CHAPTER ONE

INTRODUCTION
1.1.Background of the Study

The information technology revolution, in particular the advent of computer technology, has
significantly impacted accounting practice and accounting communication. Many firms are
now utilizing the advantages of the Web for disseminating financial information. Firms’
stakeholders such as shareholders, employees, creditors, customers, suppliers need fast and
reliable financial information for decision making [ CITATION Sia16 \l 2057 ]. In the
ancient times, firms were communicated their financial information with their stakeholders
through the traditional paper based annual reports. This paper based annual reports have
serious limitations and are becoming increasingly less timely, especially with the increase in
geographic investor dispersion, they have this become less useful for decision making
purpose [CITATION Deb02 \l 2057 ].

Nowadays firms improve their information technology infrastructures, and communicate their
all financial related materials and other information through the Internet. Corporate Internet
Reporting (CIR) enables firms new opportunities to replace and enhance traditional ways of
investor and stakeholder communication enabling disclosure of financial and investor related
information to wider audience where the specific needs of the information users would be
met and ensuring equitable access to information through the use of descriptive content and
attractive presentation formats available in firm’s websites [CITATION Kel08 \l 2057 \m
Sil19]. CIR refers to the financial disclosure through the Internet of historical and financial
data and the exposition of the current situation and future plans. It provides the financial
information to the principals and stakeholders in regards to the investment decision-making
and market efficiency [ CITATION Che13 \l 2057 ].

More than that, users can benefit in a variety of ways depending on the extent to which the
capabilities of the medium are exploited. Possibilities include enhanced timeliness, ease of
access and search, and improved facilities for data extraction, automatic comparisons, and
analysis. The ability of the medium to handle the reporting of greatly expanded information
fits well with recent calls in accounting for increased disclosure of a broad range of

1
information [ CITATION Alm08 \l 2057 ]. Firm will reduce information asymmetry when
there is more disclosure information through the Internet [ CITATION Dia91 \l 2057 \m
Sia16]. High disclosure of information can lead to better performance because it improves the
firm’s image, reputation, and trustworthiness (Sia et al., 2016).

Greater demand for web-based financial reporting has led to an increase in the number of
market participants, which might itself lead to greater market efficiency (Giner & Larran,
2002). Furthermore, the ability of companies to provide more timely information has been
enhanced, as distribution of information via websites can take place as soon as it is produced,
and further enhancing pricing efficiency (Giner & Larran, 2002). The borderless nature of
CIR practices also has the potential to “help listed companies to attract new shareholders,
thus enabling companies to maintain a healthy demand for shares” [ CITATION Cra99 \l
2057 ]. Similarly, CIR practices might have an impact on the firms' market value and the cost
of capital, as relevant information about companies seeking international finance will be
more accessible to global investors, reducing investment risk (Debrenceny et al., 2002).

The most commonly CIR is defined as the use of Internet as a form of media by the firms for
voluntary dissemination of financial and investor related information through websites
(Marston & Polei, 2004; Oyelere, Fisher, & Lasward, 2003; Debrenceny, Gray, & Rahman,
2002; Pinto & Picto, 2016). The demands of voluntary disclosure via Internet reporting
increase the curiosity among investors at the present time [ CITATION Aly10 \l 2057 ]. As
shown by one of the study, more available information would help investors’ decision
making reach the optimum level [ CITATION She14 \l 2057 ]. Sia et al., (2015), examine the
impact of CIR on firm performance of non-financial listed companies in Malaysia. The
findings of the research suggest that companies should disclose more information through the
Internet in order to ensure the accessibility of financial information for stakeholders, and this
will present a better image and reputation of the company’s best practices in financial
performance. Furthermore, the ability of firms to provide more timely information has been
enhanced, as distribution of information via Internet can take place as soon as it is produced,
further enhancing pricing efficiency[ CITATION Gin02 \l 2057 ].

Many research studies have been carried out in the context of CIR in global context aimed at
understanding the extent of CIR adoption of a particular country and furthermore certain
studies are determining the factors that drive the adoption of CIR among the firms. Most of
the studies only assess the impact of firm related economic factors and technological

2
infrastructure on the extent of CIR [ CITATION Oja12 \l 2057 \m Aly10 \m Spa14], some
studies have been carried out to identify a relationship between the impact of corporate
governance on CIR [ CITATION Kel08 \l 2057 \m Alm17 \m Bot14]. Some of the studies
investigated the relationship between board composition and CIR [ CITATION San19 \l 2057
]. Whereas only a limited studies have been carried out to identify a relationship between the
impact of CIR on firm performance (Sia et al., 2016; Elsayed, 2010).

