The National Stock Exchange Accounting Essay

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This study tries to evaluate the investors perception of users regarding the accessibility, sufficiency, and usefulness of financial information disclosed in the annual reports of listed companies of National stock exchange with identical research area of Vadodara city. A survey methodology has utilized involving the selected sample of information users for example individual & institutions, analysts, academics and intermediaries. The result found from the present study identifies that most of the respondent's believe disclosed information as neither relevant for investment decision nor sufficient. In particular reported published information was not enough as listed companies did not fulfill with the minimum discloser requiredment of Securities exchange board of India (Discloser investor's protection Gulidelines-2000) & Institute of Chartered accountants of India. This adverse perception along with the poor trustworthiness and bad timelines of disclosers has prevented the information from being reflected in to stock prices. This study has limited to the Vadodara city only, for the purpose of the research 110 respondents will be collected from the same region.

Key words: Investment decision, financial information, Investor's perception and Information availability.

Investor's perception towards the financial information disclosed in annual reports of listed companies of National Stock Exchange with special reference Vadodara city

I. Introduction:

Effective information discloser is a tool for investors to identify the opportunities in the business, now a day it's a mandatory requirement imposed by SEBI (Security exchange board of India) & ICAI (Institute of Chartered accountant of India). Information disclosure is essential for the effective operation of securities markets. Resources are not completely allocated among the market participant, fund providers identify to seek new opportunities for adding the extra values, while the market players have a faith for expecting the enough capital for operation to generate the huge amount of profit. Necessary information always provides the clear cut guide lines; the proper disclosed information is called as communication technique among the active market participant. The primary objective behind the capital market research have been to assess whether accounting numbers provide value-relevant information to market players, which is differentiate to all other general sources of large number of publicly accessible information. During the short span of time the information released among the investors the stock prices are highly volatile. Generally stock prices are relay on the accounting data which is available in public domain.

The clear picture of the organization depends on the transparency how they disclosed the information for public domain. Hear the concept of financial reporting practicing concern with the accessibility sufficiency, and timeliness of related information about traded securities are important for market confidence, effectiveness and pricing efficiency. If investors are to make sound judgments about the value of securities, they must be completely informed of related facts. Since reported information disclosure is integral part for the effective operation of the capital and security markets, the regulatory bodies are always concern about the quality of information of financial and non financial items which disclosed by the firms.

Today, there is a growing recognition by many of the regulatory bodies that the accounting reporting model has reached a tipping point and is failing to communicate what is important despite the volume of information being produced. This marks the reason for the evaluating of the regulatory framework for financial disclosers.

The primary objective of this study is to evaluate the extent that potential users perceive information disclosed in the financial reports by companies listed at the NSE (National Stock exchange) as accessible, sufficient and useful to their investment decisions. Furthermore, this study examines whether multi-groups or clusters of investors have the same investment decision criteria within the different demographics characteristics like qualification, experience, industry, and amount of money invested etc.

II. Literature Review:

Hear the highlighting one of the survey has been made by various author reasons for information environments to develop endogenously the information disclosed among the investors and business entities with investment opportunities and the issue related to agency problems that identify from control of business and the separation of ownership. In fact, the "unraveling result" by Grossman and Hart (1980), Grossman (1981), Milgrom (1981) and Milgrom and Roberts (1986) predicts that a firm that wants to maximize its share price discloses all its private information as long as (a) the disclosure is costless to the firm; (b) investors know that the firm has, in fact, private information; (c) all investors interpret the firm's disclosure in the same way and the firm knows how investors will interpret the firm's disclosure; (d) the firm can credibly disclose its private information; and (e) the firm cannot commit ex-ante to a certain disclosure policy. These results are driven by investors rationally inferring that if a manager did not disclose the important information, his information would have caused investors and users to revise their advantage beliefs about firm worth downwards. As an output, the manager has to disclose this information to distinguish him from managers with even worse information. This holds true for all information (except the very worst possible outcome) leading to the "unraveling" of any withheld information

The effective work had been done by Ball and Brown (1968), the relationship between accounting information and capital markets has attracted considerable attention. The interest for this subject is legitimate, given the objective of financial reporting practicing that accounting figures are aimed at providing investors with useful information for their future investment decisions, some times investors were blindly relay on the figures. In capital markets, financial information is supposed to facilitate the prediction of firms' future cash flows and help investors assess future securities' risk and returns. On this subject, three types of research are successively considered. Studies of the market reaction to the release of new accounting information that analyze the stock price impact of accounting disclosures in order to determine whether these are useful to market players. Studies of the long-term relationship between stock returns and accounting numbers, which provides the extent to which the information conveyed by accounting figures is steady with that reflected in the movement of stock prices for specific time period. Similar studies identified the use of accounting numbers by investors and to the influence of market considerations on accounting options.

