Assessment of financial and social disclosure level of Ethiopian commercial banks

Disclosure is an all-inclusive information given by corporations to outside users for informed judgment and is the primary means of communication among management, outside investors, and market participants. Prior studies in Ethiopia report lack or low levels of disclosure and non-compliance with statutory requirements among financial institutions. Reporting firms have been reluctant or incapable of complying with disclosure and reporting requirements, necessitating improvements to enhance transparency and reduce information asymmetry. A comprehensive assessment of Ethiopian commercial banks’ disclosure levels after IFRS adoption has been lacking. This study evaluates the disclosure level of Ethiopian commercial banks from financial and social disclosure perspectives using IFRS-based requirements. The work is timely as Ethiopia prepares to establish its first stock market, where adequate information dissemination will be required, and aims to inform bank leaders and policymakers about current disclosure levels and needed improvements.

Financial disclosure: Studies using IAS/IFRS-based checklists generally find incomplete compliance with mandatory disclosure. In Bangladesh, financial sector companies disclosed on average 56.35% of mandatory items (Sultana et al., 2017), with firm age, size, and profitability positively associated with disclosure. Comparative studies show varying compliance: relative conformity with IAS across Asian and Middle Eastern countries (Askary & Jackling, 2005); Kenya higher than Ghana (97.1% vs. 74.5%) attributed to older exchange and earlier IFRS adoption (Atsunyo et al., 2017). Private banks in Bangladesh averaged 72.77% compliance (Tasnim & Mahmud, 2022). Libyan banks showed 89% average compliance with obligatory items, but only 54% total (required+optional) disclosure (Kribat, 2009), with profit and age positive, size negative for total disclosure. Nigerian banks showed above-average but incomplete compliance (Zango et al., 2015); listed Nigerian firms did not fully adhere to requirements (Abe et al., 2020). Using SME disclosure standards, Greek firms complied with about two-thirds, with listing status positively affecting compliance (Ballas & Tzovas, 2010). Other determinants include listing, industry, and profitability (positive), and size (often negative) (Vlachos, 2001). Governance factors such as auditor choice, board independence, and audit committee independence/structure affect compliance (Hodgdon et al., 2009; Juhmani, 2017; Ebrahim & Fattah, 2015; Kabwe et al., 2021; Almaqtari et al., 2021). Enforcement and auditable obligations are crucial to protect users from poor disclosers (Hellman et al., 2018). Disclosure supports informed investment decisions, with disclosure scores influencing investor judgments (Hossain, 2022). Overall, global evidence indicates firms rarely fully comply and disclosure varies with firm and governance attributes.

Social disclosure: Corporate social (responsibility) disclosure helps create transparency with stakeholders and addresses societal expectations and pressures (Singhania & Gandhi, 2015; Dropulić & Čular, 2019; Said et al., 2009; Hamid, 2004; Habbash, 2017; Tran et al., 2020). Common dimensions include environment, energy, employee issues/health & safety, products, community involvement, organizational profile, and client relations, though terminology varies across studies. Many studies report low social disclosure: Malaysia 13.9% (Said et al., 2009), India ~40.46% (Kansal, 2011), Croatia insurance 35% (Dropulić & Čular, 2019), Saudi firms 15.4% per item (Al-Gamrh & Al-Dhamari, 2016). Determinants include firm size, government ownership, age, audit quality, board independence/size, institutional/foreign ownership (positive), leverage and dispersed ownership (negative), and CEO duality (negative) (Uyar et al., 2014; Ajibolade & Uwuigbe, 2013; Said et al., 2009; Bae et al., 2018; Zaid et al., 2019; Tran et al., 2020; Mou & Ma, 2023). Non-financial disclosure breadth and balance reduce information asymmetry (Romito & Vurro, 2021). Variation in voluntary/social disclosure is influenced by multiple firm- and governance-level factors, and disclosure is often low in emerging markets.

Design: Descriptive study design using descriptive statistics (mean, max, min, percentage, standard deviation) and independent two-sample t-tests (equal variances) to compare private vs. public banks.

Data: Secondary data from annual reports of 17 Ethiopian commercial banks operating for more than 6 years, covering 2017–2022 (panel data). Data sourced from banks’ websites (17 banks listed with URLs).

Measurement: Unweighted total disclosure index (Cooke, 1992), widely used in prior research. Each applicable item coded 1 if disclosed, 0 otherwise; index computed as sum of disclosed items divided by the maximum applicable items for that bank-year. Dichotomous scoring avoids subjectivity and user-orientation bias inherent in weighted indices.

Formula: FDI or SDI = Σ(x_ij) / n_j, where FDI and SDI are financial and social disclosure indices respectively for firm j; n_j is the maximum number of items applicable; x_ij = 1 if item i disclosed, else 0. Indices bounded between 0 and 1.

Disclosure checklists and themes: Financial disclosure checklist adapted from KPMG IFRS disclosure requirements and prior studies, comprising 202 items across six themes: General (28), Statement of Financial Position (46), Statement of Profit and Loss & OCI (38), Statement of Changes in Equity (13), Statement of Cash Flows (13), Accounting Policy & Other Financial Disclosures (64). Social disclosure checklist comprised 55 items across six themes adopted from prior studies: Community Involvement & Charity (10), Human Resources (16), Business Strategy & Market Relations (11), Products (5), Environmental (6), Client Relation & Others (7).

