Alsulayhim, Nasser Abdullah (2020) Corporate Voluntary Disclosure in Saudi Arabia: Determinants and Impact on Stock Price. PhD thesis, Victoria University.

Abstract

In a secretive society, disclosure is an issue. This is true in Saudi Arabia, where the level of corporate voluntary disclosure is low. Saudi Arabia is trying to diversify its resources, move away from dependence on oil exports and increase foreign investment in the country. Doing so will require a higher level of corporate transparency and adequate disclosure. The current study aimed to (i) evaluate the extent of corporate voluntary disclosure before and after the adoption of the International Financial Reporting Standards, (ii) investigate determinants of corporate voluntary disclosure and (iii) investigate the effect of this type of disclosure on a company’s stock price. By reviewing the literature surrounding corporate voluntary disclosure, the current study identified 14 variables that were expected to wield a significant effect on corporate voluntary disclosure. These variables represent four categories: board of directors composition, ownership structure, accounting standards and corporate characteristics. Further, to explore whether investors in Saudi Arabia are interested in corporate voluntary disclosure, the study examined the association between corporate voluntary disclosure and companies’ stock prices. Data were collected from 240 annual reports of 120 non-financial companies listed on the Saudi stock exchange between 2015 (before International Financial Reporting Standards [IFRS] adoption) and 2017 (after IFRS adoption). A self-constructed index, covering 72 items, was used to determine the level of corporate voluntary disclosure, through a content analysis of the annual reports. To cover the different interests of various stakeholders, the index included six categories of corporate voluntary disclosure: financial information, strategy and future expectations, governance disclosure, risk disclosure, social responsibility disclosure and human resources disclosure. To examine the association between corporate voluntary disclosure and stock prices, a modified Ohlson valuation model was used. The resulting data were analysed in a panel dataset by applying ordinary least squares regression. The results show an improvement in the level of corporate voluntary disclosure in Saudi Arabia in 2017 compared with 2015. However, corporate voluntary disclosure in Saudi Arabia remains low compared with developed countries such as Western economies. Additionally, the study results reveal various associations between the tested variables and corporate voluntary disclosure. The study found that government ownership, foreign ownership, company size, company age and profitability are statistically significant and positively associated with corporate voluntary disclosure. Conversely, there is a statistically significant but negative association between non-executive directors, chief executive officer (CEO) duality and directors’ ownership and corporate voluntary disclosure. Finally, no statistically significant association was found between corporate voluntary disclosure and stock prices. The study found that board composition, ownership structure and corporate characteristics are important determinants of corporate voluntary disclosure in Saudi Arabia. However, these determinants affect corporate voluntary disclosure categories differently. Finally, the lack of an association between corporate voluntary disclosure and stock prices indicates a low interest in corporate voluntary disclosure among investors. The current results suggest that the low level of corporate voluntary disclosure among Saudi companies could be attributed to investors’ lack of interest in corporate voluntary disclosure. The results of this study add to the collective scholarly knowledge about determinants of corporate voluntary disclosure and support the argument that the environment a company operates in, including social rules and investors’ expectations, is an important determinant of corporate voluntary disclosure. The current study makes a number of significant contributions to the topic. These include providing an extensive and holistic approach to the literature on corporate voluntary disclosure, corporate governance, accounting standards and market valuation. In addition, the study provides statistical support for theoretical arguments by empirically testing several theories, which explain corporate voluntary disclosure, its determinants and its effect on stock prices. Significantly, the study also contributes to the field by responding to many calls to differentiate between various types of corporate voluntary disclosure and determine whether they are differently valued by investors in different institutional settings. Further, this study contributes to the theoretical corpus of knowledge by empirically examining the applicability of several theories for explaining corporate voluntary disclosure and how it works in developing countries. Finally, this study is significant because it provides insights into corporate voluntary disclosure, which are useful to various stakeholders, including legislators, policy-makers, managers, investors, auditors, employees and researchers.

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