Multidisciplinary Journal for Education, https://doi.org/10.4995/muse.2019.11531 Social and Technological Sciences ISSN: 2341-2593 Khanna and Singh-Chahal (2019) http://polipapers.upv.es/index.php/MUSE/ Mult. J. Edu. Soc & Tec. Sci. Vol. 6 Nº 2 (2019): 147-174 | 147 An assessment of Information disclosures by Pharmaceutical Industry: Evidence from India Rupali Khanna1 , Bhupinder Pal Singh Chahal1 1Research Scholar, University School of Business, Chandigarh University Mohali, India, Emails: rupaikhanna96@gmail.com; bpchahal@gmail.com Received: 11 May 2018; Accepted: 06 August 2019 Abstract The information disclosed by the companies in their annual reports reveals much about company’s performance and prospects. Investors take the information as base for decision for investment. Under such circumstance, companies choose to disclose beyond what is mandatorily required. Theories like agency theory, capital need theory and signaling theory support the need of voluntary disclosure. This study is about investigating the extent of Voluntary disclosure in pharmaceutical sector of India which is 3rd in World in terms of Volume of Trade. Objective: To investigate the extent of voluntary disclosure practices prevailing in pharma sector of India, for the year 2010-11 to 2017-18. Significance of the study: This study aims to explore the corporate aspect of pharmaceutical sector. Any growing avenue is a potential opportunity for investors looking for parking their money to get adequate returns. Thus, Indian Pharma sector has come up in flying colors as an avenue for investors to place their money owing to its 100% FDI. Investors have been looking for more and more information from this sector to ensure the safety of funds. Thus, the extent of disclosures is worth studying to place a suggestion for the policymakers to introduce the changes in the present set of disclosure practices in pharmaceutical sector. https://orcid.org/0000-0002-5469-0399 Multidisciplinary Journal for Education, https://doi.org/10.4995/muse.2019.11531 Social and Technological Sciences ISSN: 2341-2593 Khanna and Singh-Chahal (2019) http://polipapers.upv.es/index.php/MUSE/ Mult. J. Edu. Soc & Tec. Sci. Vol. 6 Nº 2 (2019): 147-174 | 148 Research Methodology: To understand the extent of voluntary disclosure, a disclosure checklist is constructed and descriptive statistics are carved out to reach the results. The checklist consists of 55 items which are not mandatory by law. The checklist is based on dichotomous scale of ‘1’ and ‘0’ representing presence and absence of the checklist item respectively. The cross-sectional analysis is carried out to investigate the year wise and company wise disclosure for eight years. Findings: Though the study observes an increasing trend in the disclosure scores, but the findings are alarming to state that the highest score attained by any company throughout the period of 8 years was 37 (out of 55) not even meeting 80% of the total checklist score. This shows that pharmaceutical sector is not so friendly at disclosures. The probable reasons for such startling results are discussed in the study. 1. Introduction Indian pharmaceutical industry has not only shown remarkable performance in the country but also established its foothold in overseas market. It is playing a vital role in promoting and sustaining development in the field of medicines and boasts of quality products in which are also approved by regulatory authorities of UK and USA. According to FICCI Report (2013) the pharmaceutical products have been catering to more than 95% pharmaceutical needs of the country with a population of 130crore. It has progressed significantly by shifting from traditional business practices to exploring and adapting new business strategies. Indian pharma companies have come up with desired competencies not only in their manufacturing abilities but in the processing of marketing and getting huge product acceptance abroad too. International brands associated with Indian pharma industries have been a significant platform for pharma companies to channelize their capabilities and convert them into opportunities to expand themselves to mark a presence on the global map. Indian pharmaceutical sector has been making a spectacular growth especially since last decade. In terms of volume of business, it is placed on 3rd place and in terms of value it is at 13th position worldwide, making it one of the prominent sectors of manufacturing in the country. India owes such remarkable growth of pharmaceuticals to foreign direct investment which is 100% in green field and 75% in brown field. A highly organized sector of Indian economy, pharmaceutical industry is growing at 8-9% annually. Ranging from Multidisciplinary Journal for Education, https://doi.org/10.4995/muse.2019.11531 Social and Technological Sciences ISSN: 2341-2593 Khanna and Singh-Chahal (2019) http://polipapers.upv.es/index.php/MUSE/ Mult. J. Edu. Soc & Tec. Sci. Vol. 6 Nº 2 (2019): 147-174 | 149 simple headache pills to complex Heart compounds, almost every type of medicine in made in India now. There has been a paradigm shift in the policies and regulations governing Indian pharmaceutical industry that made, from being almost non-existent in 1970s transformed to a 6-Billion USD market in World. Drug Control Authority has done away with Industrial licensing for most of the drugs. Innovative scientific manpower, affordable research and development costs and equipped laboratories have given a new face to Indian Pharmaceutical industry which is self-reliant and technologically strong. Also, the role of Intellect Property protection rights is adding to the strength of pharma industry. Any company or individual can patent the formula which gives relief from imitation and malpractices of trade. Indian pharmaceutical industry could be among pioneers to bring biogeneric i.e. generic versions of biological product in the organized form to the market. Today it is world’s largest source of generic drugs, supplying almost 40 percent of total drug requirement of the US and a quarter of generic medicine demand of the UK (source: www.pharmaceutical- technology.com). The industry is highly fragmented with more than 20,000 registered units which are fragmented all over the country. The industry