Organizational Culture and Corporate Risk Disclosure

Download as pdf or txt
Download as pdf or txt
You are on page 1of 23

International Journal of Commerce and Management

Organizational culture and corporate risk disclosure: An empirical investigation for


United Arab Emirates listed companies
Walaa Wahid ElKelish Mostafa Kamal Hassan
Article information:
To cite this document:
Walaa Wahid ElKelish Mostafa Kamal Hassan , (2014),"Organizational culture and corporate risk
disclosure", International Journal of Commerce and Management, Vol. 24 Iss 4 pp. 279 - 299
Permanent link to this document:
http://dx.doi.org/10.1108/IJCoMA-06-2012-0035
Downloaded by IQRA UNIVERSITY At 01:21 01 November 2016 (PT)

Downloaded on: 01 November 2016, At: 01:21 (PT)


References: this document contains references to 107 other documents.
To copy this document: permissions@emeraldinsight.com
The fulltext of this document has been downloaded 491 times since 2014*
Users who downloaded this article also downloaded:
(2008),"Risk reporting: An exploratory study on risk management disclosure in Malaysian annual reports",
Managerial Auditing Journal, Vol. 24 Iss 1 pp. 39-57 http://dx.doi.org/10.1108/02686900910919893
(2011),"Risk-related disclosures by non-finance companies: Portuguese practices and
disclosure characteristics", Managerial Auditing Journal, Vol. 26 Iss 9 pp. 817-839 http://
dx.doi.org/10.1108/02686901111171466

Access to this document was granted through an Emerald subscription provided by emerald-srm:546149 []
For Authors
If you would like to write for this, or any other Emerald publication, then please use our Emerald for
Authors service information about how to choose which publication to write for and submission guidelines
are available for all. Please visit www.emeraldinsight.com/authors for more information.
About Emerald www.emeraldinsight.com
Emerald is a global publisher linking research and practice to the benefit of society. The company
manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as
providing an extensive range of online products and additional customer resources and services.
Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee
on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive
preservation.

*Related content and download information correct at time of download.


The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1056-9219.htm

Organizational culture and Culture and


corporate risk
corporate risk disclosure disclosure
An empirical investigation for
United Arab Emirates listed companies 279
Walaa Wahid ElKelish and Mostafa Kamal Hassan
Department of Accounting, Finance and Economics, College of Business
Administration, University of Sharjah, Sharjah, United Arab Emirates
Downloaded by IQRA UNIVERSITY At 01:21 01 November 2016 (PT)

Abstract
Purpose – The main purpose of this paper is to investigate the relationship between organizational
culture and corporate risk disclosure for listed companies in the United Arab Emirates (UAE).
Design/methodology/approach – The organizational culture is represented by four dimensions:
Clan, Adhocracy, Market and Hierarchy (Cameron and Quinn, 1999). Data are computed from the
financial reports of all listed companies on the UAE Stock Market as of the year ending 2005. The
multiple regression analysis model, ordinary least square, is used to test the study hypotheses.
Findings – Results show that the organizational culture of Hierarchy, which focuses on more
formalized work procedures, has a significant positive effect on the companies’ risk disclosure in the
UAE business environment. Several other control variables are implemented to ensure reliability of
results.
Practical implications – Listed companies in the UAE are more responsive to formal rules and
regulations on reporting risk disclosure, which is quite different from the “self-regulation” practices that
are more common in some Western countries. Consequently, policymakers and regulators in the UAE,
and in other countries with similar conditions, are encouraged to focus on continuous development of
formal rules and procedures to enable more harmony with international best practices of risk disclosure.
Originality/value – Unlike the majority of previous empirical studies, this is the first study to
incorporate a behavioral endogenous organizational culture model to explain the main determinants of
risk disclosure, which opens the door for more understanding of the risk disclosure output function as
a management process.
Keywords Risk disclosure, Organizational culture, United Arab Emirates
Paper type Research paper

1. Introduction
Risk reporting has occupied considerable attention in the past few years (Meier et al.,
1995; Solomon et al., 2000; Schrand and Elliott, 1998; Cabedo and Tirado, 2004; Ahmed
et al., 2004; Linsley and Shrives, 2006; Abraham and Cox, 2007; Linsley and Lawrance,
2007; Spira and Page, 2003; Hassan, 2009, 2011). Previous empirical studies have used
different theoretical foundations to explain the association between firms’
characteristics and level of risk disclosure, such as Agency theory (Linsley and Shrives, International Journal of Commerce
2006; Abraham and Cox, 2007) and the Legitimacy/Institutional theories and Management
Vol. 24 No. 4, 2014
(Carpenter et al., 2001; Linsley and Kajüter, 2008; Oliveira et al., 2011b; Hassan, 2011). pp. 279-299
However, previous empirical results have provided inconclusive and mixed results due © Emerald Group Publishing Limited
1056-9219
to intra-countries institutional and intra-companies structural differences (Hassan, DOI 10.1108/IJCoMA-06-2012-0035
IJCOMA 2009; Oliveira et al., 2011b). A fundamental aspect of these studies is that they tend to
overlook how organizational culture influences the level of risk disclosure. One of the
24,4 potential contributions of this paper, therefore, is that this is the first study to explain
organizational culture-risk disclosure relationship in light of the Agency theory (Jensen
and Meckling, 1976).
The underlying rationale, here, is that organizational culture acts as a solid
280 foundation of agent–principal relationships. Davis et al. (1997) argue that organization
management philosophy and culture “create a context in which the choice of agency
relationship is made by agents and principals”. This implies that organizational culture
has an influence on management practices and, consequently, on control and disclosure
attitude.
Another key aspect in the literature examining culture effects on corporate disclosure
(Mir et al., 2009) is that “culture” is investigated as an explanatory variable behind the
Downloaded by IQRA UNIVERSITY At 01:21 01 November 2016 (PT)

variation of accounting practices. Although that literature is either concerned with a


comparative analysis across different countries or based on an analysis of accounting
practices and culture within a single country, the literature mainly pays attention to the
effect of national culture on accounting practices through testing Gray’s (1988) and/or
Hofstede’s (1980) models of culture (Mir et al., 2009; Taskumis, 2007; Noravesh et al.,
2007; Hwang et al., 2008; Jaggi and Low, 2000). Another contribution of this paper is that,
to date, most accounting-based culture concept studies have examined national culture
effects on accounting with no particular reference as to how organizational culture
influences corporate risk disclosure (CRD).
There are, however, several reasons to choose the UAE for this study. The UAE has
witnessed a fast economic growth over a short period of time, yet that growth is not
followed by the adoption of proper governance practices, such as risk disclosure (Obay,
2009). In addition, the UAE regulatory framework sets regulations that obligate listed
corporations to publish risk information in their annual reports. The UAE security
market and the UAE central bank enforce a set of regulations that pressurize UAE
corporations to provide risk information in their annual reports (Hassan, 2009, 2011).
Yet the extent of that disclosure is at the discretion of the reporting corporations’
management (Obay, 2009). This co-existence of the country’s regulatory requirements
and corporate managers’ discretion makes the issue of organizational culture effects on
the level of risk disclosure in the UAE an interesting concern to both domestic and
international business communities. This paper is organized in seven sections. After
this introduction, Section 2 presents the literature review; Section 3 discusses
hypotheses development; Section 4 discusses the methodology and variable
measurements; Section five discusses the empirical findings; and Section 6 discusses the
paper’s conclusions and future researches.

