International Journal of Management and Economics Fundamental
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VOLUME
Vol.05 Issue 05 2025
PAGE NO.
51-56
10.37547/ijmef/Volume05Issue05-11
Voluntary Disclosure in Industrial Institutions: A
Review article
Aqeel Jaber Kadhim
College of Administration and Economics, Al-Muthanna University, Iraq
Sarah Abdulameer Kamil Abugallal
College of Administration and Economics, Al-Muthanna University, Iraq
Rami meteab ali
College of Administration and Economics, Al-Muthanna University, Iraq
Received:
14 March 2025;
Accepted:
23 April 2025;
Published:
30 May 2025
Abstract:
Transparency, financial performance, and corporate governance remain to be important considerations
with respect to voluntary disclosure by industrial organizations. The paper looks into what motivates companies
to voluntarily disclose information, the advantages and disadvantages of this process as well as some possible
future trends. It achieves this by reviewing some of the well-known theories in literature that include the Agency
Theory, Signaling Theory, Stakeholder Theory, as well as Legitimacy Theory. From these perspectives, it would be
argued that firms can make good use of voluntary information to bridge any information gaps between them and
their users, who may be capital providers or officials; this will then help increase investment and meet legal
requirements on reporting. Research findings indicate that voluntary disclosures have a positive impact on
financial performance, enhance financial reports, promote greater involvement in corporate social responsibility
and increase the overall reputation and value of companies. Nevertheless, there are a number of obstacles such
as loss of market share, growth in expenses related to reporting, and absence of uniformity. Further studies need
to examine how new technologies, laws on environment, etc., affect and will continue influencing such practices
Keywords:
Voluntary Disclosure, Industrial Establishments, Financial Performance, Corporate Governance, CSR,
Financial Reporting Quality, Transparency, Investor Confidence.
Introduction:
Voluntary disclosure has become
increasingly important in financial reporting for
businesses, especially those operating in the industrial
sector and involved in investor relations. Unlike
mandatory disclosures, voluntary disclosure means
providing extra financial or non-financial details over
and above what is required by law (Healy & Palepu,
2001; Almansoori et. al. ,2022). It is thought that the
additional information disclosed would bridge the gap
between them and the users of such information
thereby increasing investment while at the same time
meeting the requirements of the law concerning the
presentation of accounts (Botosan, 1997). Due to their
huge investments and exposure to risk associated with
market variables, capital intensive industries usually
make extensive use of voluntary disclosures to attract
investment and develop good relationship with
international standardized code users (Meek, Roberts,
& Gray, 1995). Voluntary disclosure depends on factors
such as size of the organization, financial position,
corporate governance practices and regulations within
which the sector operates (Chen, Chen, & Wei, 2011).
A number of academic models exist to explain the
motivation
behind
voluntary
disclosure
by
organizations. For example, according to Agency
Theory, businesses may reduce agency conflicts
through such disc
lose that arise when managers’
interests differ from those of shareholders due to
International Journal of Management and Economics Fundamental
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International Journal of Management and Economics Fundamental (ISSN: 2771-2257)
information asymmetry (Jensen & Meckling, 1976; ;
Almansoori et. al. ,2022). Signaling theory argues that
strong companies will reveal their strength through
disclosure of more information (Spence, 1973).
Freeman (1984) noted that Stakeholder Theory
highlights the importance of voluntary disclosure in
providing information to different parties like
investors, employees and regulatory bodies. Similarly,
the Legitimacy Theory argues that organizations
engage in an act of providing information to the public
or stakeholders so that they can be seen to be
operating within the public expectation; this view is
based on (Suchman, 1995). Nonetheless, voluntary
disclosure is not without problems as it may lead to
competitive disadvantages, increased reporting
expenses and lack of uniform disclosure standards
among others. It is important for industries to weigh
carefully between being open and risk of giving too
much information. This paper reviews current
literature on determinants, advantages, disadvantages,
emerging issues of voluntary disclosure within
industrial set up. Through analysis of both empirical
research findings as well as theoretical viewpoints this
research seeks to enhance our knowledge on how the
industry players can adopt such practices. Background
of the study
Healy & Palepu (2001) define voluntary disclosure as
information - financial or nonfinancial - that goes
beyond what an entity is required by the law to
disclose. Voluntary disclosure is a communication
instrument through which organizations signal their
true position with the environment. On this view, such
a practice enables an organization to disclose relevant
information that may relate to its performance such as
financial report. It also helps an organization in showing
that it is monitoring its affairs well. The voluntary
disclosure concept draws support from various
theories. The research paper provides a detailed
analysis of voluntary disclosure practices adopted by
different industrial organizations to communicate their
financial
status,
corporate
governance
and
environmental activities especially in capital intensive
sectors with strict regulations. One of the theories,
Agency Theory, is based on the assumption that
managers provide additional information to reduce
information disparity and therefore mitigate agency
conflicts (Jensen & Meckling, 1976). Another theory
known as Signaling Theory states that underperforming
companies do not make any voluntary disclosures while
those with good performance are involved in such
activities so that they can signal their true financial
strength in front of others (Spence, 1973; Almansoori
et. al. ,2023). According to stakeholder theory,
businesses give out information to various parties such
as customers, investors, regulators and employees.