Financial reporting usefulness has been one of the most important research areas in accounting. Since the same study of Ball and Brown (1968), extant accounting literature has well documented the usefulness of accounting profits, book value/ face value and other items in the annual financial reports both in the U.S. as well as internationally [Graham and King (2000), Chen (2001)]. While most of these studies provide evidence that annual report is an important source of accounting information, they also show a low relationship between accounting figures and stock prices or average returns. Some recent studies even report a decreasing trend in the value-relevance of financial statement information in the U.S. over the past decades (Francis and Schipper, 1999). Many prior studies empirically establish the usefulness of financial reports or other financial information by the statistical relationship between the financial information and stock prices or returns. Hodge (2003) suggests that a survey-based research can complement the archival-based research in that it gathers data on a multitude of individual beliefs and practices to provide the underlying reasons for investors' behavior.

The disclosure of relevant corporate information is an essential element of a market-based observation of companies. Transparency and Disclosure induce to business for better protect investors, and thereby maintain investors' self-confidence in equity & capital markets. For disclosure to be significant and meaningful, it should be informative, timely and accurate. In relation to the reliability of general published information, companies must accept internationally authorized accounting and auditing norms, and assure the transparency of the audit process. Appropriate disclosure of actual and accurate information on important firm-related matters is essential for the protection of shareholders and investors rights for basic two main reasons. First, shareholders require having access to important information about important matters to make decisions that are in their interest. Second, information disclosure is integral in preventing managers and dominant shareholders from engaging in activities that are illegal or are detrimental and harmful to minority shareholders as well as business. Corporate disclosure has evolved from being solely focused on financial information excerpted predominantly from a firm's financial statements today, corporate disclosure is utilized as a strategic tool in risk assessment and the value creation process. The emergence of exclusive disclosure strategies that show the picture of all aspects of a firm's performance has resulted in the enlarging of both the scope and degree of the information published by firms. Disclosure policies, including economic, financial, social and environmental information, are now key factors of many firms' investor communication programs (Richardson and Welker, 2001). This development in corporate practices appears to be well identified, since empirical findings suggest that an open disclosure policy provides many benefits and advantages to a firm, e.g., a lower cost of capital (Harris 2000 and Botosan 2001). An environmental reporting practice typically occupies a prominent place within the general range of a firm's disclosure strategy.

III. Objective of the study:

(A).To know the perception level of the investors from the Vadodara city with respect to information disclosed

(B).To check level of information disclosed by the selected companies form the NSE

(C).To identifies the usefulness of the information with respect to the various users.

IV. Research Methodology:

Data were collected through the structured questionnaire with the help of five point likert type scale ranging from (Y+) strongly agree to (N+) strongly disagree. The descriptive research design applies for the research purpose. The questionnaire also contained the information regarding demographic characters of the respondents such as age, education background, income level & area belongs to the investment objective. The target population for this study has from the Vadodara (Gujarat). Sample size this of research are 110 respondents from various categories.

Drawing on the literature and considering the Indian stock market environment, ten listed companies from the NSE (National stock exchange) as institutional investors and information providers, and five groups as external users of corporate interim reports were identified, individual investors, institutional investors, stock brokers, academics, and creditors The overall target groups were asked to give their opinion, using a five-point scale, on items of very important to not at all important or (Y+) strongly agree to (N+) strongly disagree. Before distribution, the questionnaire was presented during a pilot interview with individuals comprising both academics and practitioners. All of our pilot interviewees either researched this area to some extent or were aware of the financial reporting practices of listed companies of NSE (National stock exchange). Each was asked to respond critically on any aspect of the design of the questionnaire. Their comments were incorporated in the final version of the questionnaire distributed to the sample.

(A). Hypothesis:

This study tries to evaluate the accessibility, sufficiency, and the perceived usefulness of information for taking an investment decisions. To facilitate our analysis, the following hypotheses were farmed and stated as below.

H0: there are significant relationships about the information disclosed in the financial reports of the listed companies from the NSE (National stock exchange) as accessible sufficient, and useful.

H1: There are no significant relationships among the multi users perception of information.

V. Data Analysis & Interpretation:

From the initial part of the questionnaire as demonstrated in table - I (Table- I : Sample Description.) asked the respondent to provide the information concerning their qualification experience, industrial sector & amount of money invested in order to help in the analysis collected from the respondents. Results of that analysis shows that users group holds at least a professional degree with 16.36% of Ph D degree, 20% with master degree, 35.45% with the first degree, & 24.55% has acquired professional qualification. According to the experience, 14.54% had less than one year experience, 40.91% had 1 -5 years of experience, 29.10% had 6 -10 years of experience, while 15.45% respondent having a more than 10 years experience. Now the analysis moves to the preference of the industrial sectors. The statistic shows that 29.09% has preferred telecommunication, 41.81% preferred insurance companies, 16.36% has interested in banks, 44.54% has interested in investment management companies, 46.36% has preferred service sector, and 32.72% has interested in industrial sector. In terms of the amount of fund invested, 16.36% are not investing at all, 26.36% are investing less than 10,000(Rs), and 33.64% are investing between 10,000-24,999 (Rs), 10.91% between 25,000-49,999 (Rs), 7.27% between 50,000-99,999 (Rs), and 5.46% invested more than 100,000(Rs). Finally, maximum respondents has belonging from the range of 10000-24999(Rs) hear there is an opportunities in this range to increased the level of investment among the various sectors.

