AAAJ10,5

718

Ritualism, opportunism andcorporate disclosure in theNew Zealand life insurance

industry: field evidenceMike Adams

University of Glasgow, Glasgow, UK

IntroductionThe overwhelming majority of corporate disclosure studies reported in theacademic accounting literature (e.g. Bradbury, 1992; Chow and Wong-Boren,1987; Leftwich et al., 1981) have employed conventional statistical methods totest empirically hypotheses drawn from positive economics-based frameworkssuch as agency theory and the efficient markets hypothesis. However,proponents of positive accounting orthodoxy such as Watts and Zimmerman(1986) have openly acknowledged that the use of statistical methods has oftenproduced inconclusive and counter-intuitive results. Watts and Zimmerman(1986) suggest several reasons for this, including the application of impreciseproxies, the use of inadequate sampling selection methods, different samplesizes, and incorrectly specified functional models. Over the last two decades orso, a growing body of scholars (e.g. Abdel-khalik and Ajinkya, 1979; McKinnon,1988; Palepu, 1987) have advocated the greater use of field-based research in theaccounting discipline, either as an alternative to quantitative research, or inconjunction with statistical analysis using triangulation methodology. Field-based research reported in the social sciences literature, including accounting,encompasses a plethora of techniques such as interviews, document analyses,participation, and observation of subjects in controlled experiments (Patton,1990). Craswell and Taylor (1992, p. 305) further consider that the application offield-based techniques is particularly relevant to corporate disclosure studies asthey “… may assist in providing additional explanations of differences indisclosure policies and the extent to which … costs of disclosure vary acrossfirms …” This study seeks to add to the accounting literature by investigatingthe motives for voluntary disclosure in the public annual report using interviewevidence gathered from financial managers at 12 New Zealand-based lifeinsurance companies.

The comments of Mahmud Hossain, Hector Perera, Asheq Rahman, Greg Tower and twoanonymous referees on earlier versions of this paper are acknowledged. However, the author issolely responsible for any errors remaining. Finally, the support of Price Waterhouse (Wellington),the Life Office Association of New Zealand, and the co-operation of managers of all those lifeinsurance companies visited during the course of this study are also very much appreciated.

Accounting, Auditing &Accountability Journal,Vol. 10 No. 5, 1997, pp. 718-734 © MCB University Press, 0951-3574

Received June 1996Revised October 1996

Ritualism andcorporatedisclosure

719

Three motives underpin this study. First, corporate reporting in theinternational life insurance industry is currently acknowledged to be animportant public issue in view of the additional information requirementsemanating from the demutualization proposals of mutual life insurers and theincreased incidence of takeover activity in life insurance markets (Adams andScott, 1994; Horton and Macve, 1992, 1994). Accordingly, it is anticipated thatinterviews conducted in the field could provide a richer picture of thedeterminants for voluntary disclosure in life insurance companies than hashitherto been obtained previously from largely descriptive research carried outin insurance markets such as New Zealand (Adams, 1994), Australia (Lambleand Minehan, 1987) and the UK (KPMG Peat Marwick McLintock, 1992).Second, the analysis of field evidence could help industry groups, insuranceregulators, accounting standard setters, and others, to better determine thereporting requirements of insurance companies, and assist them to developmore effective regulatory initiatives (e.g. disclosure rules and accountingstandards). Third, it is believed that this is the first field-based study to examinethe voluntary disclosure practices of life insurance companies. Therefore, theapproach followed in this study could encourage others to employ field work infuture corporate disclosure research.

The remainder of this paper is organized as follows. The next sectionprovides background information on New Zealand’s life insurance industry,while the third section provides the conceptual framework. The fourth sectionexamines the research design, including the selection of field-sites and thedesign and development of the interview instrument. The fifth section discussesthe field evidence, while the sixth section concludes the paper.

Institutional backgroundAt the end of 1993, there were 34 direct life insurance writers operating in NewZealand, with the six largest companies accounting for approximately 70 percent of annual premium income[1,2]. The business activities of New Zealand-based life insurance companies are governed by the Life Insurance Act 1908;however, compared with other countries the New Zealand life insuranceindustry is relatively unregulated (Commerce Clearing House, 1991). Forexample, unlike Australia, competition is not impeded by stringent licensingagreements and investment regulations. Moreover, the absence of a lifeinsurance industry accounting standard and special reporting provisions underinsurance company law has traditionally given New Zealand-based lifeinsurance companies considerable discretion regarding the treatment ofaccounting items and their presentation and disclosure in the annual reports(Adams, 1994)[3]. As a result, the corporate disclosure practices of New Zealandlife insurance companies have been largely voluntary rather than dictated bystatutory requirements.

New Zealand’s relatively unregulated life insurance market makes it aninteresting environment to examine voluntary disclosure decisions in two mainrespects. First, managerial discretion to disclose investment information in the

AAAJ10,5

720

annual report is not encumbered by external regulations such as statutoryminimum reporting requirements and accounting standards. Therefore, theinfluence of firm-specific factors such as company culture on corporatereporting should be more evident among New Zealand-based life insurers thanamong those operating in more tightly regulated jurisdictions such as that ofAustralia. Second, taxation laws relating to New Zealand’s life insuranceindustry are non-discriminatory between type or form of insurance operator(e.g. mutuals versus stock companies). Thus, any variations observed in thedisclosure position of life insurance companies will not be influenced bydifferences in their taxation position.

