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Archives of Business Research – Vol. 10, No. 2
Publication Date: February 25, 2022
DOI:10.14738/abr.102.11784. Alharbi, N. M. (2022). Factors Affecting the Level of Disclosure of Human Resources for Saudi Listed Companies. Archives of Business
Research, 10(02). 123-164.
Services for Science and Education – United Kingdom
Factors Affecting the Level of Disclosure of Human Resources for
Saudi Listed Companies
Nawal M. Alharbi
Lecturer at Qassim University
ABSTRACT
Human resources (HR) information is a critical tool for assessing the effectiveness
of HR management and encouraging competitive advantage between companies.
Disclosing this information is especially useful for prospective employees, where
they are informed on the HR services available within companies. The study aims to
examine the factors affecting the level of Human Resources Disclosure (HRD) in the
annual reports of listed Saudi companies. Factors are classified into factors related
to governance mechanisms are the size of the board of directors, the independence
of board members, the number of board meetings, and the type of auditor. Factors
associated with the company characteristics are profitability, leverage, liquidity,
the company's age, the size of the firm, and industry type. The final study sample
consists of 363 observations of 121 Saudi non-financial companies listed on the
Saudi financial market during the period from 2016 to 2018. The content analysis
method was used to examine the disclosure list of 19 elements of human resources,
which was developed based on previous studies. EViews software was used to
analyze panel data and use a multiple regression model to test the statistical
relationship between relevant factors and human resource disclosure. The
regression results indicate that the independence of the board of directors, the
company's profitability, the company's age, and the size of the company have a
significant positive effect on the level of human resources disclosure for the listed
Saudi companies. Whilst the size and number of board meetings, auditor type,
financial leverage, liquidity, and industry type have no impact on the level of human
resource information disclosure.
Keywords: Human Resources Disclosure, Financial Reporting, Governance mechanisms,
Company characteristics.
INTRODUCTION
Accounting disclosure is one of the focus points of most countries' financial markets, as well as
the professional and scientific accounting institutions, because of the expectation of achieving
greater benefits from the disclosure of companies accounting information (Saleh, 2006).
Accounting disclosure is generally divided into two main types: mandatory disclosure and
voluntary disclosure. Mandatory disclosure is the disclosure of any data or information
imposed by the regulations or professional standards applied in the countries. As for the
voluntary disclosure, it is the disclosure of any information, whether accounting or non- accounting that companies are not obligated to disclose but do so only to assist stakeholders in
making better decisions (Hamada, 2014).
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Archives of Business Research (ABR) Vol. 10, Issue 2, February-2022
Services for Science and Education – United Kingdom
The economy today faces more challenges than before, as it is an era based on knowledge and
does not depend on raw resources only but also needs to rely on the so-called human resources.
Therefore, Ali and Ahmed (2019) narrate that organizations that do not properly disclose
information about HR in their annual reports will face competitive disadvantageous that will
affect the organization's reputation.
Indeed, the corporate system obliges organizations to provide the minimum necessary
information through governance mechanisms and sets regulations for this mandatory
disclosure. However, the mandatory information in the financial reports is considered
insufficient and there is an urgent need to provide additional information, which is what is
known as a voluntary disclosure (Habbash et al., 2016). Consequently, the success and value
creation of an organization depends on highly qualified staff and the skills necessary to develop
the business and gain a competitive advantage over other businesses. According to (Bukh,
2015), an organization with enormous financial resources and practicing the latest technology
may face a severe financial crisis if there are no people with the expertise to manage it.
Moreover, ignoring the importance of HR and companies failing in its evaluation and disclosure
leads to insufficient accounting information contained in financial reports, thereby letting
users/investors take inappropriate decisions (Gamerschlag, 2013). As Hossain and Reaz
(2007) mentioned, the low transparency and the concealment of important information in
many Asian financial markets led to a financial crisis.
Besides, the economy of the Kingdom of Saudi Arabia has witnessed many developments at the
level of many sectors, which led to the building of a great economic base while maintaining
financial sustainability and stability, as Saudi Arabia owned 25 percent of the Arab gross
domestic product (Mgammal, 2017). Saudi Arabia also excelled globally in growing the
economy by relying on non-oil GDP, which was 55% in 2016 and then rose to 59% in 2020.
