Alqahtani, Abdulrahman Saad H (2019) Accounting Disclosure and Corporate Governance Mechanisms in Kingdom of Saudi Arabia. PhD thesis, Victoria University.

Abstract

In recent decades, high-profile business failures such as that of World.com and Enron, as well as the financial crash witnessed in Kingdom of Saudi Arabia (KSA) in 2006 and 2008 prompted a call for an investigation into the cause of these failures and their consequences to avoid the occurrence of further financial crises. One of the most common problems identified by researchers is the lack of transparency, low level of corporate disclosure and corporate governance (CG) mechanisms. Moreover, market regulators and authorities in many nations consider CG and disclosure as the two main, inseparable tools for the functioning of capital markets and investor protection. The objectives of this research are first to measure the level of mandatory (MD) and voluntary disclosure (VD) in the annual reports of KSA-listed firms and its development over time; and second to investigate whether there is a significant association between CG mechanisms (board characteristics and ownership structure) and the level of MD and VD in the annual reports of KSA-listed firms. The sample selected for this study consists of data from the annual reports of 120 non-financial listed firms from 2015 to 2017. Using the content analysis technique, the MD and VD extent is measured by two self-constructed disclosure indices (MD and VD indices). To identify any significant changes in MD and VD levels during the period studied, MD and VD levels are analysed year by year; the data are also analysed using the Wilcoxon signed-ranks and Friedman ranked tests. This study applies two multivariate regression techniques to identify the relationship between the dependant (MD and VD) and independent variables (ownership structure and board characteristics): ordinary least square and censored regression (Tobit). Moreover, a number of additional analyses are used to ensure the robustness of the main findings: weighted index, partial compliance, lagged-effects, fixed-effects, 2SLS and cross- sectional regression techniques. In terms of the level of MD in annual reports, the overall average MD index score for the study period (2015–17) is 72.75%, with a maximum of 88% and minimum of 53%. In addition, with regard to the extent of VD in annual reports, the average VD extent during 2015–17 is 36.49%, with a range of 16–70%. Moreover, the Wilcoxon and Friedman ranked tests confirmed thatthe extent of MD and VD provided by KSA-listed firms increased significantly from 2015 to 2016, and again from 2016 to 2017. The evidence indicates that some factors, including foreign ownership, state ownership, family ownership and the size of the board of directors have a significant positive influence on the extent of MD. In contrast, the CEO role duality and the presence of a member of the ruling family on the board have a negative association with the extent of MD. The study does not, however, find any evidence to suggest that the presence of an independent director, the audit firm type or gender diversity have any significant association with the extent of MD in the annual reports of KSA-listed firms. Moreover, the evidence shows that some factors, including foreign ownership, state ownership, gender diversity and audit firm type have a significant positive effect on the extent of VD. In contrast, the findings suggest that having an independent director, CEO role duality and the presence of a member of the ruling family on the board have a negative association with the extent of VD. The research study does not, however, find any significant relationship between family ownership and the size of the board of directors, with the extent of VD. The study results are generally robust to alternative measures and potential endogeneity problems. The study findings have implications for regulators, professional accounting bodies and policymakers as they contribute to debate around encouraging and developing compliance with both MD requirements and VD practice. The evidence also has implications for attempts to derive a full understanding of the drivers of corporate disclosure practices in the emerging economy environment, and how these differ from behaviour in the world’s developed economies. The study contributes to the literature in the area in two main ways. First, as compliance with MD requirements in developed markets is total (or near to total) in most cases, it has been the subject of little empirical enquiry. By focusing instead on a developing nation, particularly one that has adopted many economic reforms in the previous 5 years, the analysis facilitates the provision of novel evidence regarding both the nature and determinants of failure to follow disclosure rules. Second, this study is one of the first empirical efforts to investigate the association between CG mechanisms and both VD and MD in an emerging economy by explicitly relying on a multi-theoretical framework within a longitudinal research setting. Moreover, all data were collected manually and specifically for this research.

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