The Impact of Corporate Governance on Internet Financial Reporting

This study investigates the effect of corporate governance mechanisms on Internet financial reporting (IFR) behavior. We rely upon agency theory to predict an association between the extent of a firm’s Internet disclosure behavior and its corporate governance structures. We measure corporate governance by shareholder rights, ownership structure, and board composition. We develop a disclosure index to measure IFR activities in the Investor Relations sections of a sample of publicly traded US firms. Specifically, we measure IFR by disclosure content, presentation format, required filings, voluntary disclosures, and corporate governance disclosures. Results indicate that firms with weak shareholder rights and a higher percentage of independent directors are more likely to engage in IFR. Interestingly, these firms are also more likely to provide disclosure regarding their corporate governance structures on their corporate web sites. As corporate governance and disclosure are considered necessary measures to protect shareholders, our results provide empirical evidence to policy makers and regulators for implementing new corporate governance requirements and IFR guidelines.