The subsequent part of the analysis shown in the Table - II (Table - II : Sample Description), it indicates investors' pays more attention to the steady income as their first goal while the second best option has safety of principle capital because of the limit of other investment opportunities in NSE (National stock exchange). The third preference given to the speculative gains, where the investment opportunities has least preferred. When the attention is turned to the kind of analysis where the macroeconomic analysis was the only significant tool as calculated the Kruskal-wills significant level KWSL (0.052), while others analysis tools are least preferred by the respondents. This indicates that many investors in the market having incapability to understand the environment. The successive analysis continuous with the information users mentioned those corporate financial reports & the NSE (National stock market) market statistics are the most significant source of information for their investment decisions. The result indicates that remaining factors are least concern for the purpose of satisfying their investment objective. It shows that most of investors are always depends on the various source of information. This means that poor quality of investment decision, especially in the financial analysis, does exist in the NSE (National stock exchange)

The next part of the analysis has concern with the users' perception information from the NSE market perceived the financial information discloser as a relevant for the investment decision. Results which are outlined in the table- III (Table - III: Users' perception information) shows that when asking the external users information about the readership of the corporate financial reports users attached a higher level of importance to the profit and loss statement, balance sheet & cash flow statement, where the other factors are the least concern or insignificant things associated with the investment decision. According to the quality of information, all users considered the accessibility of information, understandability & sufficiency as an important for their investment decisions. Information users evaluated the companies' level of disclosers as mainly depends in the balance sheet, cash flow statements & income statement sections, where the segmental & accounting policies & notes are the least factors for the disclosers' matters in NSE (National Stock exchange). The KWSL value was not significant & it's fluctuated for the section level of disclosers by the companies. Hear the result confirm that companies should follow the minimum discloser requirement as per companies' act -1956.

The last part of the analysis concern with the result of Kruskal-wills test that examines whether the perception of multi users group on the importance of the information disclosed in the financial reports differ with qualification, experience & industrial sector & amount of money invested. The table - IV (Table - IV: kruskal - wills tests of the kind of disclosers within the uses) represents the results that most of the qualified respondents are depends in the balance sheets, income statement sections & cash flow statements, where the remaining three kinds of respondents are not heavily relay on this two sections & industrial sector has not given the clear idea about investors decision.

VI. Concluding remarks:

The main theme behind this research is to provide the clear evidence on the accessibility, sufficiency & the usefulness of the various aspects of corporate information to users. A questionnaire was forwarded to the 110 respondent from the Vadodara (Gujarat) & 100% response rate given from the respondents.

The above result shows that most of the respondent within the multi user group using the various kind of information for their investment purpose. That means alternate hypothesis rejected and null hypothesis is accepted where the respondents perception are different for the investment with respect to the Vadodara (Gujarat).

*************************

VII. Reference:

Ball, R., & Brown, P. (1968). An Empirical Evaluation of Accounting Income Numbers. Journal of Accounting Research, 6, 159-178.

Botosan, C., & Harris, M. (2000). The Cross-Sectional Determinants of Disclosure Timeliness: An Examination of Quarterly Segment Disclosures. Journal of Accounting Research, Autumn, 524-554.

El Jafary, & Makhool, (2004). The Palestinian Service Sector: Current Situation and Potential Role in Economic Development. Palestine Economic Policy Research Institute- MAS, Ramallah, Palestine.

Freedman, M., & Stagliano, A.J. (2002). Environmental Disclosure by Companies Involved in Initial Public Offerings. Accounting, auditing an Accountability Journal, 15(1), 94-105.

Grossman, S. J., Hart, O. 1980. Disclosure laws and takeover bids. Journal of Finance 35, 323-334

Grossman, S.J. 1981. The informational role of warranties and private disclosure about product quality. Journal of Law and Economics 24, 461-484

Milgrom, P. 1981. Good news and bad news: representation theorems and applications. Bell Journal of Economics 17, 18-32.

Milgrom, P., Roberts, J. 1986. Relying on the information of interested parties. Rand Journal of Economics 17, 18-32.

Penno, M. C. 1997. Information quality and voluntary disclosure. Accounting Review 72, 275-284.

