Determinants of voluntary disclosure by New Zealand life insurance companies : a thesis presented in partial fulfilment of the requirements for the degree of Doctor of Philosophy in Accountancy at Massey University
Surveys carried out in international insurance markets, including New Zealand, indicate that there is considerable diversity in the levels of voluntary disclosure made by companies in their annual reports. Critics argue that such disparity diminishes the stewardship and decision-usefulness value of annual reports for users such as policyholders, shareholders and industry regulators. However, a major deficiency with the prior surveys is that they do not explain the different reporting practices observed in insurance markets. Drawing a framework from the managerial-discretion hypothesis, this thesis thus seeks to explain the level of information voluntarily disclosed in the annual reports of New Zealand-based life insurance companies. The managerial-discretion hypothesis holds that the diffused nature of policyholders' ownership rights in mutuals makes it more difficult for them to monitor and control managerial behaviour compared with the relatively more closely-held shareholdings of stock companies. In such a situation, policyholders are likely to control managerial discretion across a range of business activities by means of restrictive mechanisms such as internal regulations. The relationship between the level of voluntary disclosure and eight explanatory variables - organisational form, assets-in-place, product concentration, reinsurance, localisation of operations, non-executive directors, firm size and distribution system - each representing the major constructs of the managerial-discretion hypothesis, is tested empirically in this study using data-triangulation. This methodology comprises a statistical analysis of pooled 1988-1993 data drawn from New Zealand's life insurance industry as well as an evaluation of field interviews and documentation obtained from 12 companies representing a cross-section of the industry. Data-triangulation helps to test the validity of the constructs used and evaluate the reliability of the evidence collected. Consistent with what was hypothesised, the empirical results indicate that the level of information voluntarily disclosed by life insurance companies in their annual reports is positively associated with stock companies, firm size, product diversity and reliance on independent sales agents/brokers. Contrary to expectations, the evidence suggest that non-executive directors complement rather than substitute for voluntary disclosure. Also contrary to what was hypothesised, the statistical analysis indicate that reinsurance had a positive influence on voluntary disclosure, but this observation was not supported by the fieldwork. Furthermore, two variables - assets-in-place and localisation of operations - were found not to be important determinants of voluntary disclosure in both the statistical analysis and field-based research. The study thus provides mixed support for the managerial-discretion hypothesis. The field-based research also reveals that other factors such as company culture and market competition could be important determinants of voluntary disclosure. Finally, a major contribution of this study is that the empirical results could assist industry regulators to better understand the disclosure practices of life insurance companies and so enable them to gauge the likely success of new reporting rules.