is connected to length and breadth of the country connecting Kolkata in east to Mumbai and Pune in West extending to Bengluru in South and Himachal Pradesh (Baddi is emerging as pharmaceutical capital of India) in North. Country’s large and diverse characteristic makes it a prime location for clinical trials. The industry is gradually discovering its niche of pharmaceutical formulations. Apart from that, bulk drugs and drug intermediaries are gaining momentum in the industry too. Over the last 35 years of its existence and growth, Indian pharmaceutical market has shown its strong longevity. The significance of pharma industry can be gauged from the various parameters of its development and contributions that it makes to the country (as discussed in section 2.2 of the thesis) Fierce policy reforms, over the last few decades, have pulled out the industry from the shackles of import burdens and made it self-reliant. The Foreign direct investment (FDI) in pharma sector is allowed upto 100% for Greenfield projects (through automatic route) and up to 74% allowed in brownfield project (through govt.approval). The FDI reforms, to welcome the foreign investment with open arms, have brought far reaching ramifications http://www.pharmaceutical-technology.com/ http://www.pharmaceutical-technology.com/ Multidisciplinary Journal for Education, https://doi.org/10.4995/muse.2019.11531 Social and Technological Sciences ISSN: 2341-2593 Khanna and Singh-Chahal (2019) http://polipapers.upv.es/index.php/MUSE/ Mult. J. Edu. Soc & Tec. Sci. Vol. 6 Nº 2 (2019): 147-174 | 150 and have leveraged domestic markets. The sector is expected to grow at a double digit growth rate (15% per annum approximately) between year 2015-2020. This growth rate is going to outperform the rate of global pharma industry growth which is expected to grow at the rate of 5 per cent per annum during the same period. Until 1970, the recognition of product patent was not in force by law and one could only patent the process of making. This promoted the interest of researchers in pharmaceutical formulations as a result of which, India grabbed a major share in formulations and gradually became the largest producer, later exporter, of it. After the enactment of amended Patent Laws, the product patents came in as tool of securing and safeguarding the innovative minds. This, in fact, proved to be a boon to pharma industry. It is reflected from the fact that 20 brands of Indian companies are still prevailing in market for more than 10 years from now. The resurgence of the Indian Pharmaceutical industry is looming large. The contribution of the pharma sector in country’s GDP is immense. Being the third largest (in terms of volume) and 13th largest (in terms of value) in the World, the industry continues to be the leader of generic exports worldwide. The advantage of cost, low cost of labor, cost of inventory is much lower in the country. The multinational companies, investing in research and development in India, save up to 40% to 50% of their expenses (source:business.mapsofindia.com). It is analyzed that cost of hiring a research chemist in the US is five times higher than that of India and cost of conducting clinical trials in India is one-tenth the cost in US. India presently enjoys position in global pharma market. The country has large pool of scientists, chemists, engineers and lab technicians who have the potential to drive the industry to reach new heights. It is significant to mention that more than 80 percent of the drugs to fight AIDS are supplied by Indian pharma companies to the World. Six companies of India have the UN-backed Patent pool, enabling them to supply medicines to 112 countries of the World. Government of India has long recognized the strategic importance of pharmaceutical sector of India. India’s policies have shown immense excellence in uplifting the industry to transform it into a global leader for manufacturing pharmaceutical and innovations in medical research. A strong correlation exists between the government’s initiative of ‘Make in India’ and domestic pharmaceutical market. Another move of government by enacting GST has proved a boon to the industry by safeguarding it from multiple states tax. The industry is reducing its dependence upon other states now and thus strengthening its supply Multidisciplinary Journal for Education, https://doi.org/10.4995/muse.2019.11531 Social and Technological Sciences ISSN: 2341-2593 Khanna and Singh-Chahal (2019) http://polipapers.upv.es/index.php/MUSE/ Mult. J. Edu. Soc & Tec. Sci. Vol. 6 Nº 2 (2019): 147-174 | 151 chain. Department of pharmaceuticals of central government, in its report ‘Pharma Vision 2020’, aims to make India a major hub of new drug and development by the year 2020 The disclosure framework in India is governed by the principal act Indian Companies Act 1956 (Now 2013). The act lays down the provisions and regulations of disclosures in financial statements. It focuses on maintenance of books and presentation of annual reports. The act also lays mechanisms for issuing of standards. Despite the detailed requirements of maintenance of books, the thrust of companies act is on ‘True and Fair view’ of company accounts. Another body that has a major role in influencing the disclosure framework is Securities and Exchange Board of India (SEBI) which governs the disclosure requirements of companies listed on stock exchanges. The reporting requirements imposed by SEBI through its guidelines are in addition to those laid by the Companies Act which is to be followed by the companies listed on Stock Exchange. Together, the requirements of SEBI and Companies Act provide a legal framework for corporate reporting in India. Reinforcement to the regulations of these statutory bodies, are the regulating provisions of Institute of Chartered Accountants of India (ICAI) which formulates Accounting Standards. The ICAI derives its power from the Chartered Accountants Act, 1949 (Banerjee, 2002). The ICAI established the Accounting Standards Board (ASB) on April 21, 1977 in order to harmonize diverse accounting policies and practices of India. The main task of the ASB is to formulate accounting standards, so that the council of the ICAI can make these standards mandatory. The ASB considers the laws, customs and business environment of India while formulating its standard. ICAI plays pivotal role in the improvement of disclosure practices of Indian companies. Accounting Standards are pronounced by the ICAI that applies to 'general purpose financial statements.' Beyond these mandatory limits of disclosure requirements, there exists a set of non mandatory disclosures which are completely discretionary on the part of companies to what extent the companies want to disclose beyond what is mandatorily required. Worth mentioning here that the discretionary disclosures are highlighted in a separate report called as Corporate Governance Report. 