Voluntary Annual Report Disclosure by Listed Dutch Companies, 1945-1983

Kees Camfferman

• Publisher: Routledge
• Year: 2020
• eBook ISBN: 9781000167832
• Edition: 1
• Topic: Business
• Subtopic: Accounting
• Index: Business

This book, first published in 1997, analyses the development of Dutch financial reporting. A process of change in international financial reporting began in the early 1960s, and this book examines the roles of voluntary and legislated improvements on financial information disclosure.

Chapter 1
Introduction

1.1 ‘The international disclosure bandwagon’

The three decades following the Second World War were a key period in the development of modem financial reporting by public or ‘open’ companies. Before this period, company financial reporting in many countries, including the Netherlands, consisted of little more than the publication of terse abstracts from the accounting records. But by the beginning of the 1980s, the annual reports of many companies had changed into rather attractive and often voluminous booklets in which an expanded set of accounting data was presented in a context of extensive non-financial information about the company in question. By that time, annual reporting had acquired a substantial part of its current outward appearance.

One explanation for this change is the introduction of more extensive regulation governing the contents of annual reports. Gerhard Mueller drew attention to the transformation of financial reporting during this period, and emphasized the importance of regulation. His analysis (Mueller, 1972) will be used to introduce the subject of the present study.

Commenting on the situation in Western Europe in the late 1950s, Mueller observed that ‘financial reporting and disclosure were generally in a sad state of virtual non-existence’ (p. 118). In many countries, legal requirements and established practice were generally in favour of highly secretive financial reporting. Differences among countries existed, to be sure, but even the relatively open British reporting standards ‘tolerated [annual reports providing] almost no details concerning results of operations’ (p. 119). At that time, only the United States could serve as a benchmark of openness in financial reporting because of the influence of the Securities Acts of the 1930s.

A process of change began in the early 1960s, and it increased in scope as the decade progressed. Throughout the developed world, legislatures undertook the task of revising company legislation, almost as if acting on an agreed programme¹. Relevant legislation was introduced or changed in the United States (1964), Germany (1959, 1965), Japan (1963, 1967), France (1966), the United Kingdom (1967), Canada (1969), the Netherlands (1970), and somewhat later, in Spain (1973) and Italy (1974). During the 1960s, the Nordic countries were also at work at a common programme of company law reform. A common concern of most of these reforms was to increase annual report disclosure. For this reason, Mueller characterized the almost wave-like spread of new legislation as ‘the international disclosure bandwagon’.

A direct impetus for a disclosure wave in the 1960s came from the United States in the form of a campaign by the SEC for greater voluntary disclosure (see also Hobgood, 1969). However, a more fundamental reason for the increased emphasis on disclosure, and one apparent in many countries, was a growing demand for reporting information, resulting from increased attention for companies on the part of investors and the general public.

Increased disclosure requirements were considered at the time as a relatively easy approach to meet this demand, given the difficulty of obtaining agreement on stricter rules on income determination and valuation. Changing demands for financial information, and changing patterns of financial statement usage were not confined to the United States but could be observed in a number of countries. Despite differences in institutional structure, this led to a basic similarity:

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¹ Details about the historical development of financial reporting legislation in various European countries can be found in Walton (1995).

[M]odes of achieving better and more financial disclosure differed from country to country. (...) despite the different routes utilized for arriving at higher disclosure plateaus, the outcome (i.e., the disclosure rules and requirements instituted) brought about a fair degree of international similarity, (p. 122)

Mueller’s analysis does not suggest that disclosure practices in the Netherlands were notably different from those in other continental countries. The conclusion regarding the Netherlands would therefore have to be that it shared in the general ‘sad state’ of affairs, and that, like other countries, it had to be lifted from this state by means of legislation (enacted in 1970) which was part of a common movement of legal reform affecting wide parts of the Western world. However, one can also find expressions in the literature of an alternative view of the development of Dutch financial reporting. In contrast to Mueller’s emphasis on regulation in bringing about improvements in disclosure, this other view stresses the role of voluntary improvements in Dutch financial reporting.

1.2 Perceived importance of non-mandatory improvements in Dutch financial reporting

A number of authors have emphasized that the development of Dutch financial reporting has been different from that in other countries. Such assertions can be found in the Dutch literature, and, from the 1960s onwards, in the international literature as well. They range from the simple characterization that ‘[t]he Netherlands is a sophisticated maverick in the international accounting community’ (Da Costa et al., 1978) to more elaborate attempts at international classifications of accounting practices. Among the latter, the well-known Nobes (1983) classification probably has done much to spread the view that Dutch financial reporting evolved along quite distinct lines. The most striking aspect of this difference has, of course, been the Dutch conceptual and theoretical framework for asset valuation and income determination on the basis of current values. It has been argued that this provided an effective alternative to regulation as a guide towards improved financial reporting. Bindenga (1995) has described the Sonderweg of Dutch financial reporting by distinguishing three ‘orientations’ or ‘lines of development’ in the history of financial reporting: an ‘Anglo-Saxon (Commonwealth, USA), a ‘Roman’ (continental European) and a ‘Dutch’ line of development (See also Bindenga, 1993). The latter is characterized as follows:

In the Netherlands, financial reporting has derived its character in particular from the development of business economics. As such, the Dutch situation is incomparable to that in other continental European countries, or to the Anglo-Saxon line of development. Until 1970, there was no legislation on or regulation of financial reporting. (...) The founding of a normative and objective school of business economics between 1920 and 1950 has had an important influence on financial reporting in the Netherlands. (...) Although the roots of financial reporting in the Netherlands can be found in business economics, this tradition has been broken. Confronted with processes of harmonization in Europe and with influences from American regulation, the legal element is now clearly present in the Netherlands as well. (p. 11)

Bindenga goes on to credit the Dutch auditing profession with playing an important role in the practical application of business economic theory. Although he refers primarily to issues of income determination and valuation, his strong assertion that before 1970 and before the impact of European harmonization, financial reporting developed under the influence of non-regulatory forces may have implications for disclosure as well. It would, after all, be somewhat curious to find that there were substantial voluntary improvements in accounting principles used while the issue of disclosure was neglected.