2. Literature review
The literature on determinates of risk disclosure can be divided into three main
groups. The first group of studies relies on Agency theory (Jensen and Meckling, 1976)
to explain the variation on CRD (Beretta and Bozzolan, 2004; Cabedo and Tirado, 2004;
Linsley and Shrives, 2006; Abraham and Cox, 2007). The second group draws on the
Legitimacy theory (Kaplan and Ruland, 1991) to understand why corporations provide
different types of risk disclosure, while others rely on the Stakeholder theory (Amran
et al., 2009). The third group of studies utilizes a mix of theories to augment the analysis
of the empirical results (Hassan, 2009; Oliveira et al., 2011a, 2011b). For example, Linsley Culture and
and Kajüter (2008) relied on the Legitimacy theory (Kaplan and Ruland, 1991) to
understand how Allied Irish Banks applied different strategies to reinstate its
corporate risk
creditability after the occurrence of a fraud that not only affected the bank financially disclosure
but also damaged its reputation. Likewise, Oliveira et al. (2011a, 2011b) found that
voluntary risk reporting enhances Portuguese banks’ legitimacy through compliance
with the institutional pressures that enforce the adoption of Basel II requirements while, 281
at the same time, enabling banks’ managers to manage their stakeholders’ perception
about their banks’ reputation.
In the same vein, Hassan (2009) found significant relationships between the extent of
corporate disclosure and firm-specific characteristics of the UAE listed companies.
Although this paper shares some similarities with the above papers in terms of
examining risk disclosure, it differs from these studies in a number of ways. First, this
Downloaded by IQRA UNIVERSITY At 01:21 01 November 2016 (PT)

paper examines the effect of organizational culture on the level of risk disclosure. It relies
on behavioral organizational culture frameworks to generate testable hypotheses.
Second, the paper interlinks risk disclosure studies with other studies that explored the
impact of organizational culture on financial disclosure (Gordon and Miller, 1976;
Thomas, 1989; Gibbins et al., 1990; Adams, 1997). Third, the paper provides a
complementary explanation of the variation on risk disclosure through the use of
Agency theory (Jensen and Meckling, 1976).
Agency theory (Jensen and Meckling, 1976) predicts that there is a conflict of interest
between managers (agents) and shareholders (principals). This conflict stems from the
rational opportunistic behavior of both parties to maximize their own economic utility.
Agency costs resulting from this conflict of interest may be reduced by imposing
internal governance structures and compensation schemes to protect the interest of the
principal, and to keep the potential agent’s self-interest behavior under control (Jensen
and Meckling, 1976). In this context, Davis et al. (1997) argued that management
philosophy and culture act as antecedents for the choice of agency relationship between
management and principals. For example, the agent–principal relationships in a
control-oriented approach are generally transactional in nature or are based on
institutional power. The choice of the type of power used to control the agent is a
function of the personal characteristics of the individual and the prevailing
organizational culture (Davis et al., 1997). Therefore, the organizational culture can
influence the outcome behavior of the agency–principle relationship.
Although some recent studies have recognized that various groups (e.g. religious,
social, national and corporate) have fundamentally different ways of interacting
internally, and with the outside world (Jenkins et al., 2008), the organizational culture
phenomenon dates back to the Managerial and Behavioral theories of the firm. The
former theory discusses the implications of the conflict between managers’ tendency to
maximize their own benefits and shareholders’ profit maximization goal (Baumol, 1959
and Marris, 1964; Williamson, 1964), while the latter explains decision-making
processes in complex and uncertain situations within organizations (Cyert and March,
1963 and Simon, 1976). The importance of the dominant organizational culture stems
from it being the glue that holds the organization together to achieve certain
predetermined objectives (Hansen and Wernerfelt, 1989; Trice and Beyer, 1993; Denison,
1990; Cameron and Quinn, 1999). In the context of financial reporting and disclosure,
Gibbins et al. (1990) argue that firms’ history, knowledge and predetermined norms
IJCOMA contribute to the formation of a disclosure position whereby “[…] firms’ traditions, taken
for-granted ways of doing things, may establish how disclosure is managed.”
24,4 Several studies have explored the impact of organizational culture on financial
disclosure. Thomas (1989) found that the presence of a strong professional accounting
sub-culture, which stems from the main elements of organizational culture, influences
the extent of voluntary disclosure. Gibbins et al. (1990) presented a cornerstone model
282 showing how the “[…] corporate disclosure is an output of external and/or internal
stimuli”. These stimuli include firms’ internal and external antecedents, such as market-
and firm-specific characteristics. A fundamental component of Gibbins et al.’s (1990)
model is the potential impact of organizational culture, as part of internal antecedent
conditions, on firms’ disclosure. Adams (1997) tested the Gibbins model on 12 New
Zealand life insurance companies using interview evidence and found that “[…]
company culture was reported by several managers to be a major determinant of
Downloaded by IQRA UNIVERSITY At 01:21 01 November 2016 (PT)

corporate reporting practices”. Furthermore, Gordon and Miller (1976) discussed the
impact of management perceptions of environmental uncertainty on financial
disclosure.
In the context of risk reporting, several studies examined the stock price reaction to
risk disclosure (Rajgopal, 1999; Linsmeier et al., 2002; Jorion, 2002; Schrand, 1997; Wong,
2000; Uddin and Hassan, 2011), while others investigated the relationships between
corporations’ characteristics and risk-related information published in the annual
reports (Lajili and Zéghal, 2005; Linsley and Shrives, 2006; Lopes and Rodrigues, 2007;
Abraham and Cox, 2007; Amran et al., 2009; Hassan, 2009). Furthermore, some scholars
examined risk narrative disclosure (Abrahamson and Amir, 1996; Deumes, 2008;
Linsley and Kajüter, 2008; Amran et al., 2009). Uddin and Hassan (2011) investigated
UAE firms’ stock price volatility over different interval periods after the publication of
risk-related information in their annual reports. Abrahamson and Amir (1996)
investigated the relationship between risk narrative and firms’ performance. Deumes
(2008) examined the relationship between textual risk information and the volatility of
stock prices on a sample of Dutch firms listed in the Amsterdam Stock Exchange.
Amran et al. (2009) investigated the relationship between the characteristics of
Malaysian firms and risk disclosures incorporated in the non-financial section of these
firms’ annual reports. The stakeholder theory was used, as discussed by Amran et al.
(2009), to link corporations’ characteristics to risk disclosure and to explain their
empirical findings.
Despite the significant contributions of these risk-reporting studies, most of them
have tended to overlook the effect of organizational culture on risk disclosure. This
study extends on the risk reporting studies by investigating the impact of several
dimensions of organizational culture in different industrial settings operating in the
UAE using a quantitative measurement technique, as detailed later on.

3. Hypotheses development
Organizational culture is defined as the “shared perceptions of organizational work
practices within organizational units that may differ from other organizational units”
(Van den Berg and Wilderom, 2004). Several models have used various dimensions and
attributes of organizational culture, such as the models presented by Deal and Kennedy
(1982), Handy (1985), Johnson (1988), Van Muijen et al. (1999), Hofstede et al. (1990),
Gordon and DiTomaso (1992), Denison and Mishra (1995), and Van den Berg and Culture and
Wilderom (2004) (See Trice and Beyer, 1993; Beyer and Cameron, 1997).
Although there is a great deal of communality among the organizational culture
corporate risk
dimensions in different models (Table I), this paper utilizes the organizational culture disclosure
model presented by Cameron and Quinn (1999) for several reasons. Most notably, this
model depends on measuring work practices to explore the underlying organizational
culture, which is a more reliable approach compared to other models that depend on 283
measuring subjective opinions. The model also provides a framework of culture that
integrates many of the organizational culture dimensions proposed by other scholars,
which relatively reduces the complexity of the culture concept into four easily
understood dimensions. In addition, the model presents an explanation of the
underlying themes of each cultural dimension, which helps, to a great extent, to identify
appropriate proxy measurable variables. Furthermore, several studies found the model
Downloaded by IQRA UNIVERSITY At 01:21 01 November 2016 (PT)

