Internet Financial Reporting Practices in Saudi Arabia

Helmi A Boshnak

doi:10.5539/ijbm.v15n9p15

Abstract

This paper examines the firm characteristic and corporate governance determinants of Internet Financial Reporting (IFR) practices in Saudi Arabia to help address the paucity of research for MENA region firms. The paper employs manual content and regression analyses of online annual report data for Saudi listed firms for the year 2018 using 28 IFR disclosure items. The results show that Saudi firm IFR has increased over time compared to previous studies to an average of 85% disclosure as a result of IFRS implementation and new corporate governance regulations. Firm size is a positive determinant of IFR disclosure, firm age and ownership concentration are negative drivers. Further, the extent of IFR disclosure varies by industry type, while profitability, liquidity, leverage, board size, board independence and role duality have no impact on IFR disclosure. Employing agency and signalling theories, the paper determines the influence of firm characteristics and corporate governance on IFR, identifying implications for stakeholders, and providing some evidence on the impact of IFRSs and corporate governance regulation on such disclosure. Further, the paper provides additional insight into progress towards Saudi’s Vision 2030.

Highlights

The growth of internet technology has allowed firms to provide more direct and rapid disclosure of corporate information (Kieso et al, 2011; Alarussi et al, 2013) and a move away from traditional and expensive hard copy reporting (Xiao et al, 2004)
An Internet Financial Reporting (IFR) disclosure index is derived from a comprehensive review of the IFR literature and this list is compared with those items recommended by the Saudi Arabian Capital Market Authority (SACMA) corporate governance regulations to enable its application to Saudi firms
This study aimed to determine the extent of IFR disclosure and its firm characteristic and corporate governance determinants in Saudi Arabia, addressing a paucity of studies for emerging Arab countries

Summary

Introduction

The growth of internet technology has allowed firms to provide more direct and rapid disclosure of corporate information (Kieso et al, 2011; Alarussi et al, 2013) and a move away from traditional and expensive hard copy reporting (Xiao et al, 2004). While the format and content of IFR disclosure differs significantly across countries and firms (Ashbaugh et al, 1999; Debreceny et al, 2002; Ettredge et al, 2002), and the approach of security regulators and audit standard setters lags behind reporting technologies Lymer and Debreceny (2003), the information disclosed on corporate websites is still used for decision-making purposes (Hanafi et al, 2009) and to attract investors. In addition to the benefits identified above, such reporting: (i) is much less expensive than distributing printed information; (ii) allows broad rather than selected group dissemination (Ashbaugh et al, 1999); (iii) provides faster/more timely financial disclosure (Lymer et al, 1999), with for example Saudi energy companies providing daily stock prices; (iv) allows greater financial disclosure frequency, for example daily; (v) facilitates greater disclosure quantity and granularity (Ashbaugh et al, 1999), with for example the National Commercial Bank (NCB) providing 65 years of annual reports; (vi) allows greater investor interaction (Lymer, 1997); (vii) reduces the cost of capital and increases share liquidity (Oyelere et al, 2003); (viii) matches better the needs of users by allowing non-sequential information access and navigation (Miniaoui & Oyelere, 2013); and (ix) provides shareholders with better access to quality accounting information thereby protecting them against self-serving managers and enabling better new equity issue purchase decisions (Berglöf & Pajuste, 2005)

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