The Effect of Ownership Concentration on Financial Disclosure Practices

Abstract

This research investigates the nuanced and often paradoxical relationship between concentrated ownership structures and the quality of financial disclosure
practices in publicly traded corporations. Moving beyond the traditional agency
theory framework that predominantly views concentrated ownership as a monitoring mechanism that enhances transparency, we propose and test a novel, multidimensional model. This model posits that the effect of ownership concentration is
not linear but is instead contingent upon the identity of the dominant shareholder
(e.g., founding family, institutional investor, state entity), the strength of countervailing governance institutions, and the strategic objectives related to proprietary
information costs. Utilizing a hand-collected, longitudinal dataset of 1,200 firms
across 40 countries over a ten-year period, we employ a machine learning-based
textual analysis of annual reports and regulatory filings to construct a granular,
continuous disclosure quality index. This index captures not only the quantity
but the strategic obfuscation, readability, and forward-looking content of disclosures. Our findings reveal a significant bifurcation: while ownership concentration
by long-term institutional investors is associated with enhanced, clearer disclosure,
concentration in the hands of founding families or state-owned entities correlates
with strategically selective transparency—increased disclosure on non-proprietary
matters but deliberate opacity in areas critical to competitive advantage or political scrutiny. Furthermore, we identify a critical moderating role of national-level
securities regulation enforcement; strong enforcement mitigates the negative effects
of certain ownership types, while weak enforcement exacerbates them. The study
contributes original insights by reframing disclosure not as a uniform good but as
a strategic tool whose deployment is shaped by the intersection of ownership identity, institutional context, and competitive landscape, offering a more sophisticated
understanding of corporate transparency determinants.