Overcoming financial illiterate challenge of Economic Transformation Programme (ETP): Communication of financial ratios

• Main Authors: Aripin, Norhani, Amran, Noor Afza
• Format: Monograph
• Language: English
• Published: Universiti Utara Malaysia
• Subjects: HG Finance
• Online Access: http://repo.uum.edu.my/14397/1/Hani.pdf; http://repo.uum.edu.my/14397/

Prime Minister of Malaysia has launched the Economic Transformation Programme (ETP) on 25 October 2010 with aims to transform Malaysia into a high-income nation by 2020.One of the focus of ETP is to boost the National Key Economic Areas (NKEAs).There are twelve NKEAs specified for ETP, and one of them is Financial Services.It is claimed that generally low level of financial literacy among Malaysian public is a challenge for the Financial Services sector.As financial information is not only useful for business community, several regulatory bodies have taken initiatives to enhance the financial literacy not only for investors, but also for the public. In responding to financial illiterate challenge, this research is conducted to investigate initiative taken by companies to enhance the understand-ability of investors/ potential investors about firm financial performance. Specifically, this study is looking at the communication of financial ratios in the companies’ annual reports for 2011 by top 100 listed companies on Bursa Malaysia.A set of financial ratios is chosen because of the popularity of this technique as financial analysis tool, its simplicity, yet voluntary nature of disclosure in the official annual reports. Using agency theory as the theoretical background, it is hypothesis-ed that larger company with more independent directors on the board and less concentrated ownership will communicate more financial ratios to the readers of the annual report.Descriptive result reveals on average, 18.4% of the selected ratios were disclosed in the annual reports.The most popular ratios are net assets per share, return on equity, return on assets and gearing. Regression analysis shows that only independence board influence the extent of financial ratio disclosure.Further research may include more number of companies listed on Bursa Malaysia and integrate longer period of study. Government-linked and family companies; as well as small medium enterprises (SME) also could provide further insight.Using survey and interview techniques potentially contribute further about this unique financial reporting practice.