Legitimacy theory adds that organizations disclose
information to maintain their legitimacy given by
society and upheld by laws. The literature identifies
various factors affecting disclosure choices in industry
settings. According to Meek, Roberts, and Gray (1995),
larger firms have higher disclosure levels probably
because they can be better at managing the
requirements of disclosure and also they are under
increased public observations with numerous
resources within their reach. Among these factors, the
company’s governance structure matters a lot such as
the independence of the board and the existence of
audit committee (Chen, Chen, & Wei, 2011) . Financial
performance is also important since profitable
organizations would disclose more information in order
to help in boosting investor confidence hence maintain
positive market image (Botosan & Plumlee, 2002;
Almansoori et. al. ,2018 ) . On top of that, there are
factors that affect voluntary disclosures such as
regulations in the industry among others especially in
highly regulated sectors (Barako, Hancock, & Izan,
2006) . However, voluntary disclosure comes with its
disadvantages . One such disadvantage is the fear of
giving competitors an edge through too much
openness or what is known as competitive
disadvantage (Verrecchia, 2001) . Moreover, there can
be considerable costs associated with gathering,
processing, and disseminating voluntary disclosures
(Graham, Harvey, & Rajgopal, 2005) . Lack of
standardized frameworks for voluntary disclosure also
poses another difficulty as there are no uniform ways
of engaging in this across different companies or
sectors which may lead to problems when trying to
compare one organization’s perfo
rmance against
another’s performance evaluation (Hassan, Romilly, &
Al-Shammari, 2009; Almansoori et. al. ,2022) . The
recent progression of voluntary disclosure practices
can be attributed to digital revolution and sustainability
reports . Integrated reporting and electronic financial
reporting systems have improved access and relevance
of corporate information (Xiao, Yang, & Chow, 2004) .
In addition, growing attention towards environmental,
social and governance (ESG) reporting has increased
voluntary disclosures on areas that go beyond financial
but related to sustainability issues also called non-
financial disclosures (Michelon, Pilonato, & Ricceri,
2015) . This background lays foundation for
understanding voluntary disclosure in industries .
Following this introduction, subsequent parts of the
essay will present research studies, identify advantages
and challenges, as well as predict future developments
in voluntary disclosure .
LITERATURE REVIEW
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International Journal of Management and Economics Fundamental (ISSN: 2771-2257)
Voluntary
Disclosure:
Determinants,
Benefits,
Challenges, and Evolving Trends
The academic community has extensively researched
voluntary disclosure because it is perceived as an
important tool in promoting honesty and reducing
differences
in
information
among
different
stakeholders thereby encouraging greater public trust
in the capital markets. In industrial organizations,
research has been done on voluntary disclosure which
entails; what causes it, advantages, disadvantages as
well as the changes that have occurred over time. This
chapter reviews the existing literature to outline the
major findings towards understanding voluntary
disclosure within industrial context.
1.
Determinants of Voluntary Disclosure
Many academic papers have talked about the
determinants of disclosure by industrial organizations.
Business size is one of these determinants where larger
organizations are believed to reveal more information
because they are under a close monitoring by the
public and there is strict regulations in place for such
monitoring (Meek, Roberts, & Gray, 1995; Almansoori
et. al. ,2023). Corporate governance is also an
important element as it influences the behavior of
companies; for instance, entities with effective
governance mechanisms such as presence of
independent non-executive directors and audit
committee would be expected to make more voluntary
disclosures than those without such structures (Chen,
Chen, & Wei, 2011). On top of that, it is also noted that
financial performance determines this kind of behavior
for the reason that profitable entities would take every
possible measure to ensure that investors believe in
them through a high level of transparency (Botosan,
1997). The study also discusses the effect of regulatory
and industry factors on the voluntary disclosure.
Companies
in
high
regulated
industries
(manufacturing, energy) usually disclose more
information than is required just to meet social
responsibility and be seen as following best practice
guidelines (Barako, Hancock, & Izan, 2006). Finally, it is
important to take into account the fact that ownership
structure may affect the level of disclosure with public
companies being associated with higher levels of
voluntary disclosure compared to private ones (Chau &
Gray, 2002).
2.