As a result, this study investigates the impact of corporate Internet reporting on firm
performance in Sri Lankan financials sector as per Global Industry Classification Standard
(GICS). This study might assist to investors, future investors, policy makers, government,
corporate managers and economists on range of venues to sustain their corporate objectives.

1.2.Problem of the Study

Firms’ stakeholders need fast and reliable financial information to satisfy their requirements
for timely decision making. Internet reporting can be used as a new information
communication tool to provide information quicker and timelier in better and more effective
ways [ CITATION Jon03 \l 2057 ]. Listed firms which have and in need of the potential to
attract future investors to ensure more capital flow for the firm to secure a sustainable growth
tends to adopt modern trend of practicing web presence for voluntary information
dissemination. The existence of information asymmetry is an important driver of investor
uncertainty (Debrenceny et al., 2002). When the firm disclose more and more information it
will reduce information asymmetry and then help to attract more investors [ CITATION
Ale18 \l 2057 ]. If they invest more money, production and sales will be increased. It will
lead to increase the firm performance.

In the developed countries, it is very common phenomenon that firms use Internet to disclose
all information to shareholder time to time. But in the developing countries, this is not much
developed and it is still in beginning stage [ CITATION Ale18 \l 2057 ]. Sri Lanka is a
developing country so this study is needed and it will help to improve the Internet reporting
as fruitfully. Although numerous studies done in different countries, some of researchers
found mixed outcomes where some concluded that there is a positive impact over the firm
performance (Hunter & Smith, 2009; Sia et al., 2016), and some conclude that there is no
impact over the firm performance [ CITATION Ale18 \l 2057 ]. As well as there is a dearth
of the studies in the Sri Lankan context. Therefore, this study is aimed to test this issue

3
furthermore in the Sri Lankan context specifically in the case of financials firms which are
listed in Colombo Stock Exchange (CSE), Sri Lanka by selecting two (02) year period from
2017 to 2018.

1.3.Research Questions

The following research questions are developed by the researcher on the basis of research
problem:

RQ 01: Does corporate internet reporting influence on firm performance?

RQ 02: Is there any relationship between corporate internet reporting and firm performance?

1.4.Research Objectives

Research objectives can be outlined as follows:

⁃ To examine the impact of corporate internet reporting on firm performance.

⁃ To investigate the relationship between corporate internet reporting and firm
performance.

1.5.Significance and Contribution of the Study

This study will add value to various parties specifically and mutually as discussed below:

 The first beneficiaries of this study will be the corporate managers. Because they are
accountable to the owners of the firm. They show their accountable through the
internet reporting. This study also helps them to disseminate additional information in
a timely manner, add more flexibility, and reduce disclosure cost.
 CIR plays major role in attracting potential investors to the firms, thus this study will
enable them to understand the importance of their role in ensuring the transparency
among the owners and minimizing the information gap that will be improving their
quality of service. The financial information disclosed via the internet is mostly up to
date and is presented in various multimedia formats, making the information easier to
use in decision-making.
 The expansion of the Internet encourages firms to adopt it as an effective means of
disclosing information for the benefit of stakeholders. This study aims to examine
CIR practice adoptions in Sri Lanka and how CIR impact on firm performance.

4
  The increasing use of the Internet has created a new opportunity for firms to
disseminate different types of information to their current and potential investors via
the Internet. This type of voluntary disclosure, CIR can improve the disclosure quality
and the transparency to satisfy all users’ needs.
 Given the firms’ willingness to fulfil the needs of stakeholders for accurate
information in a timely basis, CIR demands a continuous updating of information
disclosed online.
 The findings of the study will be practically useful for not only managers, it help to all
stakeholders in the firms to make their decisions in a proper manner regarding
investment.

1.6.Research Methods and Approach

The study adopts quantitative approach to collect the related data for analysing and finding
the result of the research problem. This study derived a secondary data.

The Colombo stock exchange (CSE) has 290 firms representing 20 GICS industry groups as
at 20th January 2020 as per the scope of the study, only the listed financials firms were
selected for the study purposes.

