Relationship between Corporate Information Disclosure and Financial Performance in Saudi Arabia

Mohammad Hariri

doi:10.5539/ibr.v15n3p18

Abstract

This study explains the influence of the corporate disclosure of firms listed on the Kingdom of Saudi Arabia&rsquo;s stock exchange (Tadawul) on their subsequent financial performance. The research was conducted using an empirical-analytical approach at an explanatory level. Hypotheses were formulated based on secondary data and a general linear model that explains the financial performance measures based on the relevant corporate information disclosed by companies listed on Tadawul was used. Firms that disclosed the use of their strengths and resources to achieve objectives related to financial, economic, and environmental issues had a negative impact on the excess return expected beyond the systematic risk-adjusted return. Jensen&rsquo;s alpha index was found to be the most appropriate financial performance measure to evaluate the relationship between corporate disclosure practices and firms&rsquo; subsequent performance. This study contributes to a better understanding of how the International Integrated Reporting Framework fosters value creation in financial capital. To the best of the author&rsquo;s knowledge, this is the first study to use statistical procedures to explain the simultaneous effects of multiple explanatory variables on multiple explained variables, which constitutes a major methodological contribution.

Highlights

In the last two decades, companies have faced growing demand to adopt policies related to social, environmental, and governance (ESG) issues (Hariri, 2021)
Various regulatory bodies and international standard issuers have emerged, such as the International Integrated Reporting Council (IIRC)—a global coalition of regulators, investors, companies, standard-setters, accounting professionals, and non-governmental organizations (NGOs) that share the vision that communicating value creation should be the step in the evolution of corporate reporting (International Integrated Reporting Council [IIRC], 2013)
This study was conducted under an empirical-analytical approach at an explanatory level in which, a set of contrasted hypotheses from secondary data reveals, in quantitative terms, a statistical model that explains financial performance measures as a function of the relevant corporate information disclosed by these companies

Summary

Introduction

In the last two decades, companies have faced growing demand to adopt policies related to social, environmental, and governance (ESG) issues (Hariri, 2021). Culture and society are questioning business organizations’ emphasis on producing money, as this approach is limited and ignores the creation of value and justice for people, society, and the world (Dumay, Bernardi, Guthrie, & Demartini, 2016) Due of these challenges, stakeholders (investors, partners, employees, customers, suppliers, local communities, regulators, and policy makers) are demanding clear management of companies’ ESG issues, forcing them to change their practices. There is a need to create standards to strengthen and expand the quality of corporate information (Busco, Frigo, Quattrone, & Riccaboni, 2013) For this purpose, various regulatory bodies and international standard issuers have emerged, such as the International Integrated Reporting Council (IIRC)—a global coalition of regulators, investors, companies, standard-setters, accounting professionals, and non-governmental organizations (NGOs) that share the vision that communicating value creation should be the step in the evolution of corporate reporting (International Integrated Reporting Council [IIRC], 2013).

Methods

Discussion

Conclusion