Linking Corporate Risk Disclosure Practices with Firm-Specific Characteristics in Saudi Arabia

https://doi.org/10.22146/gamaijb.26769

Norsiah Ahmad(1*), Omer Saeed Habtoor(2), Nor Raihan Mohamad(3), Mohd Hassan Che Haat(4)

(1) Faculty of Economics and Management Sciences, Universiti Sultan Zainal Abidin, Terengganu
(2) Department of Administrative Sciences Community College Northern Border University Kingdom of Saudi Arabia
(3) School of Maritime Business and Management Universiti Malaysia Terengganu Kuala Terengganu
(4) School of Maritime Business and Management Universiti Malaysia Terengganu Kuala Terengganu
(*) Corresponding Author

Abstract


This study explores Corporate Risk Disclosure practices (CRD) in the annual reports of Saudi (non-financial) listed companies and investigates the relationship between the Saudi firm-specific characteristics and the level of such practices. Using content analysis of a sample of 307 company-year observations over the period of 2008-2011, the results indicate that Saudi Arabia provides a moderate level of CRD among the developed and developing countries. However, the content of this CRD is found to be of a low quality, by including non-financial, qualitative, neutral, or non-time-specific information. In addition, the unbalanced panel regression analysis shows a significant positive influence of firm size and audit firm size on the level of CRD. This indicates that Saudi companies which disclose higher risk-related information are those characterised by their larger size, and are audited by the Big 4 audit firms. This study contributes to the risk literature by providing an initial understanding of the CRD practices and their variations in light of the firm-specific characteristics in emerging markets in general and Arab countries in particular..


Keywords


Corporate Risk Disclosure, Annual Reports, Firm-specific Characteristics, Saudi Arabia

Full Text:

PDF


References

Abdallah, A. A. N., Hassan, M. K., and McClelland, P. L. 2015. Islamic financial institutions, corporate governance, and corporate risk disclosure in Gulf Cooperation Council Countries. Journal of Multinational Financial Management 31: 63–82.

Abraham, S., and Cox, P. 2007. Analysing the determinants of narrative risk information in UK FTSE 100 annual reports. British Accounting Review 39 (3): 227–248.

Ahmad, N., Nor, J. M., and Saleh, N. M. 2011. Tax audit and noncompliance behaviour amongst companies in Malaysia. 1st International Conference on Accounting, Business and Economics (ICABEC2011). Universiti Malaysia Terengganu.

Ahmed, K., and Nicholls, D. 1994. The impact of non-financial company characteristics on mandatory disclosure compliance in developing countries: The case of Bangladesh. International Journal of Accounting 29 (1): 62–77.

Alamri, M. A. 2014. Corporate Governance and the Board of Directors in Saudi-listed Companies. PhD thesis, University of Dundee. UK.

Al-Bassam, W. M., Ntim, C. G., Opong, K. K., and Downs, Y. 2015. Corporate Boards and Ownership Structure as Antecedents of Corporate Governance Disclosure in Saudi Arabian Publicly Listed Corporations. Business & Society 54: 1–43.

Al-Janadi, Y., Rahman, R. A., and Haj Omar, N. 2013. Corporate governance mechanisms and voluntary disclosure in Saudi Arabia. Research Journal of Finance and Accounting 4 (4): 25–35.

Al-Maghzom, A., Hussainey, K., and Aly, D. 2016a. Corporate governance and risk disclosure: Evidence from Saudi Arabia. Corporate Ownership and Control Journal 13(2): 145–166.

Al-Maghzom, A., Hussainey, K. and Aly, D. 2016b. The level of risk disclosure in listed banks: Evidence from Saudi Arabia. Corporate Ownership & Control 14(1): 175–194.

Al-Matari, Y. A., Al-Swidi, A. K., and Fadzil, F. H. B. 2012. Corporate Governance and Performance of Saudi Arabia Listed Companies. British Journal of Arts and Social Sciences 9 (I): 1–30.

Alsaeed, K. 2006. The association between firm-specific characteristics and disclosure: The case of Saudi Arabia. Managerial Auditing Journal 21 (5): 476–496.

Al-Shammari, B. 2014. Kuwait corporate characteristics and level of risk disclosure: a content analysis approach. Journal of Contemporary Issues in Business Research 3 (3): 128–153.

Al-Shammari, B. 2008. Voluntary disclosure in Kuwait corporate annual reports. Review of Business Research 8 (1): 10-30.

Amran, A., Bin, A. M. R., and Hassan, B. C. H. M. 2009. Risk reporting: An exploratory study on risk management disclosure in Malaysian annual reports. Managerial Auditing Journal 24 (1): 39–57.

Barakat, A., and Hussainey, K. 2013. Bank governance, regulation, supervision, and risk reporting: Evidence from operational risk disclosures in European banks. International Review of Financial Analysis 30: 254–273.

Beretta, S., and Bozzolan, S. 2004. A framework for the analysis of firm risk communication. The International Journal of Accounting 39 (3): 265–288.

Botosan, C. A. 1997. Disclosure level and the cost of equity capital. The Accounting Review 72 (3): 323–349.