1.7.Limitations of the Study

During the research period the researcher has to overcome the challenges to complete this
research such as:

 This study uses a sample of 79 banks, diversified financials and insurance firms out of
the 290 listed firms in CSE, Sri Lanka.
 Despite the fact that reliable conclusions can be made from this study, data collected
for this study is specific to the selected listed firms, so may not necessarily apply to
some of the firms listed but not covered in this study and firms not listed in the CSE.
The result and the interpretation are completely rigid and from the viewpoint of the
researcher. And statically errors may arise.
 CIR practices are highly associated with the technological improvements such that
CIR practices observed are subjected to changes in technology. Sri Lanka being a
developing country the level of technological applications less in comparison to

5
 developed countries. This study do not meet the requirements of a reader in view
point of a developed country

1.8.Structure of the Dissertation

This study is related to corporate internet reporting and its impact on firm performance of
listed financials firms in CSE, Sri Lanka. The study is organized into five chapters.

The chapters are structured as follows:

The first chapter introduces about the corporate internet reporting and its importance. It
provides brief insight in to the research study. This chapter provides background of the study,
research problem, research questions and objectives of the study, significance and
contribution of the study, research methods & approaches, and limitations of the study.

The second chapter reviews the theoretical framework of the CIR and firm performance. This
part also includes the empirical evidence from previous studied related to this topic.

Chapter three discuss the methodology of the study. The chapter describes the research
design, the research sample and method of data collection, conceptualization,
operationalization and mode of analysis used in the study.

Chapter four includes the presentation of the data gathered by the researcher and analysis of
such data using various techniques described under methodology & testing of hypotheses.

Chapter five is the conclusion and recommendation for future study related to the corporate
internet reporting and firm performance.

1.9.Chapter Summary

This chapter described background of the study as the entrance for the research title.
Basically it reveals the theoretical background of the study and how the relevant topic is
influencing the selected industry. And it explains the importance of understanding the
research topic in Sri Lankan context. Further the research objectives, significance of the study
and limitation are also presented. The next chapter discusses on literature review.

6
 CHAPTER TWO
LITERATURE REVIEW
1.10. Introduction

This chapter reviews how CIR affects the firm performance and emphasis to both theoretical
aspects and empirical issues. Furthermore, the section analyses the theoretical background
and previous studies conducted on the adoption of CIR practices and relationship between
CIR and firm performance which are supportive and helpful to success of this study. This
literature review includes a variety of definitions, statements, explanations and concepts too.
It also considers the main theories and empirical evidence of CIR and firm performance.

The rapid development of information, communication and technology (ICT) through the
Internet has changed the method in which a firm delivers information to their shareholders,
clients, suppliers and other customers [ CITATION Bon06 \l 2057 ]. Previous studies have
shown that many firms world-wide have published their financial information via the Internet
(Oyelere et al., 2003; Ali Khan, Mhammed, & Ismali, 2007). Relatively, Internet-based
reporting has also been dubbed as more influential than paper-based reporting (Debrenceny et
al., 2002) and has turned out to be more important and interesting, thus, providing a wider
opportunity for deeper exploration [CITATION Jon02 \l 2057 ].

Thus, an increasing number of firms’ tend to use the internet to disseminate information
voluntarily to their stakeholders to benefit from the opportunities offered by the internet
[ CITATION Kam02 \l 2057 ]. Many firms rely entirely on the internet to publish their
reports, while others are combining online reporting with hard copy [ CITATION Lin02 \l
2057 ]. Moreover, the advanced markets have experienced many collapses, which has
explicated the importance of CIR that can control performance and balance different users’
interests [ CITATION Ale18 \l 2057 ].

The impact of CIR on firm performance has been researched by some researchers, but their
studies have been mostly restricted to developed economies. In general terms, much of this
early work pointed to a growing adoption of the internet as a reporting medium especially in
countries with developed capital markets, on the whole practices were less advanced in
developing countries [CITATION Ahm15 \l 2057 ]. A number of studies examined the
practices of CIR in developed countries such as Malaysia (Sia et al., 2016), Egypt
[ CITATION Ahm15 \l 2057 \m Aly10 \m Kam02], London [ CITATION Pin16 \l 2057 ],

7
New Zealand[ CITATION Oye03 \l 2057 ]. But in the context of Sri Lanka very limited
empirical evidence exists related to CIR. The two empirical studies [CITATION Kur \l
2057 \m She16] have evaluated the use of internet as medium of voluntary communication
of information by listed companies in Sri Lanka. The findings reveal that Sri Lanka is still at
a nascent stage that provides high opportunities and challenges for stakeholder parties.