1.2. Regulatory Framework of governing Corporate Disclosures in India 1.2.1 Almost every firm in India takes a legal form as a limited liability company. Financial reporting of limited liability companies is mainly regulated by Companies Act 2013 (The then Companies Act 1956). The provisions of Act relating to Accounting and Audit are built around the concept of ‘True and Fair’ disclosure which characterizes the reporting in the UK, among other countries. The act provides the financial statements in its schedules Multidisciplinary Journal for Education, https://doi.org/10.4995/muse.2019.11531 Social and Technological Sciences ISSN: 2341-2593 Khanna and Singh-Chahal (2019) http://polipapers.upv.es/index.php/MUSE/ Mult. J. Edu. Soc & Tec. Sci. Vol. 6 Nº 2 (2019): 147-174 | 152 and also lays down the penalty to be imposed both on the company and its managers responsible, for the non compliance with the provisions of the Act. 1.2.2 Corporate Disclosures for the listed limited liability companies are also governed by the listing agreement with the stock exchange provided by the regulatory body Securities and Exchange Board of India. Clause 32 of the listing agreement with any stock exchange in India, requires a listed company to publish cash flow statements Clause 41 of the listing agreement with any stock exchange in India, a listed company is required to publish unaudited half yearly results. Clause 43 of the listing agreement with the stock exchange, companies are required to publish a comparison of projected Gross profit, Net Profit and Earnings per share as shown in the offer document in a public offer of shares with the actual performance, in the report of the directors in the Annual Report. The Non-Compliance with the provisions of the listing agreement results in delisting of the company’s securities from the trading on the exchange. 1.2.3 The third element of the regulatory framework that governs disclosures in India is the standards and guidance Notes issued by Accounting Standard Board (ASB) of the Institute of Chartered Accountants of India (ICAI). Currently there are 32 Accounting standards which have been issued by ASB out of which 29 are mandatory and 3 are recommendatory. The noncompliance of the requirements of these standards will attract a qualification in the Auditor’s report. In addition to the standards, ICAI also issues guidance notes and statements. Guidance Notes are persuasive in character. They are issued as a precursor to an Accounting standard. The first and foremost Standard i.e.AS-1 is the harbinger of the Disclosure trends. AS-1 talks about Disclosure of Accounting policies which make it mandatory for the firms to disclose the fundamental accounting assumptions, Nature of Accounting Policies and consideration in selecting policies. The disclosure requirements specified in the Accounting standards are in addition to and not in substitution of the disclosure requirements under Companies Act, 2013. The corporate Reporting Regulations aim at providing investors with the minimum amount of information to facilitate the investment decision making (Griffin & William, 1960 ) but Multidisciplinary Journal for Education, https://doi.org/10.4995/muse.2019.11531 Social and Technological Sciences ISSN: 2341-2593 Khanna and Singh-Chahal (2019) http://polipapers.upv.es/index.php/MUSE/ Mult. J. Edu. Soc & Tec. Sci. Vol. 6 Nº 2 (2019): 147-174 | 153 voluntary information is aimed at providing a clear view to stakeholders about the business’ long term sustainability (Healey and Palepu, 2001). However, argued that, voluntary disclosure will still remain a matter of biased information selected by managers (Core, 2001). 1.3 Incentives of Voluntary Disclosures As discussed above in the agency theory, the asymmetric may potentially bring out a breakdown in the functioning of the stock market; voluntary disclosures play a significant role to solve those information gaps. There are many factors affecting manager’s disclosures decisions. The most important factor that makes managers decide for voluntary disclosure is due to its benefits on diminishing the cost of capital. According to Capital Market transaction Hypothesis, it is not easy for existing shareholders to make public equity when a firm has high information asymmetry level. Thus, managers have incentives to disclose voluntarily in order to minimize the information asymmetry, and as a result, they can lower the firm’s cost of external borrowing when they enter into capital market transactions. However, firm may reduce voluntary disclosure due to proprietary cost associated. The studies of Verrechchia (1983) and Gigler (1994) show that voluntary disclosures can damage a firm’s competitive position when there does competition exist, and firms are facing a threat of entry. Higher disclosure will allow an easy entry of the competitor to the industry whereas low level of disclosure will keep it protected. Another factor which works as an incentive for voluntary disclosure is the litigation cost. It has two side impacts. First, firm may choose to disclose more in order to avoid litigation cost (Skinner 1994). There is always a trend in the stock market that investors keep a watch on the news whether there are delays in announcement of any unfavorable news and if there is any, it is evidence that firms have not disclosed voluntarily earlier in a timely manner. They may face serious litigations due to this. So, to avoid the threat of litigation, the firm may choose to disclose more information of poor performance. On the other hand, litigation can also reduce firm’s motivation to disclose because it may increase