Strategy disclosure in annual reports of the top 40 listed companies in South Africa for 2014.

Abstract

The purpose of this study was to determine the level of strategy disclosure by the top 40 listed companies (by market capitalisation) in their Integrated Reports. That level of strategy disclosure was then compared to company size and financial performance related variables to test for any association between the variables. There are guides such as King III and the Global Reporting Initiative that provide reporting guidelines to listed companies. This may lead to higher levels of strategy disclosure. The need to communicate effectively and clearly with stakeholders in a desire to enhance confidence in the company may also lead to higher levels of disclosure. On the other side of the spectrum is the need for a company to not disclose information that may threaten its competitive advantage. The Integrated Reports of the top 40 listed companies on the Johannesburg Stock Exchange (JSE) were obtained for the 2014 financial year of each company. A disclosure index was then developed with input from other such indices and various strategic management textbooks and journal articles. This index was then used to determine the level of disclosure for each company. Certain variables that relate to the size and financial performance of each company were also noted and used to determine the effect of such variables on strategy disclosure. Overall the results indicate that the Top 40 listed companies on the JSE tend to reveal a lot of information related to their strategic management. In particular, items that fall within the „strategy evaluation‟ and „strategy control‟ categories received the most amount of disclosure, with the items within the „Organisational goals and objectives‟ and „key internal forces‟ receiving the least amount of disclosure. Overall the disclosure level scores were on average 82% with a minimum score of 61% and a maximum score of 97% for the companies. Pearson Correlation results revealed a small positive correlation with all company size variables and strategy disclosure. Amongst financial performance, only profit margin had a moderate negative correlation with strategy disclosure, profit margin and return on assets showed small and weak, negative correlations with strategy disclosure respectively. iii The research demonstrates that various factors such as regulation and reporting guidelines have a strong influence on strategy disclosure levels. The study also indicates that in addition to high disclosure levels on mandatory items, disclosure on voluntary items is also very high. The link between strategy disclosure and variables representing company size and financial performance has been examined in different countries but now this research provides the link between these factors within the South African context. The study also provides an updated index that can be used to examine strategy disclosure levels in a business context that has evolved over time since earlier strategy disclosure research.