to be accurate and valid for empirical research (Zhang and Liu, 2006; Cameron and
Ettington, 1988; Quinn, 1988; Cameron and Freeman, 1991; Howard, 1998; Al-Khalifa
and Aspinwall, 2000; Dastmalchian et al., 2000).
Based on previous literature, this study views risk disclosure as a management
activity (Gibbins et al., 1990) that requires inputs, processes, people and outputs. That is,
risk disclosure is the outcome of a social interaction within organizations, which
maintains the style of the organization from the view point of its members (Wilkins and
Ouchi, 1983). Accordingly, it is predicted that the style of organizations enhances
patterns of behavior which can implicitly explain risk disclosure.
In the same vein, previous empirical studies view determinants of financial
disclosure as exogenous factors, that is, it is determined solely by external forces beyond
the control of the company, such as the stock market, government or regulations
(Thompson and Wildavsky, 1986), Conversely, this study deals with organizational
culture as an endogenous variable that is determined by management behavior like any
other business function. Unfortunately, previous theoretical and empirical studies do
not provide clear indications on the relationship between organizational culture and
financial disclosure. However, the organizational culture model by Cameron and Quinn
(1999) provides a good opportunity to predict these relationships. This model identifies
four main values for organizational culture: Clan, Adhocracy, Market and Hierarchy.
These internal social organizational culture values can be helpful in determining the
level of risk disclosure.
The organizational culture of Clan (Cameron and Quinn, 1999) focuses on internal
climate, flexibility and concern for people. It is characterized by a sense of “we-ness”
attitude, shared values and goals cohesion, teamwork, participation and consensus
(Cameron and Quinn, 1999). It is a friendly workplace where people can share a lot of
themselves. The glue which holds the organization together is loyalty and high
commitment. Control in Clan organizations depends on goal congruence and traditions,
with no explicit auditing and evaluation of performance (Ouchi, 1980). There is more
emphasis on long-term benefit of individual development and morale. Hofstede (2001,
p. 380) suggested that Clan organizations are close to family type of organizations,
which are characterized by high concentration of authority, less formalization of
activities and more tolerance for ambiguity in structure and procedures (Hofstede, 2001,
pp. 375-377) that can constrain information disclosure. Furthermore, Clan organizations
tend to focus on integrity and solidarity to secure a sense of solidarity with the
Downloaded by IQRA UNIVERSITY At 01:21 01 November 2016 (PT)

24,4

284

models
Table I.
IJCOMA

Organizational culture
dimensions across several
Organizational cultural models/dimensions

Van den Berg and Cameron and Quinn Denison and Mishra Gordon and DiTomaso O’Reilly et al. Hofstede et al. (1990)
Wilderom (2004) (1999) (1995) (1992) (1991)
Human resources, Clan Involvement Integration/communication, People and teams Professional, employees/job,
inter-departmental development/promotion, open/closed system
coordination fairness of rewards
Improvement Adhocracy Mission and Innovation/risk taking, Innovation Process/results
adaptability clarity of strategy/shared
goals
External environment Market Action Results Normative/pragmatic
Autonomy Hierarchy Consistency Accountability/systematic Stability and Loose/tight control
decision-making details
organization and to protect the collectivism nature of the system. Therefore, it is Culture and
hypothesized (H1) that:
corporate risk
H1. There is a negative relationship between the organizational culture of Clan and disclosure
CRD.
The organizational culture of Adhocracy is characterized by a dynamic, entrepreneurial,
creative and risk-taking workplace (Cameron and Quinn, 1999). There is more emphasis 285
on the external climate, experimentation, flexibility, innovation, aggressive strategies,
increasing boundary spanning, initiative and system openness. The organization’s
long-term emphasis is on rapid growth, acquiring new resources and producing unique
products and services. Adhocracy organizations are expected to have a lower degree of
risk disclosers, as they usually have minimal formalization which would involve verbal
discussions and approval on major issues (Reynolds, 1986). They are characterized by
Downloaded by IQRA UNIVERSITY At 01:21 01 November 2016 (PT)

flexibility, which refers to spontaneity, change, openness, adoptability and


responsiveness (Cameron and Quinn, 1999). They are also extensively involved with the
external environment to keep the company as a premium provider of innovative
products or services, which may require a low degree of risk disclosure to reduce
proprietary costs. Therefore, it can be hypothesized (H2) that:
H2. There is a negative relationship between organizational culture of Adhocracy
and CRD.
The organizational culture of Market focuses on transactions with external parties such
as supplies, customers and contractors. (Cameron and Quinn, 1999). Companies are
results oriented, with more emphasis on the external environment and control. Control
in Market-oriented organizations focuses on competition between individuals
(Williamson, 1975). The long-term concern is on competitive actions, achieving stretch
goals and leadership in the marketplace. Market organizations are expected to disclose
more information to maintain market leadership through stretch targets and higher
levels of customer satisfaction. Consequently, the alternative study hypothesis (H3)
states that:
H3. There is a positive relationship between the organizational culture of Market
and CRD.
The organizational culture of Hierarchy emphasizes internal climate and control. It is set
up as a well-formalized and structured workplace to control the expanding
responsibilities (Cameron and Quinn, 1999). The long-term concern is on stability,
predictability, efficiency and smooth-running operations. The glue which holds the
organization together is formal rules and procedures. Hierarchy organizations tend to
have more control procedures with an internal focus on internal business activities.
Control refers to predictability, satiability, formalization, rigidity and conformity. They
are predicted to have more risk disclosure levels to maintain operation efficiency and
smooth running of operations.
A high degree of formalization is related to the existence of written documents and
forms on company rules and procedures. Managers with control values are predicted to
disclosure more risk disclosers due to emphasis on clarity, enforcement of roles, rules
and regulations. Sejjaaka (2004, p. 7) argued that tight control means that the
organization is highly structured and, therefore, is likely to disclose more information
IJCOMA than loose control structures. Sejjaaka (2004) argued that there is a positive relationship
between formalization and disclosure level as “[…] it determines the degree with which
24,4 a certain level can be regarded as adequate or not”. Therefore, it can be hypothesized
(H4) that:
H4. There is a positive relationship between organizational culture of Hierarchy and
CRD.
286
4. Methodology and variable measurement
4.1 Data and empirical model
This paper examined 41 annual financial reports which represent all listed companies in
the Dubai Financial Market and the Abu Dhabi Stock Exchange for the year ending 2005
(Appendix). There are two reasons behind choosing this study time period:
Downloaded by IQRA UNIVERSITY At 01:21 01 November 2016 (PT)

(1) The sample period predates the financial crisis, the matter that isolates the
economic circumstances profound effect on the relationship between
organizational culture and risk disclosure.
(2) Previous studies recommend a static approach for the dual purpose of
comparison and accumulation of organizational knowledge (Van den Berg and
Wilderom, 2004).

Accordingly, the paper regresses the level of CRD on two sets of variables:
(1) organizational culture variables; and
(2) other controlling variables based on previous empirical studies to ensure
reliability of results.

CRD is defined as the “financial statements incorporation of general, specific and


potential circumstances that may cause corporations assets and/or liabilities value
fluctuates, decreases or otherwise” (Hassan, 2009). The extent of risk disclosure is
obtained from Hassan (2009), who derived his index using several indicators in the
financial reports of listed companies in the UAE:
• general risks information;
• accounting policies;
• financial instruments;
• derivatives hedging;
• reserves;
• segment information; and
• financial and other risks.

This study implements the multiple regression analysis model, ordinary least squares,
to investigate the relationship between CRD index (dependent variable) and several
independent variables. The full estimation model is as follows:

CRD ⫽ ␣ ⫹ ␤1 CL ⫹ ␤2 InAD ⫹ ␤3 ROI ⫹ ␤4 TC ⫹ ␤5D/E ⫹ ␤6 IND


⫹ ␤7 ln ASSET ⫹ ␧
Where: Culture and
CRD ⫽ Corporate Risk Disclosure index. corporate risk
CL ⫽ Total employees compensation to operating expenses. disclosure
lnAD ⫽ Natural logarithm of fluctuations in operating income.
ROI ⫽ Return on Investment.
TC ⫽ Total transaction costs to net income.
D/E ⫽ Debt to Equity Ratio. 287
IND ⫽ Industry type (Dummy variable: 1 for financial, 0 for nonfinancial).
lnASSET ⫽ Natural logarithm of Total Assets.