litigation risk. The penalty imposed by the legal system may be much worse as the market players forecast the information in good faith. Healy and Palepu (2001) suggest that firm with high level of positive information on future earnings are followed by high level risk of litigation. Thus, litigation may de-motivate firms to disclose forward looking information. Multidisciplinary Journal for Education, https://doi.org/10.4995/muse.2019.11531 Social and Technological Sciences ISSN: 2341-2593 Khanna and Singh-Chahal (2019) http://polipapers.upv.es/index.php/MUSE/ Mult. J. Edu. Soc & Tec. Sci. Vol. 6 Nº 2 (2019): 147-174 | 154 Thus, Overall solution to reduce agency cost and information asymmetry is to make full disclosure of specific firm characteristics. In fact, it is to say that higher level of disclosure will have an impact on agents who indulge in withholding private information and hence increase transparency in the stock market. Literature Review In Indian Context, SEBI has laid down statutory provisions for listed companies to ensure compliance of transparent disclosure practices. Irrespective of sector, each company has to comply with those provisions. India at this time is an attractive destination of foreign investment. The investment environment in India has undergone a tremendous change. In the process of such change, knowledge of the extent of compliance is indispensable for domestic as well as foreign investors. Indian Pharmaceutical sector, which is 3rd largest growing sector in the world, under the aegis of Companies Act, 2013, ICAI pronouncement and SEBI regulations, is not left behind in the disclosure context. Literature has taken a thrust upon discussing the disclosure practices in the pharmaceutical industry in India. These studies have covered different aspects of disclosures, be it mandatory or voluntary. Kamath.G (2008) talks about the disclosure of intellectual capital in reports of pharmaceutical companies of India while Rajashekhar (2018) discussed corporate governance disclosure practices. Dasgupta.M (2003) associates company characteristics of Indian pharmaceutical industry with its financial performance whereas Sachdeva et al. (2015) does an inter-sector comparison of the disclosure practices of Indian listed companies including pharmaceutical sector. Sharma’s (2016) brings the discussion about the practices of disclosure of valuation of intangible assets prevailing in Indian pharmaceutical industry. Sinha et al. (2012) investigate whether the corporate disclosure practices of Indian pharmaceutical companies approach to harmonize with IFRS. In fact, after the enactment of Companies (Amendment) Act, 2013, pharmaceutical sector has even witnessed research on Corporate Social responsibility disclosures in the financial reports. The disclosure framework in Pharmaceutical sector has taken a shape after year 2011 (Mehta & Chandani; 2015). The study of Mehta and Chandani (2015) takes top five Pharma companies listed on BSE for the year 2009-10 to 2014-15 and establishes relation between their CSR disclosures and financial performance. They assert that disclosure of CSR and its importance on company’s strategy has significantly improved 2011 onwards. Multidisciplinary Journal for Education, https://doi.org/10.4995/muse.2019.11531 Social and Technological Sciences ISSN: 2341-2593 Khanna and Singh-Chahal (2019) http://polipapers.upv.es/index.php/MUSE/ Mult. J. Edu. Soc & Tec. Sci. Vol. 6 Nº 2 (2019): 147-174 | 155 Sachdeva, Batra & Walia (2015) investigated growth in corporate disclosure practices in selected Indian companies listed on BSE during the year 2005-2012 from Pharmaceutical, FMCG, Automobile, Financial, telecom and IT Sector. The study shows that among all sectors, pharmaceutical sector shows the least (7%) growth in disclosure scores over the seven years as compared to FMCG sector where average increase is 26% since 2005. Halder & Mishra (2017) studied the factors affecting timeliness of information in Indian Pharmaceutical sector on a sample of top 50 pharma companies listed on BSE. The authors studied the lag in number of days that companies take to disclose during the year 2010-11 to 2012-13. They found that there is an average maximum lag of 211 days in reporting information in annual reports. They asserted that Age of the company, Foreign shareholding and Revenue from abroad have significant impact on timeliness of disclosure. The other investigation on disclosure of Corporate Governance Practices by Kalashree & Rajshekhar (2018) on 53 listed Indian Pharmaceutical companies (mid cap and large cap) for the year 2013-14 found that among the ten disclosure segments that authors divided for disclosure score, the listed companies are liberal towards disclosing information about remuneration, and compliance and management aspects but disclose least about subsidiary companies. While studying various aspects of mandatory and voluntary disclosure in pharmaceutical sector in India, most of the previous studies ignored attributes like profitability, liquidity, volatility, market price of shares being affected by the nature and extent of disclosures. If such an association between the disclosures with the other variables is brought out, supported by the conclusive statistical results, the disclosure environment will set itself into a new pace. This study aims to contribute to the uprising pharmaceutical industry by motivating the industry for maximum extent of disclosures. As it is rightly said that, health sector, by its mere honest disclosure practices, can contribute to the healthy living of the masses. Multidisciplinary Journal for Education, https://doi.org/10.4995/muse.2019.11531 Social and Technological Sciences ISSN: 2341-2593 Khanna and Singh-Chahal (2019) http://polipapers.upv.es/index.php/MUSE/ Mult. J. Edu. Soc & Tec. Sci. Vol. 6 Nº 2 (2019): 147-174 | 156 Objective of the study To ascertain the extent of voluntary information disclosures in Indian Pharmaceutical Companies listed on Bombay Stock Exchange (BSE) Research Methodology -Sample Unit: Companies listed on Bombay Stock Exchange (BSE) -Sample Size: Companies listed companies from BSE (large cap having capital of more than Rs. 10,000crores) -Sector under study: Pharmaceutical sector -Period under study: 