Brown, P., Beekes, W., and Verhoeven, P. 2011. Corporate governance, accounting and finance: A review. Accounting and Finance 51 (1): 96–172.

Cole, C. J., and Jones, C. L. 2005. Management discussion and analysis: A review and implications for future research. Journal of Accounting Literature 24: 135–174.

DeAngelo, L. E. 1981. Auditor size and audit quality. Journal of Accounting and Economics 3 (3): 183–199.

Dobler, M., Lajili, K., and Zéghal, D. 2011. Attributes of corporate risk disclosure: An international investigation in the manufacturing sector. Journal of International Accounting Research 10 (2): 1–22.

Dominguez, L. R., and Gamez, L. C. N. 2014. Corporate reporting on risks: Evidence from Spanish companies. Revista de Contabilidad 17 (2): 116–129.

ElKelish, W.W., and Hassan, M. K. 2014. Organizational culture and corporate risk disclosure. International Journal of Commerce and Management 24 (4): 279–299.

Elmy, F. J., LeGuyader, L. P., and Linsmeier, T. J. 1998. A review of initial filings under the SEC’s new market risk disclosure rules. Journal of Corporate Accounting & Finance 9 (4): 33–45.

Elshandidy, T., Fraser, I., and Hussainey, K. 2015. What drives mandatory and voluntary risk reporting variations across Germany, the UK and US? The British Accounting Review 47 (4): 376–394.

Elshandidy, T., and Neri, L. 2015. Corporate governance, risk disclosure practices, and market liquidity: comparative evidence from the UK and Italy. Corporate Governance: An International Review 23 (4): 331–356.

Fang, X. 2010. Informativeness of Value-at-Risk Disclosure in the Banking Industry. PhD Thesis, University of Toronto, Canada.

Foster, G. 1986. Financial Statement Analysis. Englewood Cliffs, New Jersey: Prentice Hall.

Frendy and Kusuma, I. W. 2011. The Impact of Financial, Non-Financial, and Corporate Governance Attributes on The Practice of Global Reporting Initiative (GRI) based environmental disclosure. Gadjah Mada International Journal of Business 13(2): 143–159.

Gray, S. J. 1988. Towards a theory of cultural influence on the development of accounting systems internationally. Abacus 24(1): 1–15.

Greco, G. 2012. The management’s reaction to new mandatory risk disclosure: A longitudinal study on Italian listed companies. Corporate Communications: An International Journal 17 (2): 113–137.

Greene, W. H. 2003. Econometric Analysis. New Jersey: Prentice Hall.
Guest, P. M. 2009. The impact of board size on firm performance: evidence from the UK. The European Journal of Finance 15 (4): 385–404.

Habbash, M., and Al-Moataz, E. 2013. Determinants of audit committee effectiveness in Saudi listed firms. The Journal of American Business Review 1 (2): 207–215.

Habbash, M., Hussainey, K. and Ibrahim, A. E. A. 2016. The determinants of voluntary disclosure in Saudi Arabia/ : An empirical study. International Journal of Accounting, Auditing and Performance Evaluation 12(3): 213–236.

Hair, J. F., Black, W. C., Babin, B. J., and Anderson, R. E. 2010. Multivariate Data Analysis. New Jersey: Prentice Hall.

Hassan, M. K. 2009. UAE corporations-specific characteristics and level of risk disclosure. Managerial Auditing Journal 24 (7): 668–687.

Hassan, W. M. 2011. Risk management practices/ : A comparative analysis between Islamic banks and Conventional banks in the Middle East. International Journal of Academic Research 3 (3): 288–295.

Hausman, J. A. 1978. Specification tests in econometrics. Econometrica 46 (6): 1251–1271.

Ismail, R., and Rahman, R. 2011. Institutional investors and board of directors’ monitoring role on risk management disclosure level in Malaysia. The IUP Journal of Corporate Governance 10 (2): 37–61.

Jensen, M. C., and Meckling, W. H. 1976. Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics 3 (3): 305–360.

Kent, P., and Stewart, J. 2008. Corporate governance and disclosures on the transition to international financial reporting standards. Accounting & Finance 48 (4): 649–671.

Kirkpatrick, G. 2009. The corporate governance lessons from the financial crisis. OECD Journal: Financial Market Trends Report 1: 61–87.

Kline, R. B. 2011. Principles and Practice of Structural Equation Modeling. New York: The Guilford Press.

Konishi, N., and Ali, M. M. 2007. Risk reporting of Japanese companies and its association with corporate characteristics. International Journal of Accounting, Auditing and Performance Evaluation 4 (3): 263 – 285.

Lajili, K., and Zeghal, D. 2005. A content analysis of risk management disclosures in Canadian annual reports. Canadian Journal of Administrative Sciences 22 (2): 125–142.

Lakhal, F. 2007. Ownership structure and voluntary disclosures: the case of French-listed firms. Corporate Ownership & Control 5 (1): 131–138.

Linsley, P. M., and Shrives, P. J. 2000. Risk management and reporting risk in the UK. Journal of Risk 3 (1): 115–129.

