An empirical investigation of the quality of the annual corporate disclosure of Saudi Arabian corporations1

Abstract

This study used the quantity of disclosure as a proxy of quality of disclosure, made in Saudi corporate annual reports. It examined both of the annual mandatory and voluntary disclosures. The voluntary disclosures are further subdivided into those that extend the mandatory disclosure and those that have no relation to the required disclosures. Possible explanatory variables employed in this study, are size of the company, its performance, debt status, government ownership, type of auditing firm, listing status, and the industry type. Employing the regression analysis, the study was able to identify some systematic differences in the level of annual disclosure of a sample of Saudi companies. The results of the regression analysis were not affected by whether the disclosure scores were weighted (by the level of importance of the disclosure items to the users) or unweighted. One of the main findings is that the degree of compliance with disclosure requirements tends to be significantly lower as the percentage of government ownership is increased. A similar result was found regarding voluntary disclosures. Companies that were audited by independent local firms significantly complied better with disclosure requirements than companies that were audited by local firms that affiliate with some international firms. Leverage ratio positively associated with the level of mandatory disclosure while the total of the owners’ equity associated positively with voluntary disclosure. On the other hand, the stock market listing and return on equity had no significant association with either the level of mandatory or voluntary disclosure.