8 years from 2010-11 to 2017-18 -Basis for selection of companies under study: The company is listed on the Bombay stock exchange for more than three years. The basis for selection is their Market capitalization The company’s ticker symbol does not suffer a halt for more than three months on stock market. The company’s Voluntary data should coincide at least 50% of the check list set in by the researcher for the purpose of study. The data about the company should be available. There are 170 Pharma companies listed on BSE. Out of these first twenty companies are large cap companies having a market capitalization of more than Rs.10, 000 crore. Out of the total market capitalization of Rs.7, 71,998crores, the market capitalization of these twenty sums up to Rs.6, 54, 792crores, which represent 84.82% of total visible pharma market on BSE. Rest are mid cap companies having the market capitalization between Multidisciplinary Journal for Education, https://doi.org/10.4995/muse.2019.11531 Social and Technological Sciences ISSN: 2341-2593 Khanna and Singh-Chahal (2019) http://polipapers.upv.es/index.php/MUSE/ Mult. J. Edu. Soc & Tec. Sci. Vol. 6 Nº 2 (2019): 147-174 | 157 Rs.2crores to Rs.10,000crores and only one small cap company having a market capitalization of less than 2crore. Thus, taking into consideration the magnificent impact of big cap firms in shaping the face of pharma market, this study takes into account only large cap firms as sample under study. Hence the sample is chosen among the twenty big cap companies listed on BSE satisfying the criteria mentioned under ‘basis of selection of company’. The companies, whose data are unavailable for any year during the period under study (Financial year 2010-11 to 2017- 18), are wiped out. Filtering such companies, the final sample size is 13 companies chosen among those total 20 big cap companies. Measurement of Corporate Voluntary Disclosure (VDCL) Prior to year 1985, Many studies had calculated disclosure quality but the concrete explanation about calculating the extent of voluntary disclosure was formulated by Firer and Meth, 1986; Wallace, 1988; Meek, Roberts and Gray, 1995. Wallace et al. described disclosure as an abstract construct that does not possess its own inherent characteristics. They developed a checklist method to score the voluntary disclosure items on a dichotomous scale of assigning 1 if disclosure is there and 0 is no disclosure found and thus; calculating the total score. Chau and Gray (2002) have also used this checklist with some minor changes to calculate the voluntary disclosure of Hong Kong Firms. Following the same checklist method, the Corporate Voluntary Disclosure as denoted by VDCL is arrived at, by splitting total 55 items into six categories of different items of same nature placed under one category. These 55 items are extracted from a list of 71 variables, eliminating the mandatory ones. The sub categories are VDCL1= General Corporate Information VDCL2= External Audit Committee VDCL3= Financial Information VDCL4=Forward Looking Information VDCL5= Employee Information, Social Responsibility and Environmental policy VDCL6= Board Structure Disclosure Multidisciplinary Journal for Education, https://doi.org/10.4995/muse.2019.11531 Social and Technological Sciences ISSN: 2341-2593 Khanna and Singh-Chahal (2019) http://polipapers.upv.es/index.php/MUSE/ Mult. J. Edu. Soc & Tec. Sci. Vol. 6 Nº 2 (2019): 147-174 | 158 Taking into consideration the mandatory disclosure framework laid under the regulations of SEBI, ICAI and Accounting standards, the author has come up with the disclosure items that are not mandatory. The author is able to identify total 55 items of different nature placed under six different categories. The author goes through the annual reports of each company for each year from 2010-11 to 2017-18 and identifies the disclosures matching with the list of disclosure items under study. 2. Analysis and Interpretations In the present study, in order to understand the voluntary corporate disclosure practices followed by the pharmaceuticals companies selected for the purpose of study a voluntary disclosure index has been designed based on which the calculation is done. The index designed for understanding the voluntary disclosure index considers the 55 statements related to the voluntary disclosure broadly classified into six dimensions. The response about the particular statement was considered to be binomial in nature having a zero score for a non-response item while one was assigned to a positive response item. The results of companies on a disclosure index are shown as follows: Multidisciplinary Journal for Education, https://doi.org/10.4995/muse.2019.11531 Social and Technological Sciences ISSN: 2341-2593 Khanna and Singh-Chahal (2019) http://polipapers.upv.es/index.php/MUSE/ Mult. J. Edu. Soc & Tec. Sci. Vol. 6 Nº 2 (2019): 147-174 | 159 Table 1: Classification of Information Items for Voluntary Disclosure Table 1 shows that all the statements related to voluntary disclosure in the annual reports of the pharmaceutical companies are classified into broad 6 dimensions and consist of 55 items related to the 6 dimensions under the study period (2010-11 to 2017-18). All the annual reports were considered for the study and the disclosure made in the annual reports are considered. Table 2: Item wise Voluntary Disclosure Score Classification of Items 2018 2017 2016 2015 2014 2013 2012 2011 I. General Corporate Information 1. General information about the economy 92.31 100.00 100.00 100.00 92.31 100.00 92.31 92.31 2. Corporate mission statements 69.23 76.92 69.23 69.23 69.23 46.15 38.46 38.46 3. Brief history of the corporation (the establishment and development) 30.77 23.08 15.38 15.38 7.69 23.08 23.08 30.77 4. Description of major goods/products 38.46 15.38 30.77 23.08 23.08 38.46 15.38 15.38 5. Analysis of enterprises’ market share 69.23 76.92 76.92 69.23 61.54 61.54 53.85 46.15 6. Business environment (economics, political…) 23.08 15.38 15.38 15.38 23.08 15.38 15.38 15.38 Sl. No Classification Item Items Percentage 1 I. General Corporate Information 12 21.82 2 II. External Audit Committee 7 12.73 3 III. Financial Information 5 9.09 4 IV. Forward-looking Information 9 16.36 5 V. Employee Information, Social