4.2 Organizational cultural variables


Unlike the majority of previous empirical studies which depend on using interview
Downloaded by IQRA UNIVERSITY At 01:21 01 November 2016 (PT)

and/or questionnaire evidence to collect information on organizational culture (Scott


et al., 2003 for a review), this study depends on a quantitative technique to operationalize
organizational culture dimensions using secondary data. This approach can provide
high level of objectivity, stimulate more systematic comparative studies (Van den Berg
and Wilderom, 2004), facilitate hypotheses testing and contribute positively toward
saving time and effort (Lim, 1995).
The organizational culture model by Cameron and Quinn (1999) consists of four
dimensions: Clan, Adhocracy, Market and Hierarchy. Because these dimensions are not
directly observable, a “matching process” was implemented to provide indirect proxy
measures for organizational cultures existing in the UAE following the methodology of
Sudarwan et al. (1996) and Noravesh et al. (2007). These observable proxy variables were
located based on the prevailing themes for each organizational culture dimension.
Where the main themes of each organizational culture dimension were identified, these
themes were matched with some observable proxy variables, and the resulting
relationships between these proxy variables were justified based on previous theoretical
and empirical studies.
Consequently, several observable proxy variables were extracted to measure the
organizational culture dimensions of Clan, Adhocracy and Market, such as training
expenses, research and development expenses and market share, respectively (Cameron
and Quinn, 1999). However, we were limited, as some of these proxy variables were not
included in all the annual reports of the UAE listed companies. The choice of proxy
variables therefore was restricted by the availability of published information. The
organizational culture of Clan typically places priority on long-term benefits of human
resource development (Cameron and Quinn, 1999). Accordingly, total compensation
paid to employees as percentage of operating expenses (Phillips, 2005) represented the
proxy variable for the organizational cultural of Clan.
The organizational culture of Adhocracy is mainly characterized by more risk-taking
initiatives to achieve the predetermined targets (Cameron and Quinn, 1999). Therefore,
the fluctuation in operating income, which reflects how management is more likely to
accept the risk of changes in financial indicators, was used as a proxy variable for this
dimension. The organizational culture of Market is oriented toward achieving premium
return on assets, productivity and profitability. The main criteria of effectiveness are
achieving goals, outpacing the competition, increasing market share and acquiring
premium financial returns (Cameron and Quinn, 1999). Accordingly, return on assets
IJCOMA (ROA), return on equity (ROE), and return on investment (ROI) financial indicators were
used as proxy variables for the organizational culture of Market.
24,4 Transaction costs can be defined as the “costs related to the realization of exchange
in an economy” (Wallis and North, 1986), such as search and information costs,
bargaining costs and policing and enforcement costs. Williamson (1975) argued that
there is a relationship between hierarchal organizations and the cost of conducting
288 economic transactions. He added that “people will form hierarchal organizations when
the cost of the economic transactions is lower in a hierarchy than when all transactions
would take place on a free market”. In the same vein, Paton (1996) contends that the
choice of control structures “[…] for any particular transaction will be that which
minimizes not only production costs but also transaction costs”. Companies with high
transaction costs, Paton (1996) argued, will try to order their resources in a hierarchal
structure to control these costs, which can reflect a dominant organizational culture
Downloaded by IQRA UNIVERSITY At 01:21 01 November 2016 (PT)

therein (Handy, 1985). Therefore, total transaction costs to net income were used as
proxy variable for the degree of the organizational culture of Hierarchy.
Previous empirical studies faced great difficulty in identifying transaction costs,
especially those which were devoted to the transformation sector of the economy (Wallis
and North, 1986). Even later studies did not manage to improve much in this respect
(Dollery and Leong, 1998). Consequently, the currently available measurements of
transaction costs may be regarded as imperfect (Polski and Kearney, 2001) due to the
lack of theoretical consensus on the nature of transaction costs (Wang, 2003). For the
purpose of this paper, transaction costs are measured following Wallis and North’s
(1986) and Polski and Kearney’s (2001) studies whereby the economy is divided into two
main sectors:
(1) the transaction sector, which includes finance, insurance, real state, wholesale
and retail trade; and
(2) the transformation sector, which includes agriculture, construction, mining,
manufacturing, transportation and storage services.

According to Wallis and North (1986), transaction costs are measured, in general, by
total wages of employees who provide transaction service within the company. For
example, transaction costs in the transactions sector (i.e. banks) are measured as total
interest expenses paid and accrued on all interest bearing liabilities, non-interest
expenses such as employees salaries and benefits, occupancy expenses and other
expenses such as directors’ fees, legal fees and advertising (Polski and Kearney, 2001).
Similarly, transaction costs in the transformation sector are measured by labor costs of
using transaction-related workers such as managers, clerks, persons coordinating the
purchasing of inputs and distribution of outputs and security staff (Dollery and Leong,
1998).

4.3 Control variables


This paper controls for some firm-specific variables that were found to be related to the
level of disclosure, which include industry type, firm size, debt to equity ratio and debt
to assets ratio (See Naser et al., 2006; Barako et al., 2006; Al-Razeen and Karbhari, 2004;
Alsaeed, 2006; Oliveira et al., 2006). The Industry type (IND) represents an important
factor in explaining the level of disclosure, as corporations working in the same industry
are more likely to have similar risk disclosure practices to avoid negative market
perception (Cooke, 1992; Lopes and Rodrigues, 2007; Hassan, 2009). In addition, industry Culture and
type reflects, among other things, the regulation environment where companies operate
(Sufian and Habibullah, 2010). The paper assigns a value of (1) if the company belongs
corporate risk
to financial sector and (0) otherwise. Previous studies found that firm size (lnASSET) disclosure
has a positive impact on the level of disclosure (Naser et al., 2006; Barako et al., 2006;
Al-Razeen and Karbhari, 2004; Alsaeed, 2006; Hassan, 2009; Cooke, 1989; Raffournier,
1995; Lopes and Rodrigues, 2007). It is suggested that large corporations have 289
economies of scale that enable them to provide more information at low cost, and hence
they have competitive advantages in disclosing more information in comparison to
small-size corporations (Lopes and Rodrigues, 2007).
Furthermore, prior empirical studies argue that firms’ operating leverage, measured
by debt to equity (D/E), is a proxy of risk that may affect the level of disclosure (Lopes
and Rodrigues, 2007; Abraham and Cox, 2007; Hassan, 2009; Jaggi and Low, 2000;
Downloaded by IQRA UNIVERSITY At 01:21 01 November 2016 (PT)

Ahmed and Nicholls, 1994). These studies argue that higher leverage levels lead to
higher agency costs (potential wealth transfers from debt holders to shareholders and
managers), and therefore high levels of disclosure can be used to reduce agency costs
and information asymmetries. Finally, external financing (Gearing), measured by total
debt to total assets (D/A), was found to be positively associated with the level of
disclosure (Naser et al., 2006; Barako et al., 2006; Alsaeed, 2006). Khanchel (2007) argues
that the quality of annual reports information may be related to external financing. The
higher the level of disclosure, Khanchel (2007) adds, the more interest that lenders and
creditors may have in the corporation.

5. Empirical analysis and discussion


5.1 Descriptive statistics
The sample size consists of 41 listed companies in the UAE financial stock markets
(Table II). Transaction costs (TC) have the higher standard deviation of 43.76 with a
mean value of 51.62, while firm size (lnASSET) has the lower of 1.04 with a mean value
of 9.34.
Furthermore, the nonparametric Kruskal–Wallis H test is used to examine the
potential differences between CRD and the study independent organizational culture
variables. This test hypothesizes (H0) that:
H0. The distributions of the independent variables are the same across categories of
CRD.

Study variables N Minimum Maximum Mean SD

CRD 41 8.00 34.0 20.43 6.38


Clan (CL) 41 1.98 50.51 20.03 13.54
Adhocracy (LnAD) 41 1.79 7.56 4.42 1.24
ROI 41 ⫺17.00 47.00 20.13 11.79
TC 41 ⫺61.62 169.39 54.62 40.93
D/E 41 0.06 10.42 2.08 2.57 Table II.
IND 41 0.00 1.00 0.585 0.498 Descriptive statistics for
LnASSET 41 6.61 11.36 9.34 1.04 study variables
IJCOMA The dependent CRD mean value of (20.43) (Table II) is used as a cutoff point to categorize
this variable into two groups:
24,4
(1) high disclosure (dummy variable 1); and
(2) low disclosure (dummy variable 0).

Results show that there are significant differences in the mean ranking of CRD among
290 three independent variables, namely, TC, D/E and IND at 1 and 5 per cent levels
(Table III). These results justify the use of multiple regression analysis later on to
identify the most important determinants of CRD.