Linsley, P. M., and Shrives, P. J. 2006. Risk reporting: A study of risk disclosures in the annual reports of UK companies. British Accounting Review 38 (4): 387–404.

Lupton, D. 1999. Risk. London: Routledge.

Marshall, A., & Weetman, P. 2008. Managing interest rate risk and foreign exchange risk: Disclosure of objectives, policies and processes. London: ICAEW.

Mgammal, M. H. H. 2011. Voluntary Disclosure and Ownership Structure among Saudi Arabia Companies. Master Thesis, University Utara Malaysia.

Milne, M. J., and Adler, R. W. 1999. Exploring the reliability of social and environmental disclosures content analysis. Accounting, Auditing & Accountability Journal 12 (2): 237–256.

Mohobbot, A. 2005. Corporate risk reporting practices in annual reports of Japanese companies. Japanese Journal of Accounting 16 (1): 113–33.

Mokhtar, E. S., and Mellett, H. 2013. Competition, corporate governance, ownership structure and risk reporting. Managerial Auditing Journal 28 (9): 838–865.

Mousa, G. A., and Elamir, E. A. H. 2013. Content analysis of corporate risk disclosures/ : the case of Bahraini capital market. Global Review of Accounting and Finance 4 (1): 27–54.

Nor, J. M., Ahmad, N., and Saleh, N. M. 2010. Fraudulent financial reporting and company characteristics: tax audit evidence. Journal of Financial Reporting and Accounting 8 (2): 128–142.

Ntim, C. G., Lindop, S., and Thomas, D. A. 2013. Corporate governance and risk reporting in South Africa: A study of corporate risk disclosures in the pre- and post-2007/2008 global financial crisis periods. International Review of Financial Analysis 30: 363–383.

Oliveira, J., Rodrigues, L. L., and Craig, R. 2011a. Risk-related disclosure practices in the annual reports of Portuguese credit institutions: An exploratory study. Journal of Banking Regulation 12 (2): 100–118.

Oliveira, J., Rodrigues, L. L., and Craig, R. 2011b. Risk-related disclosures by non-finance companies: Portuguese practices and disclosure characteristics. Managerial Auditing Journal 26 (9): 817–839.

Oliveira, J., Rodrigues, L. L., and Craig, R. 2013. Technical Note/ : Company Risk-related Disclosures in a Code Law Country/ : A Synopsis. Australasian Accounting Business and Finance Journal Article 7 (1): 123–130.

Oorschot, L. van. 2009. Risk Reporting/ : An Analysis of the German Banking Industry. Master thesis, Erasmus University Rotterdam.

Padia, N. 2012. Disclosure of non-financial information on strategy in South African annual reports. African Journal of Business Management 6(46): 11472–11479.

Probohudono, A. N., Tower, G., and Rusmin, R. 2013. Risk disclosure during the global financial crisis. Social Responsibility Journal 9 (1): 124–137.

Richardson, A., & Welker, M. 2001. Social disclosure, financial disclosure and the cost of equity capital. Accounting, Organizations and Society 26(7/8): 597-616.

Roberts, R. W. 1992. Determinants of corporate social responsibility disclosure: An application of stakeholder theory. Accounting, Organizations and Society 17 (6): 595–612.

Rogers, W. H. 1993. Regression standard errors in clustered samples. Stata Technical Bulletin 3: 88–94.

SEC. 1997. Disclosure of accounting policies for derivative financial instruments and derivative commodity instruments and disclosure of qualitative and quantitative information about market risk inherent in derivative financial instruments, other financial instruments, and derivative commodity instruments. Securities and Exchange Commission, Washington.

Solomon, J. F., Solomon, A., Norton, S. D., and Joseph, N. L. 2000. A conceptual framework for corporate risk disclosure emerging from the agenda for corporate governance reform. The British Accounting Review 32 (4): 447–478.

Tabachnick, B. G., and Fidell, L. S. 2007. Using Multivariate Statistics. Boston: Allyn & Bacon.

Taylor, G., Tower, G., Zahn, M. Van Der, and Neilson, J. 2008. Corporate governance determinants on Australian resource companies’ financial instrument disclosure practices. Asian Review of Accounting 16 (1): 56–73.

Vandemaele, S., Vergauwen, P., and Michiels, A. 2009. Management risk reporting practices and their determinants. Woking paper, Hasselt University, available at: http://hdl.handle.net/1942/9392.

Wooldridge, J. M. 2002. Econometric Analysis of Cross Section and Panel Data. Cambridge, Massachusetts: MIT Press.

Zhang, X., Taylor, D., Qu, W., and Oliver, J. 2013. Corporate risk disclosures: influence of institutional shareholders and audit committee. Corporate Ownership and Control 10 (4): 341– 353.



DOI: https://doi.org/10.22146/gamaijb.26769

Article Metrics

Abstract views : 1227 | views : 1260

Refbacks

  • There are currently no refbacks.




Copyright (c) 2017 Gadjah Mada International Journal of Business

Creative Commons License
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Gadjah Mada International Journal of Business indexed in:  
    Google ScholarIndonesian Publication Index (IPI)  WorldCat  Harvard Library The University of Manchester University of Oxford