Influence of Fundamental Variables on Corporate Disclosure via Modified Entropy

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Fouzi Ali Mukhtar
Fouzi Ali Mukhtar
2
Ravindran Ramasamy
Ravindran Ramasamy
1 University Tun Abdul Razak

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The use of disclosure index to quantify disclosure level had been widely used in previous studies related to disclosure determinates and disclosure effects. Disclosure indexes rely on totalling items disclosed in an information channel may offer a greater picture about the quantity of information disclosed but little on the quality level, especially when considering that items disclosed may not be consistent from one year to another.The aim of this paper is to introduce an alternative approach to quantify disclosure level through probabilistic measure derived from entropy, named Modified entropy score (MES). A measure which combines both items disclosed and their probability to capture the quality of information disclosed. The introduced measure was compared with previous measure, conventional disclosure score (CDS). The results showed great consistency between the two measures. Disclosure level as measured by both CDS and MES was influenced positively by several firms’ fundamental variables including size, age, liquidity and profitability while ownership dispersion showed insignificant effect on disclosure level.

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No external funding was declared for this work.

Conflict of Interest

The authors declare no conflict of interest.

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No ethics committee approval was required for this article type.

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Not applicable for this article.

Fouzi Ali Mukhtar. 1970. \u201cInfluence of Fundamental Variables on Corporate Disclosure via Modified Entropy\u201d. Global Journal of Human-Social Science - H: Interdisciplinary GJHSS-H Volume 13 (GJHSS Volume 13 Issue H1): .

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GJHSS Volume 13 Issue H1
Pg. 25- 36
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Crossref Journal DOI 10.17406/GJHSS

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The use of disclosure index to quantify disclosure level had been widely used in previous studies related to disclosure determinates and disclosure effects. Disclosure indexes rely on totalling items disclosed in an information channel may offer a greater picture about the quantity of information disclosed but little on the quality level, especially when considering that items disclosed may not be consistent from one year to another.The aim of this paper is to introduce an alternative approach to quantify disclosure level through probabilistic measure derived from entropy, named Modified entropy score (MES). A measure which combines both items disclosed and their probability to capture the quality of information disclosed. The introduced measure was compared with previous measure, conventional disclosure score (CDS). The results showed great consistency between the two measures. Disclosure level as measured by both CDS and MES was influenced positively by several firms’ fundamental variables including size, age, liquidity and profitability while ownership dispersion showed insignificant effect on disclosure level.

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Influence of Fundamental Variables on Corporate Disclosure via Modified Entropy

Fouzi Ali Mukhtar
Fouzi Ali Mukhtar University Tun Abdul Razak
Ravindran Ramasamy
Ravindran Ramasamy

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