5.2 Correlation matrix


There are several significant correlations between the study variables (Table IV). CRD
has significant correlation coefficients with TC, D/A, D/E and IND at the 1 per cent level.
Downloaded by IQRA UNIVERSITY At 01:21 01 November 2016 (PT)

ROA, ROE and ROI are highly correlated with each other at the 1 per cent level.
Therefore, only ROI is introduced into the study model, as it has the highest correlation
coefficient of (0.214) with CRD, while ROA and ROE are excluded. Similarly, D/A and D/E
are highly correlated with each other at the 1 per cent level; accordingly, the former variable
is excluded from the analysis, as it has the lowest correlation of (0.501) with CRD.

5.3 Regression results


To investigate the relationship between CRD and organizational culture across
companies, a multiple regression analysis model is implemented. Several control
explanatory variables are introduced to check on the robustness of the results, which are
D/E, IND and natural logarithm of firm size (LnAssets). Results show that the
organizational cultures of CL, lnAD and ROI have insignificant standardized beta
coefficients of (⫺0.004), (0.200) and (0.167), respectively (Table V). This provides no
support for H1, H2 and H3. These insignificant results indicate that other variables may
be considered by companies, such as the property cost of dissemination of important
information to rivals in a highly competitive market like the UAE which is characterized
by liberal economic policies, in addition to the existence of several market imperfections
which are typical to other emerging markets.
It seems than even if the organization culture is oriented toward more disclosure to
keep market leadership, other external environmental factors may hinder or foster this
attitude, such as cultural values and legal systems (Hofstede, 2001; Mintzberg, 1983;
Pugh, 1976). The national culture in the UAE is characterized by high power distance
and uncertainty avoidance (Hofstede, 2001). The former, according to Gray (1988), may
encourage secrecy of information to avoid unpredicted situations unless mandated by
law, regulations or practices, such as the heavy regulated banking system.

Study variables CL LnAD ROI TC D/E IND LnASSET

Sig. (Asymptotic significance) 0.089* 0.763 0.432 0.010*** 0.021** 0.015** 0.117

Table III. Notes: Clan (CL), adhocracy (LnAD); return on investment (ROI), transaction costs (TC), debt to equity
Kruskal–Wallis H test ratio (D/E), industry type (IND), firm size (LnASSET); ( *** ), ( ** ) and ( * ) indicate significance at the 1,
statistics 5 and 10% confidence levels (two-tailed), respectively
Downloaded by IQRA UNIVERSITY At 01:21 01 November 2016 (PT)

Study variables CRD CL lnAD ROA ROE ROI TC D/A D/E IND lnASSET

CRD 1
CL 0.166 (0.301) 1
lnAD 0.155 (0.335) 0.111 (0.489) 1
ROA ⫺0.191 (0.231) ⫺0.037 (0.816) 0.050 (0.754) 1
ROE 0.144 (0.369) 0.091 (0.572) ⫺0.067 (0.675) 0.690** (0.000) 1
ROI 0.214 (0.178) ⫺0.038 (0.813) ⫺0.166 (0.299) 0.576** (0.000) 0.797** (0.000) 1
TC 0.564** (0.000) 0.216 (0.175) ⫺0.070 (0.664) ⫺0.504** (0.001) ⫺0.141 (0.381) 0.088 (0.584) 1
D/A 0.501** (0.001) 0.206 (0.195) 0.134 (0.403) ⫺0.626** (0.000) ⫺0.029 (0.857) 0.057 (0.725) 0.647** (0.000) 1
D/E 0.537** (0.000) 0.212 (0.183) ⫺0.001 (0.996) ⫺0.515** (0.001) 0.107 (0.506) 0.121 (0.450) 0.631** (0.000) 0.817** (0.000) 1
IND 0.443** (0.004) 0.376* (0.015) 0.119 (0.459) ⫺0.224 (0.160) 0.164 (0.306) 0.191 (0.230) 0.556** (0.000) 0.551** (0.000) 0.423** (0.006) 1
lnASSET 0.252 (0.112) ⫺0.038 (0.112 ⫺0.023 (0.885) ⫺0.084 (0.602) 0.084 (0.603) 0.068 (0.675) 0.183 (0.251) 0.226 (0.155) 0.391* (0.012) 0.108 (0.501) 1

Notes: Credit risk disclosure (CRD), clan (CL), adhocracy (LnAD), return on assets (ROA), return on equity (ROE), return on investment (ROI), transaction costs (TC), debt to assets ratio
(D/A), debt to equity ratio (D/E), industry type (IND), firm size (LnASSET); p-values are in brackets; ( ** ) and ( * ) indicate correlation is significant at the 1 and 5% confidence levels
(two-tailed) respectively.

Table IV.

coefficients.
Pearson correlation
for study variables using
Cross correlation matrix
291
disclosure
corporate risk
Culture and
IJCOMA CRD
24,4 Study variables Unstandardized (B) S.E Standardized (Beta) t Significance VIF

Constant 4.68 8.95 0.522 0.605


CL ⫺0.002 0.067 ⫺0.004 ⫺0.028 0.978 1.20
lnAD 1.02 0.691 0.200 1.47 0.149 1.09
ROI 0.090 0.074 0.167 1.22 0.228 1.10
292 TC 0.057 0.029 0.363 1.94 0.060* 2.08
D/E 0.546 0.450 0.220 1.21 0.234 1.97
IND 1.08 2.19 0.085 0.496 0.623 1.74
lnASSET 0.508 0.867 0.083 0.587 0.561 1.20
F-statistic 3.82***
Durbin-Watson 1.81
R2 0.448
Downloaded by IQRA UNIVERSITY At 01:21 01 November 2016 (PT)

Adjusted R2 0.331
Table V. N 41
Multiple regression
analysis (OLS) for the Notes: Clan (CL), adhocracy (LnAD), return on investment (ROI), transaction costs (TC), debt to equity
relationship between CRD ratio (D/E), industry type (IND), firm size (LnASSET); ( *** ), ( ** ), and ( * indicate significance level at
and organizational culture 1, 5 and 10% levels, respectively; (VIF) value inflation factor

As for the legal system, the UAE uses a civil law system in contrast to other countries
which depend on a common law system. The former depends on statutes and
comprehensive codes, which usually emphasize duties, authorities and paternalistic
orders, while the latter depend on precedential cases, court decisions and similar
tribunals. Civil countries, as argued by some researchers, lack flexibility to cope with
changing economic environments and encourage some social characteristics such as
solidarity, cohesion and uncertainty avoidance (La Porta et al., 1998; Jaggi and Low,
2000; Djankov et al., 2008; Licht et al., 2005). Similarly, this external legal environment in
the UAE may encourage more secrecy of financial information (Gray, 1988), unless
regulated by official bodies.
By contrast, the estimation model shows a significant positive relationship between the
organizational culture of Hierarchy (TC) and CRD with a standardized beta coefficient of
(0.363) at the 10 per cent level, which provides support to H4. The overall model has a
significant F statistic of (3.82) at 1 per cent level and an Adjusted R2 of (0.331). The estimation
model shows no significant sign of multicollinearity above 5 degrees using the variance
inflation factor, as indicated by Studenmund (2006), nor any significant sign of
heteroscedasticity of residuals using the Goldfeld and Quandt (1965) test statistic. This
implies that companies with the organizational culture of Hierarchy are more likely to
disseminate risk information in their annual financial report. The existence of tight rules and
procedures, as argued by some researchers, encourages firms to provide more information to
satisfy the needs of several stakeholders, such as investors, financial analysts and creditors.
This is consistent with the study prediction and proponents of the Managerial and
Behavioral theories of the firm (Baumol, 1959; Williamson, 1964; Cyert and March, 1963) and
previous empirical results which highlighted the importance of organizational culture on
disclosure practices (Gordon and Miller, 1976; Thomas, 1989; Adams, 1997). In addition, this
is in line with the Agency theory (Jensen and Meckling, 1976) which predicts that when
risk-averse shareholders recognize the self-interest behavior of executive managers, they
usually tend to reduce associated agency costs through, among other mechanisms, Culture and
governance structures. This may be particularly applicable to the UAE business
environment, which is dominated by a diverse majority of expat population. In the same
corporate risk
vein, the importance of the organizational culture of Hierarchy stems from the need to control disclosure
high transaction costs, especially in the banking sector which is heavily regulated by the
UAE central bank and constitutes a large proportion of the sample size.
293
6. Conclusions
The paper empirically tests the relationship between dimensions of organizational culture
and risk disclosure. The findings indicate that the organizational culture of Hierarchy has a
significant positive effect on the UAE companies’ risk disclosure. The paper contributes to
the body of accounting literature that examines the determinants of CRD, particularly by
examining the impact of organizational culture. Because the culture of hierarchy focuses on
Downloaded by IQRA UNIVERSITY At 01:21 01 November 2016 (PT)

internal control and formalized work procedures to control and organize work, it can be
concluded that unlike the common “self regulation” practices in some Western countries,
local policymakers and regulators are encouraged to focus on continuous development of
formal rules and procedures to enable more harmony with international best practices of risk
disclosure. Further research is recommended to investigate patterns of risk disclosure and
organizational culture among countries for comparability of results. Time series analysis
can also reveal the impact of changes in organizational culture on CRD over time.