Conceptual frameworkZimmerman (1987, p. 290) asserts that “… not all data and facts can be collectedand reported – the world and field sites are too complex. Some theory,underlying model, or framework always directs the researcher to those factsconsidered interesting or important to collect and report”. This view is sharedby Baiman (1990) who opines that in applying a conceptual framework to theresearch question or problem underlying the study helps to direct and sharpenthe focus of inquiry. The following section thus describes the conceptual basisupon which this study was carried out.

The model of Gibbins et al. (1990)In their field-based study of the disclosure practices of 20 Canadian companies,Gibbins et al. (1990) examined both the quantitative and qualitative aspects ofpublished annual reports from which they developed a model to explaincorporate disclosure. Their conceptual framework is summarized in Figure 1.

Gibbins et al. (1990, 1992) identify two key dimensions of a company’sdisclosure position which they label, ritualism and opportunism. Gibbins et al.(1990, p. 130) define ritualism as the “… propensity towards uncriticaladherence to prescribed norms for the measurement and disclosure of financial(and non-financial) information …”. Collectively, shared norms and perceptionsare synonymous with internal antecedent conditions such as a company’shistory of reporting practices and the culture of management to make policychange, and external influences on voluntary disclosure such as industrynorms of behaviour. The second attribute – opportunism – refers to a manager’s“… propensity to seek firm specific advantage in the disclosure of financial(and non-financial) information…”. (Gibbins et al., 1990, p. 130). Thus,opportunism is generally compatible with both internal conditions such as thepolitical motives of individual managers in the firm, and environmentalsignalling to investors, consumers and industry regulators in order to achieve acompetitive advantage.

The model of Gibbins et al. (1990) thus embraces organizational andenvironmental influences on corporate disclosure strategy. They argue thatorganizations are predisposed to ritualistic and opportunistic behaviour in themanagement of disclosure as a result of their ownership-control structure as

Ritualism andcorporatedisclosure

721

well as their cultural and historical antecedents. Differences in the disclosureposition of companies emanating from their ownership structure is particularlyrelevant to the life insurance industry as two forms of organizationpredominate – mutuals which nominally are owned by their policyholders andstock companies which are owned by shareholders (Cummins and Weiss, 1991).Mayers and Smith (1981) contend that the merging of the ownership andcustomer functions in mutuals allows them and their policyholders to achieve acomparative economic advantage by alleviating costly contracting (e.g.information and monitoring expenditures) between the various constituents ofthe firm. On the other hand, the diffuse nature of ownership rights in the mutualmakes it more difficult for policyholders to monitor and control managerialactivities compared with the more closely-held share ownership in stockcompanies. Mayers and Smith (1981) postulate that in such a situationpolicyholders will seek to control managerial discretion in decision making bywriting contractual covenants (e.g. in the articles of association) and byemploying surrogate monitors (e.g. non-executive directors) to identify andrectify aberrant behaviour by managers. In contrast, shareholders in stockfirms are better able to control managerial behaviour, and encourage theintroduction of profit-sharing schemes and share options which give managersincentives to maximize firm value. As the nature of residual claims is differentbetween the mutuals and stock companies, different rules governingaccounting and disclosure decisions are likely to emerge. For example,policyholders will introduce measures (e.g. financial regulations) to ensure thatprivate (normally actuarial-type) information is supplied internally to actuariesso that they can ensure that the value of policyholders’ long-term insurance

Figure 1.A framework for theanalysis of corporate

disclosure

Issues(Externallyand internallydriven)

ExternalMediators

DisclosurePosition1. Ritualism2. Opportunism

Structure1. Internal2. External

Perceived anddefined:1. Norms2. Opportunities

DisclosurePosition1. Ritualism2. Opportunism

DisclosureOutputs(Multivariate)

Antecedents1. External norms

and opportunities2. Internal factors

Source: Gibbins et al. (1990, p. 128)

AAAJ10,5

722

claims are not diluted. In contrast, shareholders are more likely to disclose moreinformation publicly than mutuals since such action helps to enhance thetraded value of the firm and reduce its market cost of capital.

Gibbins et al. (1992) contend that the degree to which sub-units (e.g.departments) or individual managers in the organization are given discretionover disclosure decisions (e.g. their status) will determine the nature of theentity’s disclosure strategy. The different information needs of mutuals andstock companies could thus help to explain variations in custom and practice,and differences in the views of managers in the two organizational forms as tothe importance of disclosing information publicly through the annual report.

