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ndations, there are now statements of responsibilities of
directors and auditors. The auditors’ report is now considerably longer
than before following the publication of SAS 600 (APB, 1993). These
developments in corporate reporting involve costs, but have they produced
any benefits for the private shareholder? It is worth investigating whether the
recent changes inUK financial reporting have enticed private shareholders to
read more of the annual report. The focus of this study is on the interests
of investors, as providers of risk capital, whose primacy is acknowledged by
the UK’s standard-setters (ASB, 1995), although the existence of other user
groups cannot be ignored (ASSC, 1975; ICAS, 1988).
The paper is organized into the following parts: the first section looks at
the influences on both the demand for and supply of corporate information;
the second section summarizes the literature on shareholder surveys; the
third section presents our research methodology and results; the fourth
section discusses the limitations and reservations regarding our findings,
with the final section providing the concluding comments.
CORPORATE REPORTS: THE INFLUENCES ON DEMAND
AND SUPPLY
The conventional normative approach to the user decision model of cor-
porate communication is justified by Reference to the active investor’s
constant buy/sell/hold dilemma, which suggests that investors require in-
formation to form their own views of the ‘true’ values of shares; the investor
then compares the derived values with current market values to form the
basis of an investment strategy with an eye to maximizing personal gains.
In contrast, Beaver (1981, p. 10) relates shareholder interest in corporate
information to the individual’s portfolio diversification and activity on the
stock market; thus, active traders continually seek information that will
permit the detection of mis-priced securities, whereas, for inactive share-
holders with well-diversified portfolios, ‘the direct demand for firm-specific
financial information would be essentially non-existent’. This suggests that
only information relating to the future value of the firm is relevant to
investors. On the other hand, in an eYcient capital market, security pricesthe corporate report and the private shareholder 247
reflect all publicly available information, and an investor will not be able to
achieve abnormal returns through analysis of data contained in the annual
report. Nevertheless, there are several possible reasons why shareholders
may choose to devote time and energy to a review of corporate annual
reports. First is the possibility that individuals may trade on the basis of
information they find in the annual report, although such individuals are
too small in number to aVect the market price of the relevant shares; and
second, an unknowable number of shareholders may find the annual report
useful (for whatever purpose), but choose not to trade on the strength of
the information gained (see, for example, in Australia, Anderson & Epstein,
1995). Some UK evidence is provided by Rippington & TaZer (1995, p.
359) who observe that, although the annual report and accounts in general
convey little price sensitive information, some smaller shareholders in small
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