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companies may gain investment-useful information from the annual
report, and also by Cready & Mynatt (1991), who report that while there
is an increase in the number of trades, there is no significant variation in
the volume of shares changing hands around the annual report release date
(see also Foster et al., 1986).
The essentially passive nature of many small private shareholders is
evidenced by their inactivity in the market (in our survey only 8% claimed
to buy or sell shares at least once a month). One interesting question is why
do these shareholders invest in a company in the first place? In a separate
but similar exercise with a diVerent company, we attempted to ascertain
shareholder motives in acquiring shares: more than 40% indicated that they
had acquired the shares through inheritance or an employee share scheme.
This passivity should be borne in mind when assessing the findings of the
various surveys detailed below.
In view of this phenomenon, explanations other than the investment
decision model have been put forward to justify shareholder interest in the
annual report. Arnold (1977) highlights the fact that although accounting
information is generally historical by nature, and is therefore of limited
relevance in assessing future worth, such information may still have a control
value in enabling investors to monitor companies’ performance. Judicial
support for such a view may be found in the Caparo case,
2
where it was
decided that the function of audited accounting information was to enable
shareholders as a body to exercise control over management, i.e. for stew-
ardship rather than investment decision-making purposes. Taking this ap-
proach, it is argued that shareholders (the owners of the company) might
be expected to display a keen interest in the directors’ account of their
stewardship of the company, even if shareholdings are too small individually
to exercise any power.
Another aspect of corporate accountability is highlighted by results from a
US study by Epstein & Freedman (1994), who suggest that a significant number
of individual investors are more concerned with corporate spending on the
environment and product safety than they are with increased dividends.s. a. bartlett & r. a. chandler 248
On the supply side, there is a growing body of evidence to suggest that
the annual report is seen by management as an opportunity to promote
corporate image. Lee (1994) expresses concern for the future of corporate
governance and accountability, in an environment where the stewardship
reports of management take second place to voluntary disclosures aimed at
consumer engineering (for examples of diVerent techniques and examples
of ‘imagemanagement’ in annual reports, seeGraves et al., 1996;McKinstry,
1996; Preston et al., 1996). Evidence from readability studies (such as Baker
& Kare, 1992; Courtis, 1995) suggests that such a ploy is unlikely to be
entirely successful, since the narrative sections of the corporate report are
beyond the comprehension levels of most of the general public; this may
explain why companies devote more eVort to presenting pictorial and other
non-narrative sections of the report.
PREVIOUS SHAREHOLDER SURVEYS
L&T’s pilot study used a postal questionnaire sent to all (nearly 1,600)
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