Gibbins et al. (1992, p. 60) add that their conceptual model of corporatedisclosure explicitly “… adopts an ‘open systems’ view of organizationstructure and processes wherein organizations are seen as capable of adoptingto changes in their environment.” As in contingency theory, the framework ofGibbins et al. (1990) holds that the operating environment influencesorganizational conditions and the perceptions, and thus disclosure decisions, ofcorporate management. The two environmental attributes most relevant toorganizational conditions under this framework are institutional influences (e.g.regulation) and economic factors (e.g. the state of competition in the market).Indeed, Gordon and Miller (1976) consider that management perceptions ofenvironmental uncertainty have a major impact on the nature and form ofaccounting information produced by the organization. They argue that indynamic and hostile environments (e.g. highly competitive markets), corporatemanagers will voluntarily disclose non-financial as well as financialinformation in order to help them, and other users (such as investors) to betterevaluate business performance. Gray (1988) considers that the extent to whichlegislation and regulation encourage openness (or secrecy) and uniformity (orflexibility) in corporate reporting are important institutional traits affectingdisclosure decisions in companies. For example, life insurance companies arereported to frequently operate in highly competitive market sectors which insome cases (such as the UK) are made more unstable by frequently changingregulation (Msheliza, 1990). Indeed, Horton and Macve (1992) suggest that theactuarial assumptions/methods used by life insurers to value long-termliabilities in life insurance companies, and hence the willingness to disclose thisinformation publicly, could be influenced by how actuaries perceive futureenvironmental developments such as prospective changes in taxationlegislation.

Gibbins et al. (1992, p. 65) also report that there is “… a constant tensionbetween the forces of stability and change, and successful organizations arethose that manage the tension successfully … Accounting systems and relateddisclosure processes are rooted in both stability and change … ” Ginzberg(1980) argues that companies with hierarchical (e.g. bureaucratic) structures,such as life insurance companies, tend to develop in relatively stableenvironments. As a result, their accounting systems are often incapable ofresponding rapidly to changing institutional conditions, and thus are

Ritualism andcorporatedisclosure

723

characterized by a generally undynamic disclosure position. Gibbins et al.(1992) refer to this condition as organizational inertia, and could account for thelow priority traditionally placed by life insurance companies on corporatereporting matters (Adams and Scott, 1994).

Thomas (1989) considers that to cope with environmental change anduncertainty, a company will rely on professional specialists (e.g. accountantsand auditors) which will exert their influence on corporate strategy, includingdisclosure decisions. In this way, professional groups such as accountants,could perform an important role in the disclosure strategy of companies. Theextent to which accountants and others (e.g. actuaries) influence disclosuredecisions in life insurance companies could also be influenced by organizationalform. For example, policyholder-owners in mutuals could use their ownershiprights to ensure that the generation of private actuarial information is givenpriority over the public disclosure of accounting information so that actuariescan efficiently monitor long-term solvency and preserve the value ofpolicyholders’ insurance claims. In contrast, the public disclosure ofinformation on annual financial performance to capital markets enablesshareholders of stock companies to reduce their cost of capital and maximizetheir residual claims. This implies that managers of stock companies may giveprecedence to accounting rules and rely more heavily on the advice ofaccountants than their counterparts in mutuals. Therefore, in the life insuranceindustry ritualism and opportunism could be distinguished by organizationalform.

Research designThe following sub-sections describe the research design employed in this study,including the selection of field-sites, development of the interview instrument,the conduct of interviews and the procedure followed for analysing the data.

Field-site selectionInterview data were collected from 22 financial managers and/or seniorexecutives in 12 life insurance companies at various dates between October1994 and April 1995. The 12 field-sites (representing approximately 35 per centof the population) were selected purposefully (as opposed to statistically) inorder to obtain a mix of companies of different characteristics in terms of size,nationality and organizational form[4]. Field-site visits to all 34 New Zealandlife insurance companies could not be made because some corporate managersdeclined to co-operate. Furthermore, time and monetary constraints precludedthe possibility of visiting companies other than the 12 selected. However, thecompanies selected were adjudged to represent a good cross-section of the NewZealand life insurance industry as a whole. The main features of the field-sitesselected are given in Table I.

Table I shows that roughly equal numbers of mutual and stock life insurerswere visited in the field, including five of the largest six companies with theremainder split evenly between small entities (with life funds below New

AAAJ10,5

724

Zealand $25m) and medium-sized entities (life funds between New Zealand$25m-$400m). Half of the sample were New Zealand-owned, whereas theremainder were entities owned by parent companies headquartered either inAustralia or the UK. This feature is also reasonably representative of the NewZealand life insurance industry as a whole as most of the medium- and large-sized companies are branches or subsidiaries of overseas-based corporations(Adams, 1994). To provide comparison with the voluntary disclosure practicesof traditional insurance organizations, two entities owned by non-insurancecorporations (a building society and a major trading bank) were also includedin the selection of field-sites.

Yin (1989) contends that researchers utilizing fieldwork methods have toensure that valid and reliable, yet flexible procedures (or protocol) are followedso that pre-determined goals can be achieved. These procedures includeconsideration of various design issues such as the setting of clearly definedgoals, seeking co-operation from prospective subjects, designing anddeveloping research instruments, and conducting pilot studies. Therefore, priorto making the field-site visits, a letter explaining the purpose of the study andan accompanying letter of support from the representative industry group – the

Subjects interviewedLife Financial Seniorinsurance Organizational Size managers executivescompanya Nationality form category (n = 14) (n = 8)

1. Company A Australia Mutual Large 1 12. Company B New Zealand Mutual Small 1 13. Company C New Zealand Stock Medium 1 14. Company D Australia Mutual Large 2 –5. Company E United Kingdom Mutual/stockb Medium 2 –6. Company F United Kingdom Stock Large 2 –7. Company G New Zealand Stock Small – 18. Company H United Kingdom Stock Large 1 29. Company I New Zealand Mutual building Small 1 –

society10. Company J New Zealand Stock Medium 1 111. Company K New Zealand Mutual Large 1 –12. Company L Australia Stock bank Medium 1 1

Notes: aThis Table summarizes the important features of the 12 field sites visited during thecourse of this study. To protect confidentiality company names are not disclosed. The aim of thepurposive sampling of field sites was to cover a mix of companies of different characteristics. Thenumbers of managers interviewed at each company are also given.bThe New Zealand operation of Company E changed from a mutual branch office to a subsidiarycompany with share capital (100 per cent owned by its UK parent) in 1992-1993.