Benefits of Voluntary Disclosure
Research findings also point out on the importance of
confidential information in promoting efficiency within
the markets. To begin with, it is known that the practice
is important in increasing market efficiency because
through disclosing information to users of financial
statements investors are able to reduce any
information asymmetry that may exist and thus come
up with better share prices (Healy, Hutton, & Palepu,
1999; ; Almansoori et. al. ,2023). Secondly, voluntary
information disclosure plays a part in decreasing the
cost that is associated with capital; when a company is
seen to have low risk due to its transparency level then
it would also mean that they get cheap means of
finance because most investors will prefer them over
the rest (Botosan & Plumlee, 2002). The other
important benefit is corporate reputation and
stakeholder trust. Such companies that engage in the
communication of financial information are usually
perceived to act responsibly and have good
management leading to positive interaction with their
stakeholders e. G. Customers, investors or even
government regulatory authorities (Cormier &
Magnan, 2003). In addition, it can be argued that
voluntary disclosure may help reduce risk given that
organizations can address potential issues before they
become serious problems; hence, there would be less
uncertainty in financial reports of such disclosing
entities (Hassan, Romilly, & Al-Shammari, 2009).
3.
Challenges and Limitations of Voluntary
Disclosure
On the other hand, despite all these advantages,
voluntary disclosure has its own drawbacks too.
Competitive disadvantage is a major worry since too
much openness may let sensitive information that is
important for the competition out to the rivals
(Verrecchia, 2001; Almansoori et. al. ,2021). First of all,
it is important to note that voluntary disclosure can
lead to some negative implications on companies.
These may include high costs with regards to; gathering
of information, maintaining records, as well as
following the required procedures of disclosure
(Graham, Harvey, & Rajgopal, 2005). It could also be
very challenging for organizations to adhere to uniform
VDP guidelines since they may exist with other entities
operating within the same sector (Hassan et al., 2009).
Additionally, voluntary disclosures may be unreliable
because managers usually have the liberty to decide on
them, thus posing questions on their trustworthiness
(Merkl-Davies & Brennan, 2007).
4.
Emerging Trends in Voluntary Disclosure
Recent studies indicate emerging changes in voluntary
disclosure due to advancement in technology and
changing stakeholder expectations. The research paper
will major on the following emerging issues; At first
there is emergence of digital reporting and fintech
solutions which are facilitating continuous, dynamic
and real time disclosures (Xiao, Yang, & Chow, 2004).
With time, there has been increasing focus towards
sustainability as well as corporate social responsibility
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International Journal of Management and Economics Fundamental (ISSN: 2771-2257)
(CSR) thus broadening what is disclosed beyond pure
finances to cover other areas like environment, society
and governance factors. The other trend that has been
emerging involves incorporation of big data and
artificial intelligence in the VDP systems. This has led to
the development of sophisticated tools such as
advanced analytics, as well as AI driven reporting tools
that would enable entities automate most of their
disclosures, ensure that they are accurate, and
customize them according to the information
requirements of investors and other parties concerned
(Leuz & Wysocki, 2008). Also, there have been
increased changes in the law regarding how companies
should make their reports known to the public; some
countries now have stricter rules than before to ensure
that clients’ money is sa
fe (Al-Janadi, Rahman, & Omar,
2013).
The literature calls for more studies on voluntary
disclosure within the context of industries as it
enhances openness, trust from investing public and
proper management. Even though there are many
determinants that affect the way information is
disclosed, an organization should weigh both
advantages and disadvantages that come with
competitive risks and reporting expenses when it
comes to voluntary disclosure. Lastly, researchers
should study how emerging technologies, new laws and
regulations, and ESG issues impact voluntary disclosure
among industries as VDP continues to change over
time.
Voluntary disclosure and its effects on financial report,
corporate social responsibility as well as corporate
value.
Today, voluntary disclosure is part and parcel of
corporate integrity and responsibility which is highly
applicable in sectors with high degree of information
asymmetry. Previous research has investigated how
voluntary information affects overall financial
performance, including the financial perspective,
financial report on quality, social responsibility in
business, and the value of companies. In order to
comprehend the interrelationships among these
variables, this paper reviews the important findings of
the previous studies on the subject.
1.
Voluntary
Disclosure
and
Financial
Performance
There are many literature materials that have tried to
explore the potential relationship between voluntary
disclosure and financial performance. Theories like
agency and signalling theories propose that companies
which practice good voluntary disclosure would
experience improved financial performance since they
would attract investors who are confident with
investment in such companies and charge low interest
rates (Jensen & Meckling, 1976; Spence, 1973).
Available empirical literature confirms this view as it
shows that companies which disclose more
information have higher profitability ratios, ROAs, and
ROEs (Botosan, 1997; Healy & Palepu, 2001). A case in
point is a study by Botosan (1997) which revealed that
companies with high level of voluntary information had
lower cost of equity capital. In the same way, Lang and
Lundholm (1996) proved that there was a positive
relationship between disclosure level and market
performance of the entity. On top of that, the industrial
sector companies that practice regular voluntary
disclosure experience a stable financial position,
because they attract long term investment, which help
them to remain financially strong (Barako, Hancock, &
Izan, 2006).
