Product Market Competition, Political Connections, and Environmental, Social and Governance Disclosure: Evidence from the Gulf Cooperation Council Countries

Abstract

Abstract

This thesis examines how market competition and political connections shape corporate environmental, social, and governance (ESG) disclosure in the Gulf Cooperation Council (GCC) countries. ESG reporting in the region remains emergent despite regulatory initiatives introduced after 2017 as part of broader economic and governance reforms. However, empirical evidence on how product market competition (PMC) and political connections influence disclosure practices in this region is still limited. To address this gap, the thesis comprises two empirical studies that examine the effects of PMC and political connections on ESG disclosure.

The first empirical study examines the relationship between PMC and ESG disclosure using an unbalanced panel of 512 firm-year observations for non-financial listed firms across GCC countries from 2017 to 2022. Results from generalised least squares (GLS) estimations with industry, year, and country fixed effects reveal a negative association between PMC and ESG disclosure. The results remain robust when using propensity score matching (PSM) and dynamic generalized method of moments (GMM). Additional analysis shows that the negative relationship also holds across each of the environmental, social, and governance dimensions. The findings, consistent with proprietary cost theory, suggest that firms operating in less competitive markets disclose more ESG information because they face lower proprietary risks when releasing such information.

The second empirical study examines the impact of political connections, measured by the presence of a royal family member on corporate boards, on ESG disclosure. The analysis is based on an unbalanced panel of 512 firm-year observations for non-financial listed firms in the GCC countries from 2017 to 2022. The results show a significant positive association between royal family members on corporate boards and ESG disclosure. These results remain robust across two-stage least squares (2SLS) estimations, Heckman selection models, and alternative