Source: Field data

Table I.New Zealand lifeinsurance companies’ field sites

Ritualism andcorporatedisclosure

725

Life Office Association of New Zealand (LOANZ) – were sent to the chiefexecutives or managing directors of 12 companies originally selected.Assurances stating that the information gathered would be used solely for thepurposes of this study were also contained in the covering letter[5]. At the firstround of contact, senior executives of ten of these companies agreed toparticipate and two declined (e.g. due to pressure of work). Therefore, the seniormanagement of two additional companies were approached and theiragreement to participate in the research project was obtained.

Interview instrumentSnow and Thomas (1994) report that the use of interviews in field-basedresearch enables researchers to appreciate the different meanings that peopleplace on their experiences in organizations and thereby, achieve a more in-depthexamination of the phenomena under investigation. In this regard, interviewsare considered to be an integral part of the interpretative research traditionwhich has been particularly prevalent in the social sciences ( Jick, 1979; Patton,1990). In common with several previous studies employing interviews in thefield (e.g. Innes and Mitchell, 1990; Palepu, 1987; Zimmerman, 1987) a semi-structured interview instrument was used. A copy of the interview instrumentis given in the appendix.

McKinnon (1988) contends that the completeness and accuracy ofinformation obtained during interviews are dependent on the form and contentof the research instrument and the manner in which it is applied. Consequently,McKinnon (1988) stresses that the researcher must expend considerable effortin designing and developing the questions which prospective subjects are to beasked. The questions were also phrased in an open-ended rather than closedmanner so that the maximum amount of information could be obtained from theinterviewees. Patton (1990) argues that the semi-structured interview processnot only allows information to be collected in a systematic manner, butfacilitates probing and thus helps the researcher to add richness and probedeeply the phenomenon under investigation.

As in Bruns (1989), Denzin (1978), and Patton (1990), the development of theinterview instrument involved an iterative process whereby questions wererefined and revised following reviews by six academic colleagues (including anexpert in the design and development of marketing research instruments). Inaddition, pilot interviews were conducted with eight senior members of theNew Zealand life insurance industry. Each subject for the pilot interviews wasselected on the basis on two key criteria. First, their perceived knowledge andexperience of life insurance company accounting and reporting issues; andsecond, their willingness to co-operate and participate in the piloting exercise.

Conduct of interviewsThe original intention was to interview a minimum of two and maximum ofthree managers in each of the 12 companies selected, of which one managerwould be at directorate level. It was anticipated that by adopting this procedure

AAAJ10,5

726

one would first, ensure that a valid and “rich” account of the reporting practicesof the life insurance company was obtained, and second, enable the responses ofmanagers in the same company to be cross-checked and reconciled at a laterstage, if necessary. However, in two small life insurers (Companies G and I), onemanager dealt exclusively with accounting and reporting matters, and inanother instance (Company K), a second manager could not be interviewedduring the arranged site visit due to unforeseen work commitments. Moreover,in three further cases (Companies D, E and F), third interviews could not becarried out with executive directors because they were too busy with the affairsof business (see Table I).

As suggested by Bruns (1989), a copy of the research instrument was sent toeach interviewee prior to the interview so that he/she could organize theirthoughts on the questions raised. Arrangements were also made to intervieweach manager separately so that they could express their views freely withoutfeeling intimidated by the presence of others (Innes and Mitchell, 1990).Moreover, as recommended by Patton (1990) each of the interviews (except fortwo subjects who declined) were tape-recorded so as to ensure that a completeand accurate record of the dialogue could be made. Maximum flexibility wasmaintained in the conduct of each interview so that further facts andperceptions relevant to the topic of voluntary disclosure could be elicited frominterviewees. After each interview had been carried out, typed transcripts wereprepared and sent to each interviewee so that they could confirm the accuracyand completeness of the issues discussed, and to make corrections if necessary.Major differences in responses elicited from the interviewees at the samecompany were reconciled by clarifying the respective points of contention witheach person immediately afterwards, and/or by cross-checking the responses toother sources of evidence such as relevant corporate documents (e.g. financialregulations).

Organization and classification of interview evidenceFollowing Krippendorff (1980) and Jankowicz (1991), the data generated fromthe field-site interviews were systematically organized, classified andsubsequently analysed according to the model of Gibbins et al. (1990).Jankowicz (1991, p. 193) refers to this procedure as content analysis, anddescribes it as a method which allows empirical evidence gathered by means ofsubject interviews to “… be presented in a variety of ways, from the continuousnarrative which blends empirically obtained information with your owninterpretative comments, to a formal, tabular summary accompanied by theresults of statistical tests.” Krippendorff (1980) contends that content analysisalso helps to ensure that the interview evidence collected from different subjectscaptures efficiently the meaning of concepts and propositions underpinning theresearch.

