Corporate governance and risk disclosure: evidence from Saudi Arabia

Abstract

This study aims to empirically explore corporate governance and the demographic traits of top management teams as the determinants of voluntary risk disclosure practices in listed banks. This study also aims to contribute to the existing risk disclosure literature by investigating the effect of a combination of determinants on voluntary risk disclosure practices in an emerging market. Furthermore, this study seeks to contribute to risk disclosure theories by employing the upper echelons theory to examine the determinants and their effects on voluntary risk disclosure practices. Design/Methodology/Approach- This investigation uses manual content analysis to measure the levels of risk disclosure in all Saudi listed banks from 2009 to 2013. It also uses ordinary least squares regressions analysis to examine the joint effect of corporate governance and demographic traits on risk disclosure. Results- The empirical findings show that external ownership, audit committee meetings, gender, size, profitability and board size are primary determinants of voluntary risk disclosure practices in Saudi listed banks. The remainder of the independent variables of both corporate governance mechanisms and demographic traits are insignificantly correlated with voluntary risk disclosure practices in Saudi listed banks. This study supports upper echelons theory and further encompasses demographic research into the risk disclosure field. Potential Implications- The empirical findings offer several important implications by reporting to banks’ stockholder, regulatory bodies and any other interested group on the importance of corporate governance and demographic determinants, which can be used to augment risk reporting in the banking industry. This study also backs upper echelons theory and encourages further demographic research into the risk disclosure field. Originality- To the best of the researcher’s knowledge, no prior research has been conducted on the determinants of risk disclosure in Saudi Arabian listed banks. Therefore, this is the first study to investigate the determinants of risk disclosure in the context of Saudi Arabia.

The relationship between board committees and corporate risk disclosure in Saudi listed companies

“…Furthermore, and to control for potential omitted variable bias (Gujarati and Porter, 2003;Wooldridge, 2010) and to rule out alternative explanations for the mean results (Singh et al, 1986), this study includes an extensive number of control variables, including board characteristics (i.e., board independence, board size, board meeting frequency) and firm-specific characteristics (i.e., firm size, leverage, audit firm size), and ownership structure such as ownership concentration. There is extensive theoretical and empirical literature that suggests these variables can affect CRD (Alsaeed, 2006;Abraham and Cox, 2007;Ismail and Rahman, 2011;Allegrini and Greco, 2013;Ntim et al, 2013;Elshandidy and Neri, 2015;Allini et al, 2016;Al-Maghzom et al, 2016a;Alotaibi and Hussainey, 2016;2018).…”

“…For the control variables, the results are almost in line with previous evidence. For instance, board meeting frequency, firm size and audit firm size are associated with higher level of CRD (Al-Maghzom et al, 2016a;Albassam and Ntim, 2017;Habtoor and Ahmmad, 2017), whereas board size has a negative influence on CRD (Habtoor and Ahmmad, 2017). However, no influence of board independence and ownership concentration on CRD (Alsaeed, 2006;Elshandidy and Neri, 2015;Buckby et al, 2015).…”

“…Saudi Arabia is the focus of this study due to the following reasons. First, this study is motivated by the call made by Habbash et al (2016), Al-Maghzom et al (2016a;2016b), 2018) and for more research on governance and risk reporting practices in Saudi Arabia to improve transparency and enhance awareness of CRD. Evidence indicates that corporate governance and CRD practices are still relatively new topics in the Saudi business environment (Alamri, 2014).…”

Corporate risk disclosure practice in Saudi Arabia: Secrecy versus transparency

“…Thus, more research on risk reporting practices would contribute to the disclosure literature (Al-Maghzom et al, 2016b). Secondly, and more specifically, this study is encouraged by the suggestion made by Habbash et al (2016) and Al-Maghzom et al (2016a, 2016b for more investigation on risk reporting practices in Saudi listed companies since Saudi Arabia suffers from lack of transparency and low level of awareness of CRD because of corporate governance and CRD practices are still relatively new topics (Alamri, 2014). Thirdly, the unique context of Saudi Arabia in terms of its legal system and cultural dimensions, which are expected to have different and mixed effects on CRD, is another motivation to explore the reality of risk disclosure practices in Saudi Arabia.…”

“…This study is motivated, firstly, by, the call made by Dobler et al (2011) for more research on CRD practices in developing countries. Unlike developed economies, emerging markets are less efficient and suffer from a lack of compliance, regulations, enforcement, and transparency with greater behavioural variations (Al-Maghzom et al, 2016a;Richardson and Welker, 2001). Thus, more research on risk reporting practices would contribute to the disclosure literature (Al-Maghzom et al, 2016b).…”