Abstract
The objective of the present research is to examine the relationship between corporate governance and voluntary disclosure, and to determine how certain factors enhance governance practices and consequently increase voluntary disclosure. The study considers the content analysis of 22 Saudi listed companies from 2015 to 2019. A comprehensive index is developed, with a check-list covering 30 items to extract and measure corporate governance practices and levels of voluntary disclosure. The researchers use ordinary least squares (OLS) regression to examine whether corporate governance-specific mechanisms can explain any differences in voluntary disclosure levels among the listed companies. The results indicate a statistically significant relationship between the number of non-executive directors and board size and the level of voluntary disclosure. This study concluded that non-executive directors and board size are ranked the highest in terms of their positive effects on voluntary disclosure. The relationship between the independent directors and audit committees and voluntary disclosure is insignificant. The results suggest that the high number of non-executive directors and the increase in the number of directors on the boards lead to greater voluntary disclosure of information. This study helps regulators of corporate governance and company directors understand the factors affecting voluntary disclosure. Corporate governance regulators should require an increase in the minimum number of boards and non-executive directors for listed companies in order to gain the desired levels of voluntary disclosure and transparency. Saudi listed companies are advised to willingly increase their board members to the maximum number specified by regulation. This study has some limitations as participants represented a small sample; hence, the results cannot be generalised. Furthermore, the voluntary disclosure data were collected only from annual reports; sources such as websites, public announcements and press releases, were not taken into account, but would have provided many relevant details.
Highlights
Financial reporting and disclosure are important tools that management may use to communicate the performance and governance of a firm to outside investors
The purpose of the present study is to examine the relationships between corporate governance (CG) and voluntary disclosure (VD), and to determine how certain CG factors and practices lead to increasing such disclosure in nonfinancial listed companies in Saudi Arabia
This study examined the relationships between CG and VD
Summary
Financial reporting and disclosure are important tools that management may use to communicate the performance and governance of a firm to outside investors. The quality of voluntary disclosure (VD) included in companies' annual reports is at the heart of modern. Corporate VD is often a major source of information for capital markets (Frenkel et al, 2020), and it is important for their effective functioning because it increases potential shareholder and investor confidence by clearly communicating corporate governance and performance (Saha & Kabra, 2020). Investors and other key stakeholders have been dissatisfied by some practices of financial reporting, leading to demands that companies provide more comprehensive voluntary information about their strategies and long-term performance (Kumar, 2007). Additional VD helps investors reduce the likelihood of making uninformed investment decisions by reducing information asymmetries between shareholders and management (Schuster & O'Connell, 2006)
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