Corporate governance and risk disclosure: evidence from Saudi Arabia

Abstract

Purpose- 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.