This, in turn, led to the joining of the Saudi stock market to global indices such as Standard &
Poor's. Thus, raising the number of local and foreign investors in the Saudi financial market
(Vision 2030, 2016). All of this requires the application of governance systems to achieve more
transparency and reduce the difficulties faced by investors and other stakeholders.
Moreover, given that the Kingdom of Saudi Arabia focuses on issues of society in general and
human resources in particular. It has been dealing with human resources through the vision of
Saudi 2030. It was made possible by providing programs dedicated to developing human
capabilities and keeping pace with global economic developments in accordance with the Saudi
religious and social principles. Therefore, this study empirically examines the influence of some
factors on the level of human resources disclosure for listed Saudi companies. The study
problem can be formulated in the following main question:
What are the factors affecting the level of human resource disclosure) in the annual
reports of listed Saudi companies?
In general, the collection and disclosure of HR information are an important part of a company's
management. The relevant literature suggests that HR disclosures help users/clients
understand the competitive advantage of the company and assist potential investors and
employees in assessing the company's value (Mgammal, 2017). The disclosure provides an
obvious picture of the value the firm offers its employees and customers, thereby highlighting
the company operational infrastructure (Ridhuan et al., 2016).
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Alharbi, N. M. (2022). Factors Affecting the Level of Disclosure of Human Resources for Saudi Listed Companies. Archives of Business Research, 10(02).
123-164.
URL: http://dx.doi.org/10.14738/abr.102.11784
To achieve greater transparency about the impact of companies on social issues, several
companies have responded to the publication of the sustainability reports, corporate social
responsibility reports (CSR), and environmental and social impacts and governance (ESG)
reports. The Global Reporting Initiative (GRI), an organization founded in the United States in
1997, is the initiative where companies are disclosing sustainability information (economic,
environmental, and social). The GRI methodology helps companies to identify, collect, and
report those set of information in a clear and comparable manner. The first guidelines for the
sustainability report were launched by GRI in 2000, the second group (the G2 guidelines) was
released in 2002, the third group was released in late 2006 (the G3 guidelines), and the most
recent update was published in 2013, (the G4 guidelines) (Vazakidis et al., 2013).
In the Saudi context, disclosure of human capital is a new concept. Although many accounting
standards have been issued by the Saudi Organization for Auditors and Accountants (SOCPA)
the disclosure of these resources is not mandatory. Our study provides a contribution to
research for the factors affecting the level of human resources disclosure for listed Saudi non- financial companies. According to the researcher's knowledge, there is no study done that
investigates the factors affecting the level of HR disclosure of Saudi listed companies. There
were attempts by researchers to evaluate the practices of disclosure of human resources in
various countries, investigating the factors affecting it. According to the researcher's
knowledge, they are considered rare or few in the Saudi environment.
Our paper was conducted during this period which has witnessed several developments in the
Kingdom of Saudi Arabia, as HR became more important than before. The main indicator of this
is the issuance of the Kingdom's Vision 2030, which emphasizes that the human element is the
focus of prosperity and progress in the Kingdom of Saudi Arabia. It aims to develop and train
HR to keep pace with the requirements of global and local markets in light of Saudi religious
and social principles.
Moreover, there is growing importance towards providing information related to sources of
knowledge. In fact, most previous research agreed on the need to enhance the importance of
HR within organizations, as they are one of the main drivers of company value. Some of the
leading previous researches in this perspective include Huang et al, (2013); Kansal & Joshi
(2014); Ridhuan, et al. (2016) and Mgammal (2017).
More voluntary disclosure of information leads to:
• Narrowing in the information gap and reducing inconsistency between corporate
managers and stakeholders and thus lower agency costs (Möller, Gamerschlag, &
Guenther, 2011)
• Satisfaction among the users of financial reports who want additional information to
make sound decisions (Al-Zwyalif, 2014).
• Reporting voluntary information according to clear indicators that make it comparable
(Vazakidis, Antoniosa, & Despinaa, 2013).
All these reasons prompt the researcher to study the disclosure of HR and urge to study the
factors that affect the disclosure of HR within organizations.