The content analysis procedure followed in this study involved theclassification of interview questions according to the main constructs of themodel of Gibbins et al. (1990) model represented in Figure 1, and then matching

Ritualism andcorporatedisclosure

727

judgementally the responses of the subjects interviewed to each of theconstructs. A four-point coding scheme was used to label, classify andsubsequently analyse the interview evidence as follows: 0 = not applicable, 1 =evidence generally neutral, 2 = evidence generally contrary to the construct,and 3 = evidence generally supportive of the construct. Overall conclusions asto whether the interview evidence was consistent, or otherwise, withexpectations were reached on the basis of a majority of codings recordedagainst each construct across all 22 respondents. That is, if a majority ofsupportive statements were identified overall, the conclusion was deemed to beconsistent with expectations and vice versa. Neutral and not applicableresponses were excluded from the judgement-making process. Furthermore, tominimize the risk of errors and biases in the classification procedure, Lohtia etal. (1994) recommend that an independent judge be used to verify the that theresponses are properly classified and accurately reconciled to each of the mainconstructs. Therefore, an academic colleague agreed to review the matchbetween the transcribed responses of interviewees to the questions posed andthe code assigned to them. This procedure provided further assurance that theclassification process was complete, accurate and reasonable.

Analysis of evidenceThis section analyses and discusses the interview evidence collected in the field.A summary of the important organizational and environmental influences onthe voluntary disclosure practices of New Zealand life insurance companies ispresented in Table II.

Organizational ritualism and opportunismCompany culture was reported by several managers to be a major determinantof corporate reporting practices. For example, interviewees suggested thatdisclosure practices are frequently defined and determined by established rulesand procedures, and that inertia among owners and managers tended toproduce fairly stable levels of information disclosure in the annual report overthe short to medium term. Indeed, Gibbins et al. (1990, p. 130) emphasize that“… the firm’s traditions, taken-for-granted ways of doing things, may establishhow disclosure is managed …” In particular, managers in both mutuals (e.g.Companies A and K) and the insurance arm of a major trading bank(i.e. company L), cited conservatism and the traditionally strong influence ofactuarial principles which emphasize long-term solvency rather than annualperformance, as a ritualistic phenomenon which influences the form andcontent of corporate reporting. For example, a manager in company L said:

…our annual reporting practices are greatly influenced by the culture of corporate banking …which is one of conservatism and a great reluctance to disclose anything other than thestatutory minimum…

Similarly, a manager in a large overseas-controlled mutual (company A) stated:

AAAJ10,5

728

… I have been in this company a long time and as such I am aware of the importance of theculture of the organization in all our activities … [that] culture is very much conservative …and certainly not one which would engender one to disclose all sorts of “bits and pieces”.

As the New Zealand life insurance industry is greatly influenced by overseas-controlled corporations (Adams, 1994), head office characteristics anddirectives could also affect the nature and level of information contained in thecorporate reports published for the New Zealand market. This possibility wasconfirmed by managers of company L (an insurance subsidiary of an overseas-controlled trading bank) who stated that the conservative attitudes of managers

Important influences on corporate disclosureOrganizational Environmentalfactors Example(s) factors Example(s)

1. The disclosure practices of entities Company H 1. The state of competition Company Hof the corporate group operating in in the local marketother countries

2. A collective corporate view of how Companies 2. The disclosure practices Companiesdisclosure should be practised, A and L of other companies B and Ke.g. company culture and historicalantecedents

3. The wishes of a chief executive, Company C 3. Life insurance industry Company Echairperson or other influential guidelinesmember of the board

4. Desire to expand into overseas Company J 4. International and Company Bmarkets and secure listing status national accountingon the New Zealand Stock Exchange standards

5. Desire to promote the company Company K 5. The views of the external Companies“brand name” and its reputation auditors/actuaries B and Cfor prudent and successfulmanagement

Notes: This table gives the important organizational and environmental factors which influencethe voluntary disclosure practices of New Zealand-based life insurance companies as identifiedfrom interviews carried out with 22 managers in 12 companies. Company A = a large overseas-owned manual; company B = a small New Zealand-owned mutual; company C = a medium-sizedNew Zealand-owned stock company; company D = a large overseas-owned mutual; company E =medium-sized overseas-controlled stock company; F = a large overseas-controlled stockcompany; company G = a small New Zealand-owned stock company; company H = a largeoverseas-owned stock company; company I = a small New Zealand-owned branch of a mutualbuilding society; company J = a medium-sized New Zealand-owned stock company; company K= a large New Zealand-owned mutual; company L = a medium-sized operation of an overseas-controlled trading bank.

Source: Field data

Table II.Important influenceson the disclosureposition of New Zealandlife insurance companies

Ritualism andcorporatedisclosure

729

at head office restricted substantially their authority and ability to discloseinformation in their New Zealand annual report.