Although numerous researchers found mixed outcomes regarding the impact of CIR on firm
performance, where some concluded that there is a significant impact over the firm
performance (Sia et al., 2016), CIR has no effect on firm financial performance of French
companies[CITATION Nek16 \l 2057 ] , some conclude that there is no impact over the firm
performance [ CITATION Ale18 \l 2057 ], however, it improves firm financial performance
in Taiwan [CITATION Ane10 \l 2057 ]. As far as researchers’ observation, there is a dearth
of literature on this aspect in Sri Lanka, and the level of reporting in developing countries is
found to below. Therefore, it is timely and necessary to study this phenomenon in the Sri
Lankan context [CITATION Sil19 \l 2057 ].

This chapter is organised as follows: Section 2.1 presents an introduction about the
dissertation and also considered what other scholars did in the past year. Section 2.2 presents
the concept of the corporate internet reporting Section 2.3 presents a definition of firm
performance and how to measure the firm performance with a related factor. Section 2.4
consist theoretical review of the study Section 2.5 presents the empirical studies about the
study and Section 2.6 consist the research gap and 2.7 ends with a chapter summary.

1.11. Corporate Internet Reporting (CIR)

CIR is defined as “Firms use internet technologies such as the World Wide Web to
disseminate financial information”[CITATION Ele00 \l 2057 ]. This is a very basic definition
but CIR can be defined as a voluntary disclosure tool that enables companies to disclose all or
a proportion of its financial and non-financial information on the internet, presented in
multiple formats and languages by using the most advanced and interactive electronic
features to facilitate the communication through and usage of the website [ CITATION
Ara12 \l 2057 ]. Marston and Polei (2004) state that“the internet offers companies new
opportunities to supplement, replace and enhance traditional ways of investor and stakeholder
communication.”This means CIR is an alternative method to paper-based reporting, with a
number of advantages such as timeliness, accessibility and transparency. Other researchers

8
also indicate that internet-based reporting is a “powerful tool for reaching customers,
suppliers and investors of the organization”[ CITATION Ett02 \l 2057 ]. Later researchers
remarked websites provide information to a wide audience. CIR is thus, on the whole, a
contemporary reporting platform.

In general, the users of CIR could be divided into two groups, such as internal users and
external users. The internal users consist of the managers, employees and shareholders. The
workforces are concerned about the company’s future prospects since it directly affects their
income, whereas shareholders refer to the reporting for their decision making. Meanwhile,
the external users are banks, creditors and government. The CIR is important for them as it is
the fastest source in establishing credit ratings or solvency analysis. On the other hand,
competitors also refer to the reports to better understand the positions of their rivals and learn
how to improve their operational skills and methods (Sia et al., 2016).

There are diverse motives for companies providing information on the internet. The Steering
Committee of the Business Reporting Research Project (FASB, 2000), provides some of
these potential motives for companies to provide information on the internet:

 Elimination of the substantial cost of printing and posting of annual reports.

 Accessibility of information by a much wider audience than more conventional means
of communication permit.
 Up-to-date information through the regular maintenance of web sites.
 Reducing the time to distribute information.
 Communicating with previously unidentified consumers of information.
 Supplementing traditional disclosure practices.
 Increasing the amount and type of data disclosed.
 Improving access to potential investors for small companies.

One of the researcher said that CIR has been through three phases of implementation. First,
the rise of information systems allows firms to use the internet as the platform to disclose
their existing written financial reports. Second one, companies will change their information
dissemination strategy from printed reports to the internet. The last phase is when firms
prepare their financial information and disclose it wide and fast beyond the standard
information given in a printed report. Having more information disclosed may lead to the
increase of awareness about their companies to the stakeholders (Sia et al., 2016).

9
1.12. Firm Performance

The business world will always require management to be creative in an effort to improve
their performance, they should have the ability and can take advantage of any opportunities to
improve firm performance. The firm performance as a barometer of the success of the
company will be seen as a benchmark for investors to invest their funds [ CITATION
Sud12 \l 2057 ]. Performance measurement refers to the process of measuring the action’s
efficiency and effectiveness [ CITATION Nee05 \l 2057 ]. Performance measurement is the
transference of the complex reality of performance in organised symbols that can be related
and relayed under the same circumstances [ CITATION Leb95 \l 2057 ]. In the current
business management, performance measurement is considered to be in a more critical role
compared to quantification and accounting [ CITATION Kou08 \l 2057 ].

