This study investigates the extent, location and selective nature of the reporting of financial ratios in annual reports of Australian listed entities under a voluntary reporting environment. Only certain entities choose to report ratios, so potentially they may have relevant signalling properties. Results establish that selective reporting is pronounced across all examined ratios, although it is greatest for the stock market and profitability ratios and to a lesser extent the gearing ratios. As such, entities report ratios when (a) either the ratios themselves are relatively favourable and/or (b) the disclosure itself is favourable. The selective nature of ratio reporting implies ratios are useful as a signalling tool, both in terms of the relative ratio of the entity that is actually reported, as well as more generally the superior accounting (return-on-equity) performance of the entity. Overall, the selective or signalling motivation for ratio reporting is confirmed although other economic incentives such as agency costs, and information asymmetry are also relevant and significant.
|Number of pages||26|
|Journal||Accounting Research Journal|
|Publication status||Published - 2006|