Lev (1992) contends that amount of information voluntarily disclosed in theannual report is unlikely to vary substantially over time because the credibilityof management is predicated on how users (e.g. financial analysts) perceive andassess business performance over the long term. In other words, managers arelikely to adopt a disclosure strategy which minimizes surprises and mitigatesadverse long-term effects on the firm’s ability to raise market capital andgenerate new business. The importance of the credibility of a firm’s disclosureposition is underscored by Gibbins et al. (1990, p. 138) when they state that “…building a reputation … requires consistency in behaviour within theorganization and through time. Such consistency is enhanced by having clearlyarticulated internal policies and by establishing organizational rules andprocedures to manage disclosure …” Furthermore, the ritualistic influence ofintra-organizational networks (e.g. with other entities of the corporate group)directly affected the voluntary disclosure practices of some of the large andoverseas-owned New Zealand life insurance companies (e.g. company H). AgainGibbins et al. (1990, p. 131) report that “… such arrangements typically requirethat each member of the network adopt the same [or similar] reportingstructures…”

Gibbins et al. (1990, 1992) and Forker (1992), among others, also acknowledgethe importance of opportunism in corporate politics and the influence whichdominant personalities may have in the corporate reporting process. This viewwas supported by the interview evidence gathered in this study. For instance,respondents indicated that in certain companies (e.g. company C) the attitude ofa dominant person on the board of directors towards the public release ofinformation in the annual report could have a significant impact on theirdisclosure position. Furthermore, the desire of owners and managers incompany J to attain listing status on the New Zealand stock exchange, and toexpand in the Australian life insurance market, were also reported to beimportant motives underlying the relatively high levels of informationdisclosed publicly by this relatively small life insurance company. Similarobservations of corporate reporting behaviour among small companies(particularly new entrants in the market) have also been reported elsewhere inthe academic accounting literature (e.g. Firth, 1980).

Baiman (1990) argues that a high proportion of accountants employedrelative to other staff in the firm could result in a high level of informationdisclosure in the annual report. This is because professional training, peerpressure, and accounting standards and guidelines, tend to stress theimportance of greater transparency in corporate reporting, including thedisclosure of negative outcomes. Moreover, by following the authoritativeguidelines of their profession, accountants are able to enhance their professionalcredibility, and thus increase the value of their human capital (and promotionalprospects) in the internal and external job markets. Indeed, subjectsinterviewed in some medium and large-sized companies (e.g. companies C and

AAAJ10,5

730

H) cited evidence which supported a positive linkage between the proportion ofaccountants employed in firms relative to the number of other staff and the levelof information voluntarily disclosed in the annual report. The influence ofdifferent professional groups in the company on the overall level of voluntarydisclosure could therefore be an interesting and prospectively fruitful area forfurther research.

Environmental opportunism and ritualismGibbins et al. (1990, p. 132) state that “…disclosure opportunities areperceptual, not objective … [ and that] ritualism is [also] activated by theperceived presence of external norms…” In this study, almost all the subjectsinterviewed emphasized the important influence of external auditors (and to alesser extent, actuarial consultants) on corporate disclosure. Such findings arealso consistent with those reported in other empirical disclosure studies (e.g.Craswell and Taylor, 1992). The empirical evidence collected in this studyindicates that among other things, external auditors provide help and advice toexecutive and non-executive directors (e.g. with regard to clarification andinterpretation of accounting rules), and give credence to the statement of overallbusiness performance reported publicly in the annual report (e.g. as stated bythe managers of company J ). In this regard, the process by which managers inNew Zealand-based life insurance companies, irrespective of theirorganizational characteristics, routinely seek and generally follow, the advice ofauditors on disclosure matters is considered to be a common ritualisticphenomenon similar to that described by Gibbins et al. (1990, 1992).

Some informants stated that an important determinant of the company’sdisclosure strategy was the perceived effect which the voluntary public releaseof information could have on its competitive position in particular segments ofthe market. Indeed, concerns over the proprietary costs of voluntary disclosurecould help to explain why the financial regulations of some of the larger lifeinsurance companies (e.g. company A) prescribe that authorization from theparent company must be obtained prior to disseminating large amounts ofinformation publicly in the New Zealand market. Often the corporate practicesof competitors are scrutinized continuously by managers in the larger lifeinsurance companies (e.g. company K). Indeed, these companies may attempt toemulate the content, presentation and style of the annual reports of theircompetitors for various reasons such as to protect their current market position– a typical case of herding behaviour. For instance, a senior executive incompany B expressed the opinion that:

… Some companies have used their corporate reports as successful marketing instruments …their success has led us to review the format, content and style of our annual report.… Thereis no doubt in my mind that the use of the annual report for financial and marketing purposeshelps to promote the company’s profile with the public.…

Similar factors motivating corporate reporting practices have also beenidentified by others writing in the academic literature. For example, Lev (1992)

Ritualism andcorporatedisclosure

731

reports that conformity with the accounting and reporting practices of “peer-group” companies helps a company to maximize its value, ensure adequateliquidity and maintain its market share.

There were several other institutional influences on corporate disclosure ofNew Zealand-based life insurance companies identified from the field-basedresearch. These determinants include the influence of industry norms(e.g. companies D and E), suggestions from industry regulators (e.g.companies C and G), and anticipated changes in the legislative and regulatoryenvironment (e.g. company B). Gibbins et al. (1990) also noted that similarenvironmental factors frequently influenced the reporting practices ofCanadian companies.