The concept of firm performance is different from the broader construct of organizational
effectiveness. According to Venkatraman & Ramanujam (1986) the broader construct covers
three overlapping concentric circles, with the largest representing organizational
effectiveness. The organizational effectiveness covers all aspects related to the functioning of
the organization. Business performance or firm performance is a subset of organizational
effectiveness that covers both operational and financial outcomes[CITATION Det16 \l
2057 ].

Firm performance is an important concept that relates to the way and manner in which
financial resources available to an organization are judiciously used to achieve the overall
corporate objective of an organization, it keeps the organization in business and creates a
greater prospect for future opportunities. Firm performance may also refer to the
development of the share price, profitability or the present valuation of a company
[CITATION Mel05 \l 2057 ]. Firm performance measured under two category. One book
based measurements and another one is market based measurement. Generally used financial
measures include return on assets (ROA), return on equity (ROE), profit margin, earnings per
share, value per employee, etc. Even though they used to be very popular, these traditional
financial measures are no longer seen as adequate means of exercising management control
(Neely, 2007). Marketing-based performance measure through the Tobin’s Q [CITATION
Wol03 \l 2057 ]

10
ROA is one of the most used measures of firms’ operating performance [ CITATION
Kla04 \l 2057 ]. The value is obtained calculating the ratio of the income pertaining to a given
fiscal period and the value of the total assets employed by the company is the same period.
Since the company’s assets are under management’s control, the ROA indicates to investors
the return that managers were able to achieve relatively to the assets they had available, and
so how efficient they were in employing the firm’s resources.

ROE represents the net income of a firm as a percentage of shareholders’ equity. It shows
how much profit a company has generated relatively to the capital invested by its owners
[ CITATION Gom03 \l 2057 ]. It is calculated dividing the net income relative to a fiscal
period by the amount of equity of the firm in the same period. Companies showing a positive
ROE are creating wealth for its shareholders, whereas a negative ROE implies shareholders’
wealth destruction. Hence, ROE is often used a proxy for firm’s performance under a
shareholder’s viewpoint and measures how effectively managers are employing the capital
that shareholders entrust to them.

Tobin’s Q index was introduced at the end of the 1960s by James Tobin and William
Brainard (1968). The index reflects the difference between the market value and the
accounting value of the firm: the discrepancies between the two (that cause the Q to fluctuate
around the value 1) are caused by the market expectations about the company and by the
unmeasured assets that contribute to the firm’s valuation but are not recorded by accountants.

1.13. Theoretical Review

Many researchers and scholars have tried to determine how best to describe what CIR and
firm performance, a firm adopts and various theories and propositions have been adopted.
CIR is attributed to different theories including the agency theory, signalling theory and
stakeholder theory [ CITATION Sil19 \l 2057 ].

2.4.1. Agency theory

Agency theory is a principle that is used to explain and resolve issues in the relationship
between business principals and their agents. Most commonly, that relationship is the one
between shareholders, as principals, and company executives, as agents [ CITATION
Kop19 \l 2057 ]. According to the agency theory, managers and shareholders are two
different parties in a firm and there is a conflict of interest between them because

11
shareholders demand a higher return on their investment while managers expect higher
incentives or remunerations [ CITATION Jen76 \l 2057 ].

Therefore, there is a high agency cost between agent and principal of a firm. Shareholders
(Principle) needs to monitor the management’s performance in a close and timely manner, so
mangers being provided sufficient amount of information about the business, and provide
timely information about the corporate performance in both short and long term. Most of
these tools can be effectively used by establishing informative corporate websites
[ CITATION Ara12 \l 2057 ]. Widely spread Internet reporting successfully reduces the
agency cost as a new means of communication between managers and stakeholders of the
firm[ CITATION Bou11 \l 2057 ]. Therefore reduce the agency cost by improving the quality
of financial reporting and reducing the information asymmetry between inside managers and
outside shareholders.

