Financial instruments disclosure in an unregulated and regulated reporting environment: a proprietary cost perspective

In this study, proprietary cost theory is used as a basis to compute a disclosure index to investigate the effect of hedging strategies and investment growth opportunities on management's incentives to voluntarily disclose proprietary information relating to financial instruments. Using a sample of 69 Australian listed companies, a weighted disclosure index for perceived 'proprietariness' of the information contained in each disclosure item was computed in the pre- and post-regulation periods, of the Australian Accounting Standard, AASB 1033 'Financial Instruments: Presentation and Disclosure'. On the basis of this computed index, the results reveal significant increase in voluntary disclosure of proprietary information between the pre- and post-regulation periods. Findings from the study also suggest that firms' growth opportunities have some influence in limiting voluntary disclosure of proprietary information in the unregulated period. Implications of the findings for standards-setters and financial statement users are also discussed in this paper.