ConclusionDrawing a framework from the model of corporate disclosure in Gibbins et al.(1990), this study uses interview evidence collected from financial managers of12 New Zealand-based life insurance companies in order to isolate those factorswhich influence corporate disclosure in life insurance markets. The empiricalevidence suggests that voluntary disclosure is a complex phenomenon which isinfluenced both by organizational antecedents, such as company culture andtradition, and environmental conditions, such as industry norms and marketcompetition. Therefore, industry regulators, accounting standard setters andlegislators may wish to take cognisance of these factors in developing externalrules and regulations concerning life insurance companies and assessing theirlikely success. For example, the emphasis placed on long-term solvency usingactuarial information in mutuals is noticeably different from the managerialemphasis on improving annual reported financial performance and maximizingtraded value in stock companies. Therefore, there appears to be a prima faciecase for differential accounting and disclosure rules to be applied to mutualsand stock companies[6]. The results of this study also suggest that field- basedresearch could contribute insights into the complex and multi-dimensionalphenomenon of corporate disclosure and usefully complement conventionalstatistical analyses.

Notes1. This figure excludes friendly societies and reinsurers as these entities do not write

significant amounts of direct life insurance business.2. The Financial Reporting Act 1993 came into effect on 1 July 1994, and brings the

accounting and reporting aspects of New Zealand life insurance companies more into linewith other corporate bodies. However, although the field research was carried out in late1994 to early 1995, it focused on events pertaining to before 1 July 1994.

3. Patton (1990, p. 184) reports that “… there are no rules for sample size in qualitativeinquiry. Sample size depends on what you want to know, the purpose of the inquiry, what’sat stake, what will be useful, what will have credibility, and what can be done with theavailable time and resources…” (italics in original).

4. Senior executives in some companies expressed reservations about managerialperceptions being identified in the public domain. For this reason, the names of life

AAAJ10,5

732

insurance companies and officials are not disclosed in the subsequent analysis of theinterview evidence.

5. For instance, paragraph 65 of the UK’s FRS-1 on cash flow statements specifically exemptsmutual life insurers from the requirement to prepare cash flow statements because theaccountancy profession perceives that they are not useful to the policyholder-owners.

6. The New Zealand operation of company E changed from a mutual branch office to asubsidiary company with share capital (100 per cent owned by its UK parent) in 1992-1993.

References and further readingAbdel-khalik, A.R. and Ajinkya, B.B. (1979), Empirical Research in Accounting: A Methodological

Viewpoint, American Accounting Association Education Series, Monograph, No. 4.Adams, M.B. (1994), The New Zealand Life Insurance Industry: A Survey of Accounting and

Reporting Practices, Price Waterhouse, Wellington.Adams, M.B. and Scott, C.N.W. (1994). “Realistic reporting of life insurance company policy

liabilities and profits: developments in Anglo-American countries”, Journal of the Institute ofActuaries, Vol. 121 No. 79, December, pp. 441-58.

Baiman, S. (1990), “Agency research in managerial accounting: a second look”, Accounting,Organizations and Society, Vol. 15 No. 4, pp. 341-71.

Bradbury, M.E. (1992), “Voluntary disclosure of financial segment data: New Zealand evidence”,Accounting and Finance, Vol. 32 No. 1, May, pp. 15-26.

Bruns, W.J. (1989), “Case study research: design and methods”, Journal of ManagementAccounting Research, Vol. 1, Fall, pp. 157-63.

Chow, C.W. and Wong-Boren, A. (1987), “Voluntary financial disclosure by Mexicancorporations”, The Accounting Review, Vol. 62 No. 3, July, pp. 533-41.

Commerce Clearing House (1991), Australian and New Zealand Insurance Reporter, Vol. 1, CCHLtd, Canberra.

Craswell, A.T. and Taylor, S. (1992), “Discretionary disclosure of reserves by oil and gascompanies: an economic analysis”, Journal of Business Finance and Accounting, Vol. 19 No. 2,January, pp. 295-308.

Cummins, J.D. and Weiss, M.A. (1991), The Structure, Conduct, and Regulation of the PropertyLiability Insurance Industry, paper presented at the Federal Bank of Boston Conference onInsurance, Harwich Port, MA.

Denzin, N.K. (1978)., The Research Act: A Theoretical Introduction to Sociological Methods,McGraw-Hill, New York, NY.

Firth, M. (1980), “Raising finance and firms’ corporate reporting policies”, Abacus, Vol. 16 No. 2,pp. 100-115.

Forker, J.J. (1992), “Corporate governance and disclosure quality”, Accounting and BusinessResearch, Vol. 22 No. 86, Spring, pp. 111-24.

Gibbins, M., Richardson, A.J. and Waterhouse, J. (1990), “The management of corporate financialdisclosure: opportunism, ritualism, policies, and processes”, Journal of Accounting Research,Vol. 28 No. 1, Spring, pp. 121-43.

Gibbins, M., Richardson, A.J. and Waterhouse, J. (1992), The Management of FinancialDisclosure: Theory and Perspectives, research monograph No. 20, the Canadian CertifiedGeneral Accountants’ Research Foundation, Vancouver.

Ginzberg, M.J. (1980), “An organisational contingencies view of accounting and informationsystems’ implementation”, Accounting, Organizations and Society, Vol. 5 No. 4, pp. 369-82.

Gordon, L.A. and Miller, D. (1976), “A contingency framework for the design of accountinginformation systems”, Accounting, Organizations and Society, Vol. 1 No. 1, pp. 56-69.

Ritualism andcorporatedisclosure

733

Gray, S.J. (1988), “Towards a theory on cultural influence on the development of accountingsystems internationally”, Abacus, Vol. 24 No. 1, pp. 1-15.