2.4.2. Signalling Theory

Signalling theory describes the behaviour of two parties, one of whom (insiders) have access
to superior information compared to the other parties (outsiders), leading to an information
asymmetry problem, which is a basic condition of signalling theory ([ CITATION Omr14 \l
2057 ]. Like to agency theory, the signalling theory also recognises the separation of
ownership and management and recognises that the market pressures motivate managers to
disclose information. Managers may wish to send signals to interested parties; owners,
investors, and governmental agencies in order to distinguish themselves from other
companies. In this regard disclosure is considered to be one of the means that can be used
[ CITATION Das15 \l 2057 ].

Signalling theory also suggests industry differences in disclosure. Companies within the same
industry tend to adopt the same level of disclosure. If a company within an industry fails to
follow the same disclosure practices, including internet disclosures, as others in the same
industry, then it may be interpreted as a signal that the company is hiding bad news
[ CITATION Cra99 \l 2057 ].

2.4.3. Stakeholder Theory

Stakeholder theory considers the relationship between managers and all other parties who
have a stake in the firm, such as shareholders, employees, creditors, customers, suppliers, and
government[ CITATION Ale18 \l 2057 ]. Stakeholder theory implies that the firm should

12
protect the interests of different stakeholders who have different needs. This forces the firm
to balance between these conflicted interests by disclosing more information
voluntarily[ CITATION Col08 \l 2057 ]. In order to satisfy the different needs of
stakeholders, companies can communicate with their stakeholders and gain competitive
advantage by using the Internet as an easy and widespread channel of information
dissemination[CITATION Bol04 \l 2057 ].

1.14. Empirical Review

The review of literature in the concerned research area is of great importance in carrying out
further research work. The research works reviewed here have been sourced from various
journals, websites, etc. In this section a critical analysis of the most relevant research studies
regarding the CIR and firm performance. There is a considerable literature devoted to
investigate CIR in many aspects and in different countries. Many studies have discussed
theoretically and empirically the nature and extent of corporate reporting and its role,
determinants, consequences and relationship to performance of the firms.

The great increase in online reporting through web sites has not escaped the attention of
researchers and many have carried out empirical studies of corporate reporting on the
internet. Even though previously published studies have considered companies operating in
both developed and developing countries, there is still a need for empirical studies on Internet
reporting practices due to the dynamic nature of Internet reporting [ CITATION Das15 \l
2057 ]. Related research falls into three categories, one of which includes studies that
document the use of the Internet in a certain country. This type of research mainly gives the
reader an impression of the number of companies which provide information, how much
information they give, how effectively they use the Internet, and how companies differ from
each other concerning Internet reporting. A second category of papers study possible
differences in the design and contents of websites of firms located in different countries.
They test hypotheses based on perceived differences in capital market structures and different
cultural backgrounds, among others. In contrast to the studies in the first category, they
typically select only a few criteria of Internet usage, or aggregate them into one or a few
criteria. A third category of papers identifies differences between companies’ websites and
tries to test empirically for factors which might drive these differences[ CITATION Pir99 \l
2057 ].

13
In reviewing the descriptive studies performed related to the concept of CIR in terms of the
extent of CIR practices adopted by companies, studies performed in different countries
depicts the variations in the level of countries adopting the improvements in the technology
for the voluntary dissemination of financial information. A study conducted by Burrus (1997)
he find the rapidly changing business environment is forcing companies worldwide to
develop reporting strategies that can aid to them creating competitive advantages. Compared
to the traditional printed reports, the Internet offers many more opportunities to communicate
financial information and its importance is this regard is rapidly increasing [ CITATION
Pir99 \l 2057 ]. The dissemination of financial information via the World Wide Web is
already common practice for a growing number of listed companies around the world
[ CITATION Lym03 \l 2057 ]. The Internet offers firm new opportunities to supplement,
replace and enhance traditional ways of investor and stakeholder communication.

In reviewing a decade of academic and professional research, Lymer (1999) concluded that,
as of the late 1990s, Europe lags the U.S in both the amount of data reported on the Internet
and the sophisticated utilization of Internet technology. Further, he concluded that there was a
considerable divergence of corporate usage of the Internet within and between European
countries, with the U.K being the first in the list and Spain being the last and the online filing
facility of corporate information offered by the Securities Exchange Commission (SEC) in
the mid-1990s motivated these companies to provide the information themselves on their own
web sites. Debrenceny et al., (2002) specifically focused on the importance of the disclosure
environment as a driver for CIR presentation and content. Fisher, Laswad, & Oyelere (2004)
examined the key audit implications of CIR, while Gowthorpe (2004) examined the
communication issues relating to IFR practices of smaller listed companies. Marston & Polei
(2004) surveyed the CIR practices of german companies between 2000 and 2003 and found
significant improvements in the quantity and presentation of fianncial information at
corporate websites.