References
Abraham, S. and Cox, P. (2007), “Analyzing the determinants of narrative risk information in UK
FTSE 100 annual reports”, The British Accounting Review, Vol. 39 No. 3, pp. 227-248.
Abrahamson, E. and Amir, E. (1996), “The information content of the president’s letter to
shareholders”, Journal of Business Finance and Accounting, Vol. 23 No. 8, pp. 1157-1182.
Adams, M.B. (1997), “Ritualism, opportunism and corporate disclosures in the New Zealand life
insurance industry: field evidence”, Accounting, Auditing and Accountability Journal,
Vol. 10 No. 5, pp. 718-734.
Ahmed, A.S., Beatty, A. and Bettinghus, B. (2004), “Evidence on the efficiency of interest rate risk
disclosures by commercial banks”, The International Journal of Accounting, Vol. 39 No. 3,
pp. 223-251.
Ahmed, K. and Nicholls, D. (1994), “The impact of non-financial company characteristics on
mandatory disclosure compliance in developing countries: the case for Bangladesh”, The
International Journal Of Accounting, Vol. 29 No. 1, pp. 62-77.
Al-Khalifa, K. and Aspinwall, E.M. (2000), “Using the competing values frameworks to investigate
the culture of qatar industries”, Total Quality Management, Vol. 12 No. 4, pp. 417-428.
Al-Razeen, A. and Karbhari, Y. (2004), “Interaction between compulsory and voluntary disclosure in
Saudi Arabian corporate annual reports”, Managerial Auditing Journal, Vol. 19 No. 3,
pp. 351-360.
Alsaeed, K. (2006), “The association between firm-specific characteristics and disclosure: the vase
of Saudi Arabia”, Managerial Auditing Journal, Vol. 21 No. 5, pp. 476-496.
Amran, A., Bin, A.R. and Hassan, B.M. (2009), “Risk reporting: an exploratory study on risk
management disclosure in Malaysian annual reports”, Managerial Auditing Journal,
Vol. 24 No. 1, pp. 39-57.
Barako, D., Hancock, P. and Izan, H. (2006), “Factors influencing voluntary corporate disclosure by
Kenyan companies”, Corporate Governance, Vol. 14 No. 2, pp. 107-125.
IJCOMA Baumol, W.J. (1959), Business Behavior, Value and Growth, MacMillan, New York, NY.
24,4 Beretta, S. and Bozzolan, S. (2004), “A framework for the analysis of firm risk communication”,
The International Journal of Accounting, Vol. 39 No. 3, pp. 265-288.
Beyer, J. and Cameron, K. (1997), Enhancing Organizational Performance, National Academy
Press, Washington, DC.
Cabedo, J.D. and Tirado, J.M. (2004), “The disclosure of risk in financial statements”, Accounting
294 Forum, Vol. 28 No. 2, pp. 181-200.
Cameron, K. and Ettington, D.R. (1988), “The conceptual foundations of organizational culture”,
Higher Education: Handbook of Theory and Research, Agathon, New York, NY,
pp. 356-396.
Cameron, K. and Freeman, S.J. (1991), “Cultural congruence, strength, and type: relationships to
effectiveness”, in Woodman, R.W. and Pasmore, W.A. (Eds), Research In Organizational
Downloaded by IQRA UNIVERSITY At 01:21 01 November 2016 (PT)

Change and Development, Vol. 5, JAI Press, Greenwich, CT, pp. 23-58.
Cameron, K. and Quinn, R. (1999), Diagnosing and Changing Organizational Culture, Prentice
Hall, NJ.
Carpenter, V.L. and Feroz, E.H. (2001), “Institutional theory and accounting rule choice: an
analysis of four us state governments’ decisions to adopt GAAP”, Accounting,
Organizations and Society, Vol. 26 Nos 7/8, pp. 565-596.
Cooke, T.E. (1989), “Disclosure in the corporate annual reports of Swedish companies”,
Accounting and Business Research, Vol. 19 No. 74, pp. 113-124.
Cooke, T.E. (1992), “The impact of size, stock market listing and industry type on disclosure in the
annual reports of Japanese listed corporations”, Accounting and Business Research, Vol. 22
No. 87, pp. 229-237.
Cyert, R. and March, J.G. (1963), A Behavioral Theory of the Firm, Blackwell, Oxford.
Dastmalchian, A., Lee, S. and Ng, I. (2000), “The interplay between organizational and national
cultures: a comparison of organizational practices in Canada and South Korea using the
competing values framework”, Journal of Human Resources Management, Vol. 11 No. 2,
pp. 388-412.
Davis, J., Schoorman, F. and Donaldson, L. (1997), “Toward a stewardship theory of
management”, Academy of Management Review, Vol. 22 No. 1, pp. 20-47.
Deal, T.E. and Kennedy, A.A. (1982), Corporate Cultures: The Rites and Rituals of Corporate Life,
Penguin Books, Harmondsworth.
Denison, D.R. (1990), Corporate Culture and Organizational Effectiveness, Wiley, New York, NY.
Denison, D.R. and Mishra, A.K. (1995), “Towards a theory of organizational culture and
effectiveness”, Organizational Science, Vol. 6 No. 2, pp. 204-223.
Deumes, R. (2008), “Corporate risk reporting: a content analysis of narrative risk disclosures in
prospectuses”, Journal of Business Communication, Vol. 45 No. 2, pp. 120-157.
Djankov, S., La Porta, R., Lopez-de-Silanes, F. and Shleifer, A. (2008), “The Law and Economics of
self dealings”, Journal of Financial Economics, Vol. 88 No. 3, pp. 430-465.
Dollery, B. and Leong, W.H. (1998), “Measuring the transaction sector in the Australian economy,
1911-1991”, Australian Economic History Review, Vol. 38 No. 3, pp. 207-231.
Gibbins, M., Richardson, A. and Waterhouse, J. (1990), “The management of corporate disclosure
opportunism, ritualism, policies and process”, Journal of Accounting Research, Vol. 28 No. 1.
Goldfeld, S.M. and Quandt, R.E. (1965), “Some tests for homoscedasticity”, Journal of the
American Statistical Association, Vol. 60 No. 310, pp. 539-547.
Gordon, G.G. and DiTomaso, N. (1992), “Predicting corporate performance from organizational Culture and
culture”, Journal of Management Studies, Vol. 29 No. 6, pp. 783-798.
Gordon, L.A. and Miller, D. (1976), “A contingency framework for the design of accounting
corporate risk
information systems”, Accounting, Organizations and Society, Vol. 1 No. 1, pp. 59-69. disclosure
Gray, S.J. (1988), “Towards a theory of cultural influence on the development of accounting
systems internationally”, Abacus, Vol. 24 No. 1, pp. 1-15.
Handy, C.B. (1985), Understanding Organizations, 3rd ed., Penguin Books, Harmondsworth. 295
Hansen, G.S. and Wernerfelt, B. (1989), “Determinants of firm performance: the relative
importance of economic and organizational factors”, Strategic Management Journal, Vol. 10
No. 5, pp. 399-411.
Hassan, M.K., (2009), “UAE corporations-specific characteristics and level of risk disclosure”,
Managerial Auditing Journal, Vol. 24 No. 7, pp. 668-687.
Hassan, M.K. (2011), “Risk regulations and disclosure in the United Arab Emirates: an
Downloaded by IQRA UNIVERSITY At 01:21 01 November 2016 (PT)