Responsibility and Environmental Policy 14 25.45 6 VI. Board Structure Disclosure 8 14.55 Total 55 100.00 Multidisciplinary Journal for Education, https://doi.org/10.4995/muse.2019.11531 Social and Technological Sciences ISSN: 2341-2593 Khanna and Singh-Chahal (2019) http://polipapers.upv.es/index.php/MUSE/ Mult. J. Edu. Soc & Tec. Sci. Vol. 6 Nº 2 (2019): 147-174 | 160 7. Statement disclosures relating to competitive position in the industry 23.08 15.38 15.38 15.38 15.38 23.08 15.38 15.38 8. Description of marketing networks for finished goods/products 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 9. Information of member companies 61.54 46.15 46.15 38.46 46.15 46.15 38.46 38.46 10. Methods of quality control 23.08 15.38 38.46 23.08 15.38 23.08 15.38 23.08 11. Company’s achieved awards 61.54 69.23 76.92 61.54 53.85 61.54 46.15 30.77 12. Corporate contributions to the national economy 30.77 30.77 30.77 46.15 23.08 7.69 7.69 7.69 II. External Audit Committee 1. The role and function of the audit committee 92.31 92.31 92.31 92.31 84.62 76.92 76.92 76.92 2. Names and qualifications of the members of audit committee 76.92 76.92 76.92 76.92 69.23 76.92 76.92 76.92 3. Number of members on audit committee 84.62 92.31 92.31 84.62 84.62 76.92 76.92 76.92 4. Number of committee meetings 84.62 92.31 92.31 84.62 84.62 84.62 84.62 84.62 5. Attendance at committee meetings 53.85 53.85 53.85 53.85 53.85 46.15 46.15 46.15 6. Statement of independence 92.31 92.31 92.31 84.62 84.62 84.62 84.62 84.62 7. Report on completed work 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 III. Financial Information 1. Summary of financial data for the last 3 years or over 84.62 76.92 69.23 61.54 61.54 69.23 61.54 69.23 2. Share price information 92.31 92.31 100.00 92.31 84.62 92.31 92.31 84.62 3. Retained profit 84.62 84.62 84.62 84.62 76.92 76.92 76.92 76.92 4. Bank loan, mortgage and their use 76.92 76.92 76.92 69.23 61.54 46.15 38.46 38.46 5. Advertising and publicity expenditure 15.38 15.38 23.08 15.38 0.00 0.00 0.00 0.00 IV. Forward-looking Information 1. Factors that may affect future performance 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2. New product/service development 61.54 61.54 61.54 53.85 46.15 38.46 46.15 38.46 3. Marketing plan, distribution system expanding plan 15.38 30.77 15.38 23.08 0.00 7.69 0.00 0.00 4. Effect of business strategy on future performance 15.38 0.00 0.00 0.00 0.00 0.00 0.00 0.00 5. Research and development expenditure 53.85 69.23 69.23 53.85 46.15 53.85 53.85 61.54 6. Projection of cash flows 7.69 7.69 7.69 0.00 0.00 0.00 0.00 0.00 7. Earnings per share forecast 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 8. Planned capital expenditure 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Multidisciplinary Journal for Education, https://doi.org/10.4995/muse.2019.11531 Social and Technological Sciences ISSN: 2341-2593 Khanna and Singh-Chahal (2019) http://polipapers.upv.es/index.php/MUSE/ Mult. J. Edu. Soc & Tec. Sci. Vol. 6 Nº 2 (2019): 147-174 | 161 9. Future profit forecast 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 V. Employee Information, Social Responsibility and Environmental Policy 1. Total number of employees for the last or more years 84.62 84.62 76.92 76.92 61.54 61.54 46.15 46.15 2. Category of employees by gender 53.85 53.85 38.46 23.08 23.08 23.08 7.69 7.69 3. Amount of employee remuneration, remuneration policies and bonus 69.23 61.54 69.23 61.54 46.15 38.46 23.08 30.77 4. Policy on employee training 38.46 38.46 30.77 15.38 7.69 7.69 0.00 7.69 5. Expenses for employee training 0.00 0.00 0.00 7.69 7.69 7.69 0.00 0.00 6. Reasons for change in employee number 7.69 0.00 0.00 0.00 0.00 0.00 7.69 7.69 7. Qualification of the accountants 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 8. Data on workplace accidents 0.00 0.00 0.00 0.00 0.00 0.00 0.00 7.69 9. Disclosure of welfare policy 15.38 15.38 7.69 0.00 0.00 0.00 0.00 0.00 10. Recruitment policy 30.77 23.08 15.38 7.69 0.00 0.00 0.00 0.00 11. Factors of corporate culture 15.38 7.69 0.00 7.69 0.00 0.00 0.00 0.00 12. Information about safety policy 84.62 84.62 46.15 38.46 23.08 23.08 7.69 30.77 13. Cost of safety measures 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 14. Environment protection programs 100.00 100.00 76.92 69.23 53.85 53.85 38.46 53.85 VI. Board Structure Disclosure 1. Education and professional qualification of directors 61.54 53.85 53.85 53.85 53.85 61.54 61.54 61.54 2. Directors’ interests in competing businesses 30.77 30.77 38.46 23.08 23.08 30.77 23.08 23.08 3. Directors’shareholding in the company and other related interests 84.62 84.62 76.92 76.92 46.15 38.46 46.15 46.15 4. Number of meetings per year 92.31 92.31 92.31 92.31 84.62 84.62 84.62 92.31 5. Director’s analysis of the fee and other benefits disclosure 76.92 69.23 69.23 69.23 61.54 61.54 53.85 53.85 6. Role and function of the remuneration committee 84.62 76.92 84.62 76.92 69.23 61.54 61.54 61.54 7. Directors’ current accounts/loans to officers 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 8. Directors’interests in significant contracts 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Table 2 shows that for calculating item wise voluntary disclosure score each of the items were considered and the number of companies disclosing that particular item was divided by the total number of companies considered for the purpose of study. In this present study the total number of companies selected was 13, and hence, the maximum attainable score Multidisciplinary Journal for Education, https://doi.org/10.4995/muse.2019.11531 Social and Technological Sciences ISSN: 2341-2593 Khanna and Singh-Chahal (2019) http://polipapers.upv.es/index.php/MUSE/ Mult. J. Edu. Soc & Tec. Sci. Vol. 6 Nº 2 (2019): 147-174 | 162 is 13. The maximum score which can be achieved in a particular year for any item will be 100 if all the companies disclose item for all the years. The results are disappointing to see that only cent percent score is achieved in the first item of section I i.e. General information of the company. In rest all of the items the disclosure score is not so satisfactory. Startling to see that in items like data on workplace accidents, employee trainings or director loans, the score is as low as zero in