Procedure: For each bank and year (2017–2022), checked annual reports against the checklists; coded items; computed theme-level and overall indices; assembled as panel data; applied descriptive statistics and independent t-tests comparing public vs. private banks’ overall indices.

• Overall disclosure levels (Table 3):

  • Financial Disclosure Index: mean 64.1%, SD 14.3%, min 24.3%, max 82.2%.
  • Social Disclosure Index: mean 50.8%, SD 7.9%, min 32.7%, max 72.7%.
  • Trend: Both financial and social disclosure increased from 2017 to 2022; lowest in 2017, highest in 2022.

• Financial disclosure by theme (Table 2; mean, SD, min–max):

  • General: 81.1% (12.6; 46.4–96.4)
  • Financial Position: 63.3% (14.7; 13.0–90.0)
  • Profit & Loss: 66.2% (16.7; 18.4–84.2)
  • Stockholders’ Equity: 73.5% (16.8; 23.1–92.3)
  • Cash Flow: 61.6% (9.6; 30.8–92.3)
  • Accounting Policy & Other Notes: 54.5% (17.7; 7.8–79.7)
  • Highest theme: General disclosure (81.1%). Lowest theme: Accounting policy & other notes (54.5%). Accounting policy had the highest variability (SD 17.7%); cash flow disclosures were most consistent (SD 9.6%).

• Social disclosure by theme (Table 2; mean, SD, min–max):

  • Community Involvement & Charity: 37.2% (24.1; 0–100)
  • Human Resources: 55.3% (10.9; 31.3–87.5)
  • Business Strategy & Market Relations: 80.5% (6.6; 63.6–90.9)
  • Products: 44.1% (10.3; 20.0–80.0)
  • Environmental: 46.6% (20.9; 0–100)
  • Client Relation & Others: 19.8% (15.8; 0–57.1)
  • Highest theme: Business strategy & market relations (80.5%). Lowest theme: Client relation & others (19.8%). Community involvement and environmental disclosures were highly variable year-to-year.

• Distribution across score ranges (n=17):

  • Financial disclosure: 15 banks high (>60%), 2 moderate (40–60%), 0 low (<40%).
  • Social disclosure: 3 banks high, 14 banks moderate; none low. (Consistent with overall mean 50.8%.)

• Public vs. private comparison (two-sample t-test, equal variances) (Table 5):

  • Financial Disclosure Index: Private mean 0.635 (n=96), Public mean 0.731 (n=6); diff −0.096; t = −1.6; p = 0.113 → not significant at 5%.
  • Social Disclosure Index: Private mean 0.508 (n=96), Public mean 0.506 (n=6); diff 0.002; t = 0.05; p = 0.96 → not significant.
  • Conclusion: No statistically significant differences between public and private banks in either financial or social disclosure levels.

The study addressed its objective by quantifying Ethiopian commercial banks’ financial and social disclosure levels using an IFRS-based, unweighted disclosure index. Findings indicate overall financial disclosure at a higher range (mean 64.1%) but below the African average compliance reported in prior literature, and social disclosure at a moderate level (mean 50.8%). The increasing trend from 2017 to 2022 suggests learning and adaptation following IFRS-related regulatory changes (e.g., Proclamation 847/2014), supporting the notion that regulatory harmonization and familiarity improve disclosure practices. The thematic breakdown highlights strengths in general financial disclosures and business strategy communications, and weaknesses in accounting policies/notes and client relations, pointing to specific areas where banks can enhance transparency. The absence of significant differences between public and private banks aligns with uniform IFRS adoption timelines in Ethiopia, implying sector-wide convergence in disclosure practices. These results are pertinent for stakeholders—including regulators, investors, and the soon-to-be-established stock exchange—by identifying where compliance is adequate and where further improvements are needed to reduce information asymmetry and support informed decision-making.

Ethiopian commercial banks exhibit a higher overall level of financial disclosure (mean 64.1%) and a moderate level of social disclosure (mean 50.8%). Within financial disclosures, general information, stockholders’ equity, and profit & loss items are relatively well disclosed, while accounting policies and related notes lag. For social disclosure, business strategy and market relations lead, while client relations and community involvement are weak. Most banks achieve high financial disclosure levels; social disclosure is predominantly moderate with few high performers. No significant differences exist between public and private banks. The study recommends banks increase both financial and social disclosures—especially accounting policy and client relation aspects—to enhance transparency, meet IFRS expectations, and prepare for stock market listing requirements. Future research should extend to other industries, lengthen the study period, increase sample size, and explore micro- and macro-level determinants of disclosure.

The study relies on secondary data from banks’ annual reports for 17 Ethiopian commercial banks over 2017–2022, which may vary in format and completeness, especially for social disclosures noted as inconsistent. Disclosure measurement uses an unweighted, dichotomous index that treats all items equally and does not capture disclosure depth or quality. The comparative analysis between public and private banks uses t-tests assuming equal variances and does not control for firm-specific characteristics. Results pertain to the banking sector and period studied and may not generalize beyond these settings.