Previous researches have shown that many firms world-wide have published their financial
information via the Internet [ CITATION Oye03 \l 2057 \m Ali07]. The pronounced increase
in the number of companies reporting their financial report through the Internet had a big
impact on legislation, financial framework and information systems (Khan 2006). The
Internet is a convenient and efficient medium of communication for organizations. One of the
main benefits of CIR is the potential large savings in the cost of production and distribution
of financial information. The Internet allows companies to reach a much wider category and

14
variety of stakeholders at relatively lower costs, with reduction in incidental requests from
non-shareholder financial statement users [ CITATION Kha05 \l 2057 \m Boe07].

A prominent study conducted by Kelton & Yang (2008) in terms of 284 firms listed in New
York Stock exchange indicates that all the firms had websites and among that only 7 websites
did not possess specifically a dedicated information for investor relations, Yet it represents a
majority level complies with investor relations information. As a common practice this study
also have adopted content and presentation dimensions in building up the CIR index which
accounts to 36 items in the Index among which 24 are content attributes and rest belongs to
presentations. The findings of the study indicates that on average 16 items of the content list
14 are being by most of the companies and out of the presentation attributes majority are
compiled by the companies on an average of more than 75%.

Additional issues and challenges for CIR include possible errors in the extraction or re-
keying process, which may affect the reliability and integrity of the financial information; the
use of corporate websites for many diverse purposes, which may make the location of
financial information difficult; the acceptability of Internet financial reports as an alternative
to hard copy annual reports among users of corporate financial information; and the fact that
Generally Accepted Accounting Practice (GAAP) does not consider some of the implications
of CIR, such as the possibility that published financial disclosures can be changed with
relative ease post publishing [ CITATION Las00 \l 2057 \m Moh09].

One of the studies that examine the association between engagement in CIR practices and
stock prices was also investigated in a study by Lai et al., (2010). The study used data from
522 companies listed on the Taiwan Stock Exchange (as of March 29, 2002). The results
showed that 490 (85.66%) of the sampled companies had websites and 206 (39.5%) of them
engaged in online reporting practices. The results revealed that share prices of companies
with online reporting responded more quickly compared with companies without online
reporting. In addition, the results suggested that companies that disclosed more information
online could expect their stock prices to respond faster than those with lower levels of online
reporting. Furthermore, the findings indicated that companies engaging in online reporting
have the potential to yield higher cumulative abnormal returns. The findings also showed that
the degree and scope of online reporting had a significant impact on the stock's abnormal
return.

15
In a similar study, Rahman (2010) examined the impact of online reporting practices on stock
prices of the Kompas 100 companies listed on the Indonesia Stock Exchange (IDX). The
study formulated three research hypotheses to test that impact; the results showed that 75% of
the sampled companies had a web presence and 25% of them engaged in online reporting
practices. Further analysis was based on the 25 companies with accessible websites and
provided corporate information online. The results supported the first hypothesis that there
was a positive association between the extent of CIR practices of the sampled companies and
the abnormal returns. In addition, the findings showed that there was no significant difference
between the abnormal return of companies with online reporting and those without.

CIR provides an opportunity for going beyond what is available in hard copy corporate
financial statements to communicate additional financial information to users, possibly on
real-time and interactive bases (FASB, 2000; Oyelere & Kuruppu, 2012). Perhaps by far the
greatest challenge faced in the CIR environment is that of ensuring the security and integrity
of the financial information published on corporate websites. Apart from possible errors in
the publishing process, materials published on the web are susceptible to all manners of
security risks [ CITATION Baw14 \l 2057 ]. There is a real risk that critical decisions could
be made by users of financial information based on inaccurate financial information gleaned
from corporate websites. The extent to which these issues are dealt with is likely to determine
the long-term usefulness of the Internet as a medium of corporate financial information
dissemination (Kuruppu et al., 2015).