consecutive years, depicting that none of the company in those particular years have revealed any information about these items. No doubt, the good news is that the trend of disclosure is escalating year by year. Table 3: Company wise Disclosure Scores Company/Year 2018 2017 2016 2015 2014 2013 2012 2011 Average Score (2010- 18) Average % (2010- 18) CADILA 25 25 18 18 19 17 17 22 20.13 36.59 BIOCON 26 27 28 27 24 25 22 22 25.13 45.68 CIPLA 28 27 28 24 13 13 13 13 19.88 36.14 PIRAMAL 37 31 30 25 20 17 18 17 24.38 44.32 DREDDY 26 28 26 23 24 26 12 12 22.13 40.23 LUPIN 27 24 24 25 24 24 22 21 23.88 43.41 TORRENT 15 14 14 10 8 7 7 7 10.25 18.64 PFIZER 32 30 28 26 12 16 10 14 21.00 38.18 GLAXO 15 16 15 17 15 16 15 15 15.50 28.18 DIVIS LAB 17 20 20 13 15 18 18 16 17.13 31.14 AURO 32 28 30 29 28 28 25 26 28.25 51.36 AJANTA 16 17 17 17 18 15 14 15 16.13 29.32 SUNPHARMA 22 22 21 20 18 16 14 15 18.50 33.64 Multidisciplinary Journal for Education, https://doi.org/10.4995/muse.2019.11531 Social and Technological Sciences ISSN: 2341-2593 Khanna and Singh-Chahal (2019) http://polipapers.upv.es/index.php/MUSE/ Mult. J. Edu. Soc & Tec. Sci. Vol. 6 Nº 2 (2019): 147-174 | 163 Table 3 is about the voluntary disclosure scores obtained by the companies from the year 2010-11 to 2017-18 is calculated for the companies selected for the purpose of the study. The range of voluntary disclosure score ranges from 10.25 to 28.25 (in absolute terms) with the score range ranging from 18.64 % to 51.36 %. Most of the companies could not score high in the voluntary disclosure scores. This is a disheartening picture of the disclosure practices prevailing the pharmaceutical sector. The highest score obtained is 37 (out of 55) by Piramal. The highest score figure is not even equivalent to 8 percent of total score expected. Where companies like Auro, Piramal and Pfizer are among the list of companies showing good amount of disclosure, the companies like Torrent, Glaxo and Ajanta are revealing poor disclosure scores throughout eight years of study. Table 4: Descriptive Statistics of Voluntary Disclosure Score 2018 2017 2016 2015 2014 2013 2012 2011 Mean 24.46 23.77 23.00 21.08 18.31 18.31 15.92 16.54 Standard Error 1.97 1.54 1.61 1.60 1.58 1.63 1.42 1.40 Median 26.00 25.00 24.00 23.00 18.00 17.00 15.00 15.00 Mode 26.00 27.00 28.00 25.00 24.00 16.00 22.00 15.00 Standard Deviation 7.11 5.54 5.79 5.75 5.71 5.89 5.11 5.06 Sample Variance 50.60 30.69 33.50 33.08 32.56 34.73 26.08 25.60 Kurtosis -0.93 -0.98 -1.54 -0.62 -0.56 -0.19 -0.39 0.09 Skewness 0.05 -0.54 -0.27 -0.56 -0.05 0.09 0.15 0.17 The above table 4 depicts that mean score of the companies for voluntary disclosure ranges from 16.54 to 24.46 starting from the year 2011 to 2018. The mean voluntary disclosure score exhibits a steady increasing trend over the years; however during Multidisciplinary Journal for Education, https://doi.org/10.4995/muse.2019.11531 Social and Technological Sciences ISSN: 2341-2593 Khanna and Singh-Chahal (2019) http://polipapers.upv.es/index.php/MUSE/ Mult. J. Edu. Soc & Tec. Sci. Vol. 6 Nº 2 (2019): 147-174 | 164 the year 2012 the mean score marginally dipped to 15.92 from 16.54 during the year 2011. The year 2013 and 2014 showed the same mean score of 18.31 for the voluntary disclosure score. The year 2015 to 2018 showed an increasing trend starting from 21.08 (2015) to 24.46 (2018). The median of the voluntary disclosure score exhibits a steady increasing trend over the years starting from 15.00 (2011) to 26.00 (2018). The modal value of the voluntary disclosure score exhibits increasing trend over the years starting from 15.00 (2011) to 26.00 (2018), with fluctuations during the intermediate years with the score being 22.00(2012); 28.00(2016), thereby exhibiting fluctuations in the intermediate years. The sample variance of the voluntary disclosure score exhibits a steady increasing trend over the years starting from 25.60 (2011) to 50.60 (2018) thereby exhibiting higher variability in the companies reporting the Voluntary Disclosure Scores. The sample skewness and kurtosis of the voluntary disclosure score exhibits normality of the data set over the years. Graph 1: Year wise Mean score of Voluntary Disclosure 16,54 15,92 18,31 18,31 21,08 23,00 23,77 24,46 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 Year Wise Average Voultary Corporate Governance Disclosure scores MEAN SCORE Multidisciplinary Journal for Education, https://doi.org/10.4995/muse.2019.11531 Social and Technological Sciences ISSN: 2341-2593 Khanna and Singh-Chahal (2019) http://polipapers.upv.es/index.php/MUSE/ Mult. J. Edu. Soc & Tec. Sci. Vol. 6 Nº 2 (2019): 147-174 | 165 The above graph shows mean score of the companies for voluntary disclosure ranges from 16.54 to 24.46 starting from the year 2011 to 2018. The mean voluntary disclosure score exhibits a steady increasing trend over the years; however during the year 2012 the mean score marginally dipped to 15.92 from 16.54 during the year 2011. The year 2013 and 2014 showed the same mean score of 18.31 for the voluntary disclosure score. The year 2015 to 2018 showed an increasing trend starting from 21.08 (2015) to 24.46 (2018). Table 5: Top Five Companies on the basis of Voluntary Disclosure Score The table 5 reveals the overall average Voluntary Corporate Governance Disclosure Scores of the top five companies for all eight years. The chart is topped by AURO with a score of 28.25, followed by BIOCON (25.13), PIRAMAL (24.38), LUPIN (23.88) and DREDDY (22.13). 