable. The value of a= 186.10 and the value of b is = -.118 The equation becomes: Y= 186.10-.118X The significance level of F test is 17%, hence it can be concluded that there is no significant difference in between variables. Ho3: there is no significant relationship between timeliness of Private sector and public sector banks

ANOVAb Model 1 Regression Residual Total Sum of Squares 7410.408 322060.792 329471.200 df 1 28 29 Mean Square 7410.408 11502.171 F .644 Sig. .429a

a. Predictors: (Constant), private b. Dependent Variable: timeliness

Coefficientsa Unstandardized Coefficients Model 1 (Constant) Private B 104.167 39.292 Std. Error 43.784 48.952 .150 Standardized Coefficients Beta t 2.379 .803 Sig. .024 .429 95.0% Confidence Interval for B Lower Bound Upper Bound 14.479 -60.982 193.854 139.565

a. Dependent Variable: timeliness

Y= a+bx is the linear equation in which, the Y is the dependent variable i.e. timeliness and x is the independent variable. The value of a= 104.167 and the value of b is = 39.292 The equation becomes: Y= 104.167+ 39.292X The significance level of F test is 42.9%, hence it can be concluded that there is no significant difference in between variables.

Conclusion:
The nature and focus of the present research is quite interesting and different from other studies. In other words, in order to maintain high quality disclosure and transparency, as well as to build up investors and depositors confidence, it is imperative to comply with the rules and regulations of the regulatory authorities.

The study has considered some corporate attributes in measuring their effect of level of

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Disclosure, and reach the conclusion that profitability variable is significant, while other variables (age) are insignificant in explaining the disclosure levels. The study has given an idea at least of how the developing countries, especially India, perform the financial reporting duties in general, and how the banking sector in particular, does this. Ideally, increased transparency through the disclosure of timely and accurate information should enable a bank to access capital markets more efficiently.

Limitations:
The limitation of the research is that it covers a single year, a single country, and one specific sector, and in order to understand the nature of variations of overall disclosure, it is necessary to undertake a study taking five or ten years data.

References:
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