institutional theory analysis”, Corporate Ownership and Control Journal, Vol. 8 No. 4,
pp. 514-526.
Hofstede, G. (1980), Culture’s Consequences: International Differences in Work Related Values,
Sage Publications, Beverly Hills, CA.
Hofstede, G. (2001), Cultures Consequences, Sage Publications, Thousand Oaks, CA.
Hofstede, G., Neuijen, B., Ohayv, D.D. and Sanders, G. (1990), “Measuring organizational cultures:
a qualitative and quantitative study across twenty cases”, Administrative Science
Quarterly, Vol. 35 No. 2, pp. 286-316.
Howard, L.W. (1998), “Validating the competing values model as a representation of organization
cultures”, The International Journal Of Organizational Analysis, Vol. 6 No. 3, pp. 231-280.
Hwang, D., Staley, B., Chen, Y. and Lan, J. (2008), “Confucian culture and whistle-blowing by
professional accountants: and explanatory study”, Managerial Auditing Journal, Vol. 23
No. 5, pp. 504-526.
Iatridis, G. (2008), “Accounting disclosure and firms’ financial attributes: evidence from the UK
stock market”, International Review of Financial Analysis, Vol. 39 No. 3, pp. 265-288.
Jaggi, B. and Low, P. (2000), “The impact of culture, market forces and legal systems on financial
disclosure”, The International Journal of Accounting, Vol. 35 No. 4, pp. 495-519.
Jenkins, J., Deis, D., Bedard, J. and Curtis, M. (2008), “Accounting firm culture and governance: a
research synthesis”, Behavioral Research in Accounting, Vol. 20 No. 8, pp. 45-74.
Jensen, M. and Meckling, W. (1976), “Theory of the firm: managerial behavior, agency costs and
ownership structure”, Journal of Financial Economics, Vol. 3 No. 4, pp. 305-360.
Johnson, G. (1988), “Rethinking incrementalism”, Strategic Management Journal, Vol. 9 No. 1,
pp. 75-91.
Jorion, P. (2002), “How informative are value at risk disclosures?”, The Accounting Review, Vol. 77
No. 4, pp. 911-931.
Kaplan, S.E. and Ruland, R.G. (1991), “Positive theory, rationality and accounting regulation”,
Critical Perspectives on Accounting, Vol. 2 No. 4, pp. 361-374.
Khanchel, I. (2007), “Corporate governance: measurement and determinate analysis”, Managerial
Auditing Journal, Vol. 22 No. 8, pp. 740-760.
Lajili, K. and Zéghal, D. (2005), “A content analysis of risk management disclosures in Canadian
annual reports”, Canadian Journal of Administrative Sciences, Vol. 22 No. 2, pp. 125-142.
La Porta, R., De-Silanes, L., Shleifer, A. and Vishny, R. (1998), “Law and Finance”, Journal of
Political Economics, Vol. 106 No. 6, pp. 1113-1155.
IJCOMA Licht, A., Goldschmidt, C. and Schwartz, S. (2005), “Culture, Law and Corporate Governance”,
International Review of Law and Economics, Vol. 25 No. 2, pp. 229-255.
24,4 Lim, B. (1995), “Examining the organizational culture and organizational performance link”,
Journal of Leadership and Organizational Leadership, Vol. 16 No. 5, pp. 16-21.
Linsley, P. and Kajüter, P. (2008), “Restoring reputation and repairing legitimacy: a case study of
impression management in response to a major risk event at Allied Irish Banks Plc”,
296 International Journal of Financial Services Management, Vol. 3 No. 1, pp. 65-83.
Linsley, P.M. and Lawrance, M.J. (2007), “Risk reporting by largest UK companies: readability and
lack of obfuscation”, Accounting, Auditing and Accountability Journal, Vol. 20 No. 4,
pp. 620-627.
Linsley, P.M. and Shrives, P.J. (2006), “Risk reporting: a study of risk disclosure in the annual
reports of UK companies”, The British Accounting Review, Vol. 38 No. 1, pp. 387-404.
Linsmeier, T.J., Thirnton, D.B., Venkatachalam, M. and Welker, M. (2002), “The effect of mandated
Downloaded by IQRA UNIVERSITY At 01:21 01 November 2016 (PT)

risk disclosure on trading volume sensitivity to interest rate, exchange rate and commodity
price movements”, The Accounting Review, Vol. 77 No. 2, pp. 343-277.
Lopes, P.T. and Rodrigues, L.L. (2007), “Accounting for financial instruments: an analysis of the
determinants of disclosure in the Portuguese stock exchange”, The International Journal of
Accounting, Vol. 42 No. 1, pp. 25-56.
Marris, R. (1964), The Economic Theory of ‘Managerial’ Capitalism, McMillan, London.
Meier, H.H., Tomaszeweski, S.G. and Tobing, R. (1995), “Political risk assessment and disclosure
in annual financial reports: the case of Persian Gulf War”, Journal of International
Accounting, Auditing and Taxation, Vol. 4 No. 1, pp. 49-68.
Mintzberg, H. (1983), Structure in Fives: Designing Effective Organizations, Prentice-Hall, NJ.
Mir, M., Chatterjee, B. and Rahman, A.b. (2009), “Culture and corporate voluntary reporting: a
comparative exploration of chairperson’s report in India and New Zealand”, Managerial
Auditing Journal, Vol. 24 No. 7, pp. 639-667.
Naser, K., Al-Hussaini, A., Al-Kwari, D. and Nuseibeh, R. (2006), Determinants of Corporate Social
Disclosure in Developing Countries: The Case of Qatar, Advances in International
Accounting (Book series), June, Vol. 19, pp. 1-23.
Noravesh, I., Dilami, Z.D. and Bazaz, M.S. (2007), “The impact of culture on accounting: does
gray’s model apply to Iran?”, Review of Accounting and Finance, Vol. 6 No. 3,
pp. 254-272.
Obay, L.A. (2009), “Corporate governance and business ethics: a Dubai-based survey”, Journal of
Legal, Ethical and Regulatory Issues, Vol. 12 No. 2, pp. 29-47.
Oliveira, J.S., Rodrigues, L.L. and Craig, R. (2011a), “Risk-related disclosure practices in the annual
reports of Portuguese credit institutions: an exploratory study”, Journal of Banking
Regulation, Vol. 12 No. 2, pp. 100-118.
Oliveira, J.S., Rodrigues, L.L. and Craig, R. (2011b), “Voluntary risk reporting to enhance
institutional and organizational legitimacy: evidence from Portuguese Banks”, Journal of
Financial Regulation and Compliance, Vol. 19 No. 3, pp. 271-288.
Oliveira, L., Rodrigues, L.L. and Craig, R. (2006), “Firm-specific determinants of intangibles
reporting: evidence from the Portuguese stock market”, Journal of Human Resources
Costing, Vol. 10 No. 1, pp. 11-33.
O’Reilly, C., Chatman, J. and Coldwell, D. (1991), “People and organizational culture: a profile
comparison approach to assessing person-organization fit”, Academy of Management
Journal, Vol. 34 No. 3, pp. 387-516.
Ouchi, W.G. (1980), “Markets, bureaucracies, and clans”, Administrative Science Quarterly, Vol. 25 Culture and
No. 1, pp. 129-141.
Paton, D. (1996), “Transaction costs, the firm and industrial policy”, International Review of
corporate risk
Applied Economics, Vol. 10 No. 3, p. 435. disclosure
Phillips, J.J. (2005), Current Human Capital Measures, Chapter 9 of the Book: Investing in Your
Company’s Human Capital: Strategies to Avoid Spending Too Little ” or Too Much,
AMACOM, NY, pp. 177-208. 297
Polski, M.M. and Kearney, A.T. (2001), “Measuring transaction costs and institutional change in
the US commercial banking industry”, working Paper, Institute For Development
Strategies, University-Bloomington, IN.
Pugh, D.S. (1976), “The ‘Aston’ Approach to the study of organizations”, in Hofstede, G. and
Kassem, M.S. (Eds), European Contributions to Organization Theory, Van Gorcum, Assen,
pp. 62-78.
Downloaded by IQRA UNIVERSITY At 01:21 01 November 2016 (PT)