Yassin (2017), studies the Jordanian public shareholding companies listed on the ASE at the
end of 2011 to evaluate the CIR practices in practice and reveals that out of the sample of 228
listed companies only 144 companies’claims to possess websites where website is the main
utility for financial disclosure through Internet and among that only 65% of the companies
disclose financial other and other related information on the Internet. Further this study has
measured CIR in terms of Content and Presentation dimensions that indicate overall
compliance with content is 69% and 97% for presentation attributes which depicts that in
terms of the quality of information provided an enhancement is required.

Many empirical studies on disclosure have attempted to identify the association between
disclosed information and firm performance. However, these studies vary in terms of
disclosure types and firm performance proxies. Several studies have examined the
relationship between paper-based disclosure, either mandatory or voluntary, and firm

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performance[ CITATION Nek16 \l 2057 ], while a number of recent studies have
investigated the relationship between internet reporting disclosure and firm performance.
However, only a few studies have examined the impact of Internet disclosure on firm
performance [ CITATION Els10 \l 2057 ]. With respect to firm performance, many proxies
have been used in the prior studies. Although some studies use one measure for firm
performance, such as market-to-book ratio, return on assets (ROA) or Tobin's Q (Sia et al.,
2016).

Aly et al., (2010), found that profitability, foreign listing and industrial type have significant
positive association with the amount and presentation formatting of information disclosed on
Egyptian companies’ web sites. But firm size, leverage, liquidity and auditor size, have non-
significant association with corporate Internet reporting.

Kuruppu et al., (2015), examin the use of the Internet as a medium for the voluntary
communication of financial information by publicly traded companies on the CSE in Sri
Lanka. The 244 companies listed on the CSE were analysed by its 20 industry sectors. The
results indicate that CIR is still at a nascent stage in Sri Lanka and there are considerable
opportunities and challenges for all stakeholder parties. While 59 percent of companies
maintain websites, only 63 of these (about 43%) use their websites to communicate financial
information. This indicates that companies in Sri Lanka do not fully garner the benefits of
engaging in IFR. However, the online annual reports of the latter IFR companies were found
to be highly accessible, with 87 percent of the websites enabling users to locate information
in three mouse clicks or less.

Sia at al., (2016), examine the impact of CIR on firm performance for a sample of 583 non-
financial listed companies in Malaysia over the year of 2013. His finding showed that CIR
has a significant effect on firm performance. This means that more related information that is
regularly disclosed on the company’s websites can contribute more value to the firms. In
addition, in this study, the results support the resource-based view theory and the signalling
theory between corporate Internet reporting and firm value. The findings of the research
suggest that companies should disclose more information through the Internet in order to
ensure the accessibility of financial information for stakeholders, and this will present a better
image and reputation of the company’s best practices in financial performance. CIR will help
them to have meaningful investment decisions and persuade them to invest in the firm.

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Alebrahem (2018), examine CIR relationship with some corporate governance and firm
characteristics variables, and to determine the impact of CIR on firm financial performance.
The study uses a self-constructed disclosure index, which includes 196 items, to measure the
CIR of 170 Saudi listed companies. The findings indicate that the level of CIR is, on average,
moderate compared to their counterparts in developed countries. Finally, it is statistically
evident that CIR has no significant impact on firm financial performance in Saudi listed
companies. These findings suggest that further effort is required to enhance the awareness of
good corporate governance and that other variables may be more relevant to CIR in the Saudi
context.

1.15. Research Gap

More number of studies were already done in developed and developing countries in the area
of CIR. Although few of them are specifically examined the impact of CIR on firm
performance in both developed (Lai et al., 2010; Lazarides, Drimpetas, Argyropoulou, &
Motwani, 2009) and developing nations [ CITATION Hun09 \l 2057 ]

At the same time, in the developed countries, it is very common phenomenon that firms use
Internet to disclose all information to shareholder time to time. But in the developing
countries, this is not much developed and it is still in beginning stage.

Past literatures show significant (Sia et al., 2016); positive [ CITATION Sri01 \l 2057 ] and
no relationship (Hansen, 2001) between CIR and firm performance.

From the above contradicting arguments about the previous findings, clearly shows that there
is a huge space to do the study again in Sri Lanka to make new contribution to the extant
literature in the area of CIR disclosure and firm performance.

1.16. Chapter Summary

The above literature review gives explanation about definitions of CIR and firm performance
and also what are the posts researches have been done in this section. This literature identifies
the theoretical concept related to explain about the all variables and relationships between
variables. Next chapter discuss on methodology.

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