Richardson, A., & Welker, M. (2001). Social Disclosure, Financial Disclosure and the Cost of Capital. Accounting, Organizations and Society, 26, 597-616.

Taylor, R.G. (1965). A Look at Published Interim Reports. Accounting Review, January.

VIII.Tables:

Table - I Sample Description

Kind of Users

No. of Observation

Percentage(%) of total sample

Individual Investors

42

38.18

Institutional investors

18

16.36

Creditor, bank loan officer

19

17.28

Stock Brokers

11

10

Academics

20

18.18

Total:

110

100%

Users by Qualification

No. of Observation

Percentage(%) of total sample

PhD

18

16.36

Master Degree

22

20

First Degree

39

35.45

Professional Qualification

27

24.55

Others

04

3.64

Total:

110

100%

Users by experience (Age)

Percentage(%) of total sample

< 1 year

16

14.54

1 - 5 years

45

40.91

6 - 10 years

32

29.10

Above 10 years

17

15.45

Total:

110

100%

Investors by Industrial sector

No. of Observation

Percentage(%) of total sample

Telecommunication

32

29.09

Insurance companies

46

41.81

Banks

18

16.36

Investment management companies

49

44.54

Services

51

46.36

Industries

36

32.72

Total : (110 Respondents)

--

--

Investors by amount of money invested (Rs.)

No. of Observation

Percentage(%) of total sample

Nothing

18

16.36

< 10000

29

26.36

Between 10000 - 24999

37

33.64

Between 25000 - 49999

12

10.91

Between 50000- 99999

08

7.27

Above 100000

06

5.46

Total:

110

100%

(Source: Primary research work)

Table - II Sample Description

Items:

Mean

Standard Deviation

Ranking

KWSL

(sig level 0.032)

Investors Goals

Safety of Capital

4.73

0.867

2

0.226

Steady income

4.92

0.889

1

0.261

Speculative gains

4.69

0.811

3

0.113

Investment opportunity

4.26

0.802

4

0.102

Kind of Analysis

Political analysis

4.22

0.627

2

0.526

Macroeconomic analysis

4.31

0.767

1

0.052

Technical analysis

4.09

0.607

3

0.417

Fundamental (Financial) analysis

3.68

0.619

4

0.596

Statistical analysis

3.12

0.589

5

0.437

No Analysis, imitation other investors

2.91

0.648

6

0.469

Sources of information

NSE Market statistics (data)

4.88

0.428

2

0.332

Corporate financial reports

5.10

0.586

1

0.067

Advice of investment services

(Specialists).

4.62

0.446

4

0.340

Advice of stockbrokers

4.26

0.193

5

0.317

Direct information from the company

4.23

0.082

6

0.427

Investors own analysis

4.82

0.412

3

0.221

Market rumors, and adages

4.11

0.076

7

0.201

(Source: Primary research work)

Table - III Users' perception information

Items:

Mean

Standard Deviation

Ranking

KWSL

(sig level 0.032)

Readership of the corporate reports

Balance sheet

4.86

0.590

2

0.000

Profit and loss statement

5.16

0.642

1

0.046

Cash flow statement

4.51

0.826

3

0.000

Footnotes to the financial statements

3.16

0.796

7

0.072

Statement of shareholders equity

4.17

0.920

5

0.128

Management commentary

3.62

0.761

6

0.136

Auditors report

4.23

0.569

4

0.320

Information quality

Timeliness

3.56

0.480

5

0.056

Accessibility & sufficiency of specific information

4.25

0.310

1

0.048

Understandability

3.78

0.527

2

0.488

Credibility

3.59

0.780

4

0.228

Availability of information

3.72

0.652

3

0.186

Relevancy

2.99

0.340

6

0.341

Level of disclosure by companies

In Management Commentary Section

3.44

0.572

4

0.682

In Income Statement section

3.89

0.522

3

0.296

In Balance Sheet Section

4.78

0.680

1

0.256

In Cash Flow Statement Section

4.67

0.758

2

0.365

In Segmental Information Section

2.99

0.428

6

0.221

In Accounting Policies and Notes

3.21

0.270

5

0.345

(Source: Primary research work)

Table - IV kruskal - wills tests of the kind of disclosers within the uses

Parts of Financial Reports

Qualification

Chi Square

Experience

Chi Square

Industrial sector

Chi Square

Amount of Money invested (Rs.)

Chi Square

In Management Commentary Section

4.630

0.970

2.223

4.862

In Income Statement section

5.720

5.552

4.067

6.870

In Balance Sheet Section

6.428

6.729

2.216

6.274

In Cash Flow Statement Section

6.322

5.836

3.760

4.372

In Segmental Information Section

4.462

3.867

3.425

3.132

In Accounting Policies and Notes

4.124

0.986

0.899

1.617

(Source: Primary research work)

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