2.
Voluntary Disclosure and the Quality of
Financial Reports
Voluntary disclosure has been found to significantly
enhance the quality of financial reports by mitigating
information asymmetry and promoting transparency.
Companies that disclose non-mandated financial
information voluntarily are seen to have better
earnings quality, financial statement credibility, and
investor confidence (Cormier & Magnan, 2003).
Research studies confirm that there is positive
relationship between voluntary disclosure and quality
of financial reports. For instance, Hassan, Romilly, and
Al-Shammari (2009) established that increased
voluntary information strengthens public trust on
accounts, hence increasing their relevance to investors
and other interested users. In the same way, it was
shown by Chen, Chen, and Wei in 2011 that companies
which have effective corporate governance systems
would disclose more information which consequently
enhances the quality of financial reports.
3. Voluntary Disclosure and Corporate Social
Responsibility (CSR)
Corporate social responsibility (CSR) is now a crucial
element of corporate strategy, and voluntary
disclosure greatly enhances the transparency of CSR.
According to Michelon, Pilonato, and Ricceri (2015),
firms which reveal their CSR activities, impact on
environment and society, gain the trust of the
stakeholders and have good reputation. Past research
indicates a symbiotic relationship between voluntary
disclosure and CSR performance. It has been proven
through research that companies stand to gain a lot by
revealing their social responsibilities in terms of being
able to get social investors that will give them an edge
over their rivals (Freeman, 1984). On top of that,
providing extensive information regarding their
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International Journal of Management and Economics Fundamental (ISSN: 2771-2257)
sustainability measures proves increased responsibility
on the part of organizations as postulated under
legitimacy theory (Suchman, 1995). This openness is
important for a positive relationship with stakeholders
and a good corporate reputation.
4. Voluntary Disclosure and Corporate Value.
Voluntary disclosure plays a crucial role in determining
corporate value as it can affect the way investors
perceive the company, the market price of its shares,
and its financial position. Stakeholder theory argues
that companies which provide high levels of voluntary
information are seen through the market as
transparent and accountable hence they have high
confidence on such firms that reflect on increased
valuation. There are many empirical studies that
support this claim. Notably, Botosan and Plumlee
(2002) established a positive relationship between
voluntary disclosure and corporate value through
improved pricing efficiency and lower earnings
volatility. In a related vein, Verrecchia (2001)
contended that when companies provide voluntary
information, it serves to reduce uncertainty among
investors and, consequently, increase the value of the
firm. In addition, organizations that make known their
long-term financial objectives and strategies are more
likely to receive investment from institutional investors
who play a key role in creating sustainable value for
companies over the long term (Leuz & Wysocki, 2008).
Literature within various industries underlines the
importance of voluntary disclosure to financial
performance, accounting standard quality, corporate
social responsibility transparency and overall market
value of a company. Studies continue to show that
companies gain immensely from voluntary information
through
increased
investors’
confidence,
low
information gaps as well as long term survival among
others although there may be some trade-offs to it in
terms of competition and cost of reporting. The future
studies should investigate how technological progress,
changes in regulations, as well as digital reporting
standards affect voluntary disclosure practices in
organizations globally.
RESULTS AND CONCLUSION
It can be concluded from this review that voluntary
disclosure is very important when it comes to making
decisions concerning the finances and strategies of a
business. It is common for industrial establishments
that take part in voluntary disclosure to have an easier
time with investors, pay lower interest rates for their
loans, and see their securities prices reflect available
information to a greater extent. Voluntary disclosure is
adopted by financially strong entities in revealing their
strength to investors while open companies usually
disclose a lot. Financial reports become more reliable
with voluntary disclosures that again promote
transparency and responsibility within organizations.
Voluntary disclosure also promotes corporate social
responsibility through alignment of business activities
with public/societal and environmental/sustainability
related expectations and objectives. Be that as it may,
there are also some disadvantages of voluntary
disclosure such as; risk of loss of competitiveness, very
expensive compliance, and non-comparability due to
absence or non-adherence to unified formats.
Organizations need to weigh the pros and cons of being
transparent because there are strategic risks related to
too much information revealed. In summary, voluntary
disclosure forms part and parcel of corporate reporting
among industries. Prospective voluntary disclosure
practices are likely to be influenced by changing
regulations, advancement in financial reporting
technology, and growing importance of sustainability.
It is recommended that companies incorporate digital
reporting tools, link voluntary disclosures to
sustainability
frameworks,
and
follow
certain
guidelines for effective communication of transparent
information with a view to reducing possible risks. The
future research should address the impact of artificial
intelligence, blockchain, as well as changing regulations
on improving voluntary disclosure efficacy in industries.
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