Quinn, R.E. (1988), Beyond Rational Management: Mastering the Paradoxes and Competing
Demands of High Performance, Jossey-Bass, San Francisco.
Raffournier, B. (1995), “The determinants of voluntary financial disclosure by Swiss listed
companies”, European Accounting Review, Vol. 4 No. 2, pp. 261-280.
Rajgopal, S. (1999), “Early evidence on the informative-ness of the sec’s market risk disclosures:
the case of commodity price risk exposure of oil and gas producers”, The Accounting
Review, Vol. 74 No. 3, pp. 251-280.
Reynolds, J. (1986), “Organizational culture as related to industry, position and performance: a
preliminary report”, Journal of Management Studies, Vol. 23, May, No. 3, pp. 333-345.
Schrand, C. (1997), “The association between stock prices, interest rates sensitivity and
disclosure about derivatives investments”, The Accounting Review, January, Vol. 72
No. 1, pp. 87-110.
Schrand, C. and Elliott, J. (1998), “Risk and financial reporting: a summary of the discussion at the
1997 AAA/FASB conference”, Accounting Horizons, Vol. 12 No. 3, pp. 271-282.
Scott, T., Mannion, R., Davies, H. and Marshall, M. (2003), “The quantitative measurement of
organizational culture in health care: a review of the available instruments”, Health Services
Research, Vol. 38 No. 3, pp. 923-945.
Sejjaaka, S. (2004), “A process based model for corporate mandatory disclosure”, working paper,
Makerere University Business School, Uganda.
Simon, H. (1976), Administrative Behavior, 3rd ed., The Free Press, New York, NY.
Solomon, J., Solomon, A., Norton, S.D. and Joseph, N.L. (2000), “A conceptual framework for
corporate risk disclosure emerging from corporate governance reform”, The British
Accounting Review, Vol. 32 No. 4, pp. 337-478.
Spira, L.F. and Page, M. (2003), “Risk management: the reinvention of internal control and the
changing role of internal audit”, Accounting, Auditing and Accountability Journal, Vol. 16
No. 4, pp. 640-661.
Studenmund, A.H. (2006), Using Econometrics: A Practical Guide, 5th ed., Pearson, NJ.
Sudarwan, M. and Timothy, J.F. (1996), “Culture and accounting in indonesia: an empirical
examination”, The International Journal of Accounting, Vol. 31 No. 4, pp. 463-481.
Sufian, F. and Habibullah, M. (2010), “Does economic freedom fosters banks’ performance? Panel
evidence from Malaysia”, Journal of Contemporary Accounting and Economics, Vol. 6 No. 1,
pp. 77-91.
IJCOMA Taskumis, G.T. (2007), “The influence of culture on accountants’ application of financial reporting
rules”, Abacus, Vol. 43 No. 1, pp. 27-48.
24,4 Thomas, A.P. (1989), “The effects of organizational culture on choices of accounting methods”,
Accounting and Business Research, Vol. 19 No. 76, pp. 363-378.
Thompson, M. and Wildavsky, A. (1986), “A cultural theory of information bias in organizations”,
Journal of Management Studies, Vol. 22 No. 3, pp. 273-286.
298 Trice and Beyer, (1993), The cultures of work organizations, Prentice Hall, Englewood Cliffs, NJ.
Uddin, M.D. and Hassan, M.K. (2011), “Corporate risk information in the annual reports and stock
price behavior in the UAE”, Academy of Accounting and Financial Studies Journal, Vol. 15
No. 1.
Van den Berg, P.T. and Wilderom, C.P.M. (2004), “Defining, measuring, and comparing
organizational cultures”, Applied Psychology: An International Review, Vol. 53 No. 4,
pp. 570-582.
Downloaded by IQRA UNIVERSITY At 01:21 01 November 2016 (PT)

Van Muijen, J.J., Koopman, P.L., and De Witte, K. (1999), “Organisational culture: the focus
questionnaire”, European Journal of Work and Organisational Psychology, Vol. 8 No. 4,
pp. 551-568.
Wallis, J. and North, D.S. (1986), “Measuring the transaction sector in the American economy,
1870-1970”, in Engerman, S.L. and Gallman, R., Long-Term Factors in American Economic
Growth, OECD, Chicago, pp. 95-148.
Wang, N. (2003), “Measuring transaction costs: an incomplete survey”, The University of Chicago,
Conference on Transaction Costs, Ronal Coase Institution, Chicago, IL.
Wilkins, A. and Ouchi, W. (1983), “Efficient cultures: exploring the relationship between cultures
and organizational performance”, Administrative Science Quarterly, Vol. 28 No. 3,
pp. 468-481.
Williamson, O.E. (1964), The Economics of Discretionary Behavior: Managerial Objectives in a
Theory of the Firm, Prentice-Hall, Englewood Cliffs, NJ.
Williamson, O.E. (1975), Markets and Hierarchies: Analysis and Antitrust Implications, The Free
Press, New York, NY.
Wong, M. (2000), “The association between SFAS No. 119 derivatives disclosures and foreign
exchange risk exposure of manufacturing firms”, Journal of Accounting Research, Vol. 38
No. 2, pp. 387-418.
Zhang, S.B. and Liu, A.M.M. (2006), “Organizational culture profiles of construction enterprises in
China”, Construction Management and Economics, Vol. 24 No. 8, pp. 817-828.

Further reading
Ali, M.J. (2005), “A synthesis of empirical research on international accounting harmonization and
compliance with international financial reporting standards”, Journal of Accounting
Literature, Vol. 24 No. 1, pp. 1-52.
Dhanani, A. (2003), “Foreign currency exchange risk management: a case of the mining industry”,
The British Accounting Review, Vol. 35 No. 1, pp. 35-63.
Marston, C.L. and Shrives, P.J. (1991), “The use if disclosure indices in accounting research: a
review article”, The British Accounting Review, Vol. 23 No. 3, pp. 195-210.
Appendix Culture and
corporate risk
Abu Dhabi commercial bank Aldar properties
disclosure
Arab Emirates Investment Emirates Telecommunications Corporation
(ETISALAT)
Amalak Finance Abu Dhabi Ship Building
299
Arab International Logistics (ARAMICS) National Bank of Ras Al-Khaimah
Arabtech Holding Company Abar Petroleum Company
Commercial Bank of Dubai Gulf Cement Company
Dubai Islamic Bank United Arab Bank
Dubai Investment National Central Cooling Company
(TABREED)
Downloaded by IQRA UNIVERSITY At 01:21 01 November 2016 (PT)

Emirates Integrated Telecommunications (DU) Tamweel P.J.S.C


EMAAR Properties Abu Dhabi National Energy Company
Emirates Bank International National Tourism and Hotels
Gulf Finance House Emirates Foodstuff Company
Gulf General Investment Abu Dhabi National Hotels
Arab Heavy Industries UAE Finance House
Invest Bank Union properties
Mashreq Bank Alsagr National Insurance
National Bank of Abu Dhabi Emirates Insurance Company
National Bank of Ras Al-Khaimah Islamic Arab Insurance Table AI.
Bank of Sharjah Oman Insurance List of company names
Sharjah Islamic Bank Abu Dhabi Insurance incorporated into the
National Bank of Um Al-Quwain study model

About the authors


Walaa Wahid ElKelish is an Assistant Professor of Accounting; Department of Accounting,
Finance and Economics; College of Business Administration, University of Sharjah, United Arab
Emirates, Correspondent Author: P.O Box 27272, Sharjah, United Arab Emirates. Walaa Wahid
ElKelish is the corresponding author and can be contacted at: welkelish@sharjah.ac.ae
Mostafa Kamal Hassan is an Associate Professor of Accounting; Department of Accounting,
Finance and Economics; College of Business Administration, University of Sharjah, United Arab
Emirates and on leave from Alexandria University, Egypt.

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com


Or visit our web site for further details: www.emeraldinsight.com/reprints
This article has been cited by:

1. Walaa Wahid ElKelish University of Sharjah Mostafa Kamal Hassan Department of Accounting, University
of Sharjah, Sharjah, United Arab Emirates AND Alexandria University, Egypt . 2015. Corporate
governance disclosure and share price accuracy. Journal of Applied Accounting Research 16:2, 265-286.
[Abstract] [Full Text] [PDF]
Downloaded by IQRA UNIVERSITY At 01:21 01 November 2016 (PT)

You might also like