| Firms provide information because economic incentives exist beyond regulatory requirements. The discretionary information provided by firms offers an optimal solution in the market for financial information. In this study, systematic differences in financial disclosure by firms in the oil and gas industry were observed. Support was thus provided for the argument that the differences are an efficient solution within that market. In the presence of an efficient solution, regulators should impose standards of disclosure cautiously, in order to avoid upsetting the equilibrium of the market for financial disclosure.;Extent of financial disclosure was measured by using a weighted index of disclosure items. The 10-K and annual reports of 125 oil and gas firms were examined in order to identify various financial disclosures provided by each firm. A comprehensive set of financial disclosures was compiled into a survey, which was sent to 722 oil and gas financial analysts, who weighted the items according to the importance of each in an investment decision. The items of information provided by an individual firm were then applied to the index. The dependent variable of the study, extent of financial disclosure, was the ratio of a firm's total disclosure score to the firm's total possible disclosure.;A stepwise regression model using the backward elimination technique was used to determine which variables were "best" in explaining extent of financial disclosure. Of the ten independent variables entered, four were retained in the final model at the.20 level of significance. Those removed were total assets, rate of return on net worth, presence of material foreign operations, earnings margin, proportion of outside directors on the board, and presence of non-oil and gas industry operationis. The four variables retained in the final model were exchange listing status, audit firm size, ratio of debt to total equity, and number of shareholders.;The final model was examined for the significance of parameter estimates. Three variables--listing status, ratio of debt to total equity, and number of shareholders--were determined to be statistically significant. Audit firm size was judged to be not statistically significant. |
