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Advances in Social Sciences Research Journal – Vol. 11, No. 12

Publication Date: December 25, 2024

DOI:10.14738/assrj.1112.18008.

Barnawi, M. H. M., Abdullah, D. F., & Fuzi, N. M. (2024). The Role of Corporate Governance Practices on Saudi Stock Exchange

Voluntary Disclosure. Advances in Social Sciences Research Journal, 11(12). 98-109.

Services for Science and Education – United Kingdom

The Role of Corporate Governance Practices on Saudi Stock

Exchange Voluntary Disclosure

Maher Hamzah M Barnawi

Accounting and finance, Faculty of Management,

University Technology Malaysia

Dewi Fariha Abdullah

Accounting and finance, Faculty of Management,

University Technology Malaysia

Nursyazwani Binti Mohd Fuzi

Accounting and finance, Faculty of Management,

University Technology Malaysia

ABSTRACT

This study examines the impact of corporate governance practices on voluntary

disclosure among non-financial firms listed on the Saudi Stock Exchange (Tadawul)

from 2011 to 2022. The research focuses on key governance variables, including

board size, board independence, CEO duality, audit committee effectiveness,

ownership structure, and board diversity, to understand their influence on

transparency and information sharing. Employing panel data analysis, the study

utilizes fixed effects, random effects, and pooled OLS models, with the fixed effects

model emerging as the most robust. The findings reveal that board size, board

independence, audit committee effectiveness, ownership structure, and board

diversity significantly enhance voluntary disclosure, whereas CEO duality and firm- specific factors such as firm age and leverage show limited influence. The results

highlight the importance of strong corporate governance frameworks in fostering

transparency and aligning with Saudi Arabia’s Vision 2030 goals to attract foreign

investment and boost market confidence. This study contributes to the literature

on corporate governance and disclosure in emerging markets, offering practical

insights for policymakers and corporate leaders to improve governance structures

and reporting practices.

Keywords: Corporate Governance, Voluntary Disclosure, Saudi Stock Exchange.

INTRODUCTION

The importance of corporate governance in promoting transparency and accountability has

been increasingly recognized in emerging markets, where voluntary disclosure is often pivotal

for investor confidence and regulatory compliance. Saudi Arabia’s stock exchange, the Tadawul,

exemplifies an environment where corporate governance practices and voluntary disclosure

intersect significantly, driven by the Kingdom's Vision 2030 initiative to diversify its economy

and increase market openness [1, 2]. Enhanced corporate governance mechanisms, such as

board composition, audit committees, and ownership structure, are essential to fostering

voluntary disclosure, as they can improve information symmetry and trust between

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Barnawi, M. H. M., Abdullah, D. F., & Fuzi, N. M. (2024). The Role of Corporate Governance Practices on Saudi Stock Exchange Voluntary Disclosure.

Advances in Social Sciences Research Journal, 11(12). 98-109.

URL: http://dx.doi.org/10.14738/assrj.1112.18008

management and shareholders [3-6]. This study aims to examine the relationship between

corporate governance practices and voluntary disclosure within the Saudi stock exchange,

providing insight into how governance factors influence disclosure practices and contribute to

market transparency.

Previous research has shown that corporate governance mechanisms, including board size and

independence, audit committee effectiveness, and CEO role duality, significantly impact the

level of voluntary disclosure in firms [3, 7, 8]. For instance, Alqahtani [1], Alsulayhim [2] found

that larger boards and the presence of non-executive directors positively influence disclosure

practices, as diverse boards bring a broader range of perspectives that encourage transparent

decision-making. Similarly, Alyousef and Alsughayer [3] observed that companies with

effective audit committees tend to disclose more comprehensive information, which aligns with

findings in other emerging markets where governance structures are evolving [9-12]. Yet,

despite these advancements, some challenges persist in the Saudi context. For example, the

dual role of CEO and chairman, common in some firms, has been linked to reduced voluntary

disclosure due to potential conflicts of interest and power centralization [13-15]. This study

builds on these findings, seeking to clarify how specific governance attributes impact voluntary

disclosure on the Saudi stock exchange.

The relevance of voluntary disclosure extends beyond regulatory compliance, as it has been

associated with improved corporate performance and investor trust [16, 17]. By voluntarily

disclosing information, companies can differentiate themselves in competitive markets and

attract a broader range of investors, especially international ones who often value transparency

and accountability [18-20]. However, voluntary disclosure practices in Saudi Arabia are still

developing, with some firms demonstrating low levels of disclosure, particularly in non- financial information related to environmental, social, and governance (ESG) factors [21]. This

gap suggests a need for stronger corporate governance frameworks that incentivize or mandate

higher levels of transparency, aligning corporate practices with the country’s broader economic

reform goals.

This study contributes to the literature on corporate governance and voluntary disclosure in

Saudi Arabia by investigating the specific governance factors that encourage transparency in

corporate reporting. Using multiple regression models, the analysis will explore the effects of

board size, audit committee characteristics, CEO duality, and ownership structure on the extent

of voluntary disclosure among Saudi-listed firms. This research not only informs academic

discourse but also has practical implications for policymakers and corporate practitioners

seeking to enhance governance standards. By understanding the governance attributes that

most effectively drive voluntary disclosure, stakeholders can make more informed decisions

regarding corporate practices and regulatory reforms, contributing to a more transparent and

resilient financial market in Saudi Arabia.

LITERATURE REVIEW

Corporate governance (CG) practices are increasingly recognized as foundational to enhancing

disclosure, transparency, and compliance within the Saudi Stock Exchange. As the global

emphasis on governance rises, corporate governance in Saudi Arabia has gained traction, with

particular attention to how CG mechanisms such as board composition, audit committee

effectiveness, and ownership structure contribute to voluntary disclosure and the broader