3. Conclusion In the present study, in order to understand the voluntary corporate disclosure practices followed by the pharmaceutical’s companies selected for the purpose of study a voluntary disclosure index has been designed based on which the calculation is done. The index designed for understanding the voluntary disclosure index considers the 55 statements related to the voluntary disclosure broadly classified into six dimensions. The response about the particular statement was considered to be binomial in nature having a zero score for a non-response item while one was assigned to a positive response item. The disclosure scores when summed up, it was found that a maximum value that a company could attain any year was 37 (Piramal) out of total 55 (refer table 1). That means not even a single company discloses at least 80% of the proposed voluntary disclosure items considered under study. The companies are not disclosure friendly. Though there have been strict regulations laid by the regulators of the company especially after the enactment of companies Act 2013 that focus on strict disclosures, still the companies show a reluctance Rank Company Average Disclosure Score 1 AURO 28.25 2 BIOCON 25.13 3 PIRAMAL 24.38 4 LUPIN 23.88 5 DREDDY 22.13 Multidisciplinary Journal for Education, https://doi.org/10.4995/muse.2019.11531 Social and Technological Sciences ISSN: 2341-2593 Khanna and Singh-Chahal (2019) http://polipapers.upv.es/index.php/MUSE/ Mult. J. Edu. Soc & Tec. Sci. Vol. 6 Nº 2 (2019): 147-174 | 166 in disclosing the information. No doubt there seem to be increasing trend in the extent of disclosures from 2010-11 to 2017-18, yet companies like Torrent pharmaceuticals are existing with a disclosure score as low as 17 out of 55 in a year. Overall the increasing trends in last 8 years can be good news if the trend continues in same direction. Thus, fulfilling its one objective i.e. to know that extent of disclosure, the overall score is not so satisfactory. There may be reasons inferred from the disappointing scores of the pharmaceutical sector which may be hidden in the theories explaining the need for voluntary disclosure. The Theories like signaling theory state the deliberate supply of information beyond need can prove to be a reason of conflict between incentives and deterrent forces. Whereas there is another theory based on agency problem stating that disclosure of information also uncovers superior information of the top management which is not supposed to be in the heads of shareholders just because they are not active players of the management. But this demand and supply in equilibrium creates information asymmetry which may lead to several other consequences. Literatures have been supporting the lack of information supply as a cause to fluctuation of stock prices and diminishing market values of the companies. Another aspect of information availability is linked with entering the market sources for money borrowing. The interested parties may not lend to the companies having extra disclosures, as their idea of understanding the information, which is complex to decode, may bring them into the dilemma of lending decisions (which should not happen actually). Where, as per theory of cost of capital, more disclosures lead to decrease in cost of capital, the theory has proven to be contradicting itself in the studies where the disclosure surpassed beyond a minimal core. To conclude, the present disclosure system in India fails to distinguish between the very different needs of the users of the financial reports. While some users may be happy to have lengthy disclosures that may bring a positive impact on fluctuate of stocks in the market, others may be sent information that is far longer and complex to understand to make use of. 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J. Edu. Soc & Tec. Sci. Vol. 6 Nº 2 (2019): 147-174 | 172 Annexure Following are the contents under each category: - I. General Corporate Information 1. General information about the economy 2. Corporate mission statements 3. Brief history of the corporation (the establishment and development) 4. Description of major goods/products 5. Analysis of enterprises’ market share 6. Business environment (economics, political…) 7. Statement disclosures relating to competitive position in the industry 8. Description of marketing networks for finished goods/products 9. Information of member companies 10. Methods of quality control 11. Company’s achieved awards 12. Corporate contributions to the national economy II. External Audit Committee 13. The role and function of the audit committee 14. Names and qualifications of the members of audit committee 15. Number of members on audit committee 16. Number of committee meetings 17. Attendance at committee meetings 18. Statement of independence 19. Report on completed work III. Financial Information 20. Summary of financial data for the last 3 years or over Multidisciplinary Journal for Education, https://doi.org/10.4995/muse.2019.11531 Social and Technological Sciences ISSN: 2341-2593 Khanna and Singh-Chahal (2019) http://polipapers.upv.es/index.php/MUSE/ Mult. J. Edu. Soc & Tec. Sci. Vol. 6 Nº 2 (2019): 147-174 | 173 21. Share price information 22. Retained profit 23. Bank loan, mortgage and their use 24. Advertising and publicity expenditure IV. Forward-looking Information 25. Factors that may affect future performance 26. New product/service development 27. Marketing plan, distribution system expanding plan 28. Effect of business strategy on future performance 29. Projection of research and development expenditure 30. Project of cash flows 31. Earnings per share forecast 32. Planned capital expenditure 33. Future profit forecast V. Employee Information, Social Responsibility and Environmental Policy 34. Total amount of employees for the last year or more years 35. Category of employees by sex 36. Amount of employee remuneration, remuneration policies and bonus 37. Policy on employee training 38. Expenses for employee training 39. Reasons for change in employee number 40. Qualification of the accountants 41. Data on workplace accidents 42. Disclosure of welfare policy 43. Recruitment policy 44. Factors of corporate culture 45. Information about safety policy Multidisciplinary Journal for Education, https://doi.org/10.4995/muse.2019.11531 Social and Technological Sciences ISSN: 2341-2593 Khanna and Singh-Chahal (2019) http://polipapers.upv.es/index.php/MUSE/ Mult. J. Edu. Soc & Tec. Sci. Vol. 6 Nº 2 (2019): 147-174 | 174 46. Cost of safety measures 47. Environment protection programs VI. Board Structure Disclosure 48. Education and professional qualification of directors 49. Directors’ interests in competing businesses 50. Directors’shareholding in the company and other related interests (e.g. stock options) 51. Number of meetings per year 52. Director’s analysis of the fee and other benefits disclosure 53. Role and function of the remuneration committee 54. Directors’ current accounts/loans to officers 55. Directors’ interests in significant contracts