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The purpose of this paper is to overview the most popular theories that have been used in prior research to explain voluntary corporate disclosures and to provide guidance about the choice of a suitable theory or theories for different types of voluntary disclosure research. It presents a comprehensive comparison of voluntary disclosure theories and relates each of the theories to the type of information disclosure being examined. Following prior research, we classify disclosures into strategic and forward looking, financial, and non-financial information. We show that similarities and differences between theories stem from underlying paradigm differences which are related to incentives to disclose and the costs and benefits considered by each theory. The choice of a suitable theory to underpin the research depends on the type of information disclosure being examined and the external parties considered.
Key words: disclosure; theory; socio-political; signalling; agency
Introduction
The voluntary disclosure of information by corporations is an enduring and important aspect of the corporate reporting landscape. Voluntary or discretionary disclosures are those disclosures that are made to complement and supplement the disclosures required by accounting and disclosure regulations (Meek, Roberts & Gray 1995). That is, they are unregulated communications between firms and their stakeholders. There is an extensive body of literature that explores the determinants of voluntary corporate disclosures.
The purpose of this paper is to overview the most popular theories that have been used in prior research to explain voluntary corporate disclosure and to provide guidance about the choice of suitable theories for different types of voluntary disclosure research. Several theories have been used in prior research to explain voluntary disclosure practices. These are agency theory, signalling theory, proprietary cost theory, political economy theory stakeholder theory and legitimacy theory. While there are similarities between some of these theories, there are also differences and the choice of a suitable theory to underpin the research depends on the type of information disclosure being examined and the external parties considered. It is therefore important for researchers to have an understanding of these similarities and differences between the theories and their applicability to different types of voluntary corporate disclosures.
While there are several prior studies that have reviewed groups of voluntary disclosure theories, no known prior study provides a comprehensive comparison...