Horton, J. And Macve, R. (1992), The Impact of Planned Changes in Accounting Principles for UKLife Insurance Companies, paper presented at the British Accounting association Conference,Warwick, UK.

Horton, J. And Macve, R. (1994), Accounting for Life Insurance: A Discussion Paper, Institute ofChartered Accountants England and Wales, London.

Innes, J. and Mitchell, F. (1990), “The process of change in management accounting: some fieldstudy evidence”, Management Accounting Research, Vol. 1 No. 1, March, pp. 3-19.

Jankowicz, A.D. (1991), Business Research Projects, Chapman-Hall, London.Jick, T.D. (1979), “Mixing qualitative and quantitative methods: triangulation in action”,

Administrative Science Quarterly, Vol. 24 No. 4, December, pp. 602-11.KPMG Peat Marwick McLintock (1992), UK Principles and Presentation: Insurance. A Survey of

the 1991 Accounts of Major UK Composites, KPMG Peat Marwick McLintock, London.Krippendorff, K. (1980), Content Analysis: An Introduction to its Methodology, Sage, Beverley

Hills, CA.Lamble, P.J. and Minehan, L.P. (1987), Accounting for the General Insurance Industry, discussion

paper No. 11, Australian Accounting Research Foundation, Canberra.Leftwich, R.W., Watts, R.L. and Zimmerman, J.L. (1981), “Voluntary corporate disclosure: the case

of interim reporting”, Journal of Accounting Research, Vol. 19, supplement, pp. 50-77.Lev, B. (1992), “Information disclosure strategy”, California Management Review, Vol. 34 No. 4,

pp. 9-32.Lohtia, R., Brooks, C.M. and Krapfel, R.E. (1994), “What constitutes a transaction-specific asset?

An examination of dimensions and types”, Journal of Business Research, Vol. 30 No. 3,September, pp. 261-70.

Mayers, D. and Smith, C.W. (1981), “Contractual provisions, organizational structure and conflictcontrol in insurance markets”, Journal of Business, Vol. 54 No. 3, July, pp. 407-34.

McKinnon, J. (1988), “Reliability and validity in field research: some strategies and tactics”,Accounting, Auditing & Accountability Journal, Vol. 1 No. 1, pp. 34-54.

Msheliza, S. (1990), in Diacon, S, (Ed.) “Strategic planning in insurance”, A Guide to InsuranceManagement, Macmillan, London.

New Zealand Life Insurance Act 1908, Government Printer, Wellington, New Zealand.New Zealand Financial Reporting Act 1993, Government Printer, Wellington, New Zealand.Palepu, K., “The anatomy of accounting change”, in Bruns, W.J. and Kaplan, R.S. (Eds),

Accounting and Management: Field Study Perspectives, Harvard Business School Press,Boston, MA, 1987.

Patton, M.Q. (1990), Qualitative Evaluation and Research Methods, Sage, New York, NY.Snow, C.C. and Thomas, J.B. (1994), “Field research methods in strategic management:

contributions to theory building and testing”, Journal of Management Studies, Vol. 31 No. 4,July, pp. 457-80.

Thomas, A.P. (1989), “The effects of organizational culture on choices of accounting methods”,Accounting and Business Research, Vol. 19 No. 76, pp. 363-78.

Watts, R.L. and Zimmerman, J.L. (1986), Positive Accounting Theory, Prentice-Hall, New York, NY.Yin, R.K. (1989), Case Study Research, Sage, New York, NY.Zimmerman, J.L. (1987), in Bruns, W.J. and Kaplan, R.S. (Eds), “Accounting incentives and the lot-

sizing decision: a field study”, Accounting and Management: Field Study Perspectives,Harvard Business School Press, Boston, MA.

AAAJ10,5

734

Appendix Voluntary Disclosure By NZ Life Insurance Companies

Field-Site Interviews Guide 1994-1995I. Basic DetailsCompany: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Form: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Status: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Nationality: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interviewee: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Position: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Number of years in current position: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Number of years in company: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other positions in last 5 years: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Date(s) interviewed: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

II. Opening questions1. Briefly, what does your job entail?2. Explain what you understand by voluntary information disclosure in the annual report?3. How do you perceive that advantages arise from the voluntary disclosure of information in the

annual report? Who are the beneficiaries of voluntary disclosure?4. Do you consider that the information needs of the public, particularly policyholders and

shareholders, can be satisfied by means other than through the annual report? If so, in whichway(s)?

III. Influences on corporate disclosure1. In which way(s) are financial, or other managers, given discretion to make voluntary

information disclosures in the annual report? Why are managers given this authority?2. How does your company monitor and control what managers disclose in the annual report?3. How are the disclosure decisions of managers influenced by organizational factors,

particularly:(a) Company culture?(b) Historical precedent and tradition?(c) Dominant personalities?(d) Internal financial regulation?(e) Professional groups (e.g. accountants)(f) Parent company directives?

4. How do other organizational influences affect disclosure decisions?5. How are the disclosure decisions of managers influenced by factors outside the organization,

particularly:(a) External auditors?(b) Industry norms?(c) Market competitors?(d) Overseas regulations?(e) Other professional consultants (e.g. actuaries)?

6. How do other environmental influences affect disclosure decisions?7. How is the disclosure policy for the New Zealand entity decided?