In fact, it has been observed that the Netherlands has been different in the area of disclosure as well, in the sense that in this respect Dutch practice is (and has been) more like that in the United States and the United Kingdom than like that in neighbouring continental countries (Choi and Mueller, 1992:421). Furthermore, it has been noted that openness in financial reporting practice in the Netherlands did not rest to any great extent on formal regulation, but on the same auditing profession to which Bindenga referred to explain the influence of business economics on valuation practices. A strong statement of this view can be found in Scott (1968), who presents the situation in the Netherlands as a goal to which developing countries trying to improve their accounting systems might want to aspire. After noting that the Dutch environment at the time was characterized by relatively light regulation, he remarks that:

Dutch firms are widely regarded as the most progressive and innovative with respect to external financial reporting. The Dutch accounting profession appears to be very effective in showing Dutch companies the advantages which accrue from thorough and realistic disclosure of financial affairs to the public and has helped to create a strong and positive attitude toward accounting among all elements of the business community, (p. 61)

More recent observations on the role of voluntary action in Dutch financial reporting practice include the comment that ‘[u]ntil recently, [an] important feature [of Dutch accounting] has been the combination of almost extreme permissiveness with high professional standards’ (Nobes and Parker, 1995:217).

Furthermore, in a review of current financial reporting practices by Traas in an address to the 1991 Rotterdam Financial and Management Accounting (FMA) Congress, it was concluded that Dutch financial reporting practice had, during the 1970s and 1980s, consisted largely of devising and complying with regulations. In contrast, it was argued that if financial reporting was to continue to improve, inspiration for the future should be drawn from an earlier period, in which voluntary action played a much larger role:

(..) the necessary improvements [in financial reporting] may have to be brought about by voluntary action. (...) In fact, a development along these lines is nothing new. In the postwar period, during the 1950s and 1960s, this approach was used as well. And certainly not without success. (Traas, 1991:53)

Earlier in the same address, an appeal was made to ‘revitalize the process that as early as the 1950s and 1960s led to a sustained improvement in reporting practice’ (Traas, 1991:40).

In sum, the literature provides quite definite expressions of the point of view that postwar Dutch reporting displayed a distinctive tendency towards voluntary improvements. Although the literature is usually careful enough not to assume a past ‘golden age’ of voluntary improvements in reporting, the general image of the period is quite positive². Although this point is generally stated with reference to valuation and income determination, one can find it applied to issues regarding extent of disclosure as well.

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² See also Burgert, van Hoepen and Joosten (1995:21-22) for the view that substantial accounting regulation arrived relatively late in the Netherlands (in 1970), but that, nevertheless, many companies had reached fairly high standards of reporting practice on a voluntary basis.

It will be noted that this view of developments in the Netherlands contrasts with Mueller’s (1972) analysis of European financial reporting, discussed in the previous section. Mueller argued that European disclosure did not significantly improve before the wave of disclosure legislation in the late 1960s. Even though part of this apparent contrast may be explained by assuming that Mueller’s observations of disclosure practices were confined mainly to the larger continental countries as France and Germany, this would still leave a presumed difference between these countries and the Netherlands which would merit further investigation. In short, the cursory review of the literature presented here gives rise to an empirical question about the actual extent of voluntary disclosure in the postwar Netherlands. It is this question which will be addressed in this book.

1.3 Previous empirical research in the Netherlands

There has been little previous research into the long-term growth of annual report disclosure in the Netherlands. A factor of obvious importance in this respect is the traditional emphasis among Dutch accounting academics on the development of normative theory on valuation and income determination (see Klaassen and Schreuder, 1984). This has diverted some attention that might otherwise have been directed at empirical issues in general, and at disclosure issues in particular. Dijksma (1973:369) observed that before 1973, there had only been eight previous published surveys of (aspects of) Dutch financial reporting practices. Although the number of eight studies is a bit too low³, the conclusion that empirical work before 1970 was remarkable primarily by its absence seems uncontestable. Following 1971, there have been regular but incompletely comparable surveys of reporting practices⁴. Dijksma and van Halem (1977) is a rare example of a cross-sectional empirical disclosure study modelled explicitly after foreign examples. Since 1986, a second regular series of empirical surveys has been published, containing much information on various disclosure issues⁵. Even m...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Original Title Page
• Original Copyright Page
• Table of Contents
• Acknowledgments
• Abbreviations
• Original Half Title
• Chapter 1 Introduction
• Chapter 2 Theoretical views on voluntary disclosure
• Chapter 3 Views on voluntary financial reporting in the Netherlands
• Chapter 4 Approaches to empirical disclosure research
• Chapter 5 Company characteristics and disclosure
• Chapter 6 Studies of individual disclosure items
• Chapter 7 Summary and discussion
• Appendix A List of disclosure items
• Appendix B Company sample
• References