Question

use institutional theory to explain why firms would voluntaily disclose their accounting information?

Answer 1

Institutional theory is used to understand the influences of organizational structures such as rules, norms and guidelines. Accounting disclosures are likely to be a way of demonstrating corporate legitimacy by disclosing how the organization is meeting the expectations of these rules, norms and guidelines.

Voluntary disclosure is the provision of information by a company's management beyond requirements such as generally accepted accounting principles and Securities and Exchange Commission rules,^[1][2] where the information is believed to be relevant to the decision-making of users of the company's annual reports.^[2]

Voluntary disclosure is carried out by many companies,^[1] although the extent and type of voluntary disclosure differs by geographic region, industry, and company size.^[3] The extent of voluntary disclosure is also affected by the firm's corporate governance structure^[3][4] and ownership structure;^[4] in particular, research has found that top executives have a significant influence on their firms' voluntary disclosures, and that managers have unique disclosure styles related to their personal backgrounds including their career paths and military experience.^[5]

Voluntary disclosure has also been identified as an important area in financial reporting research.^[3] There are links between firm choices to voluntarily disclose certain information and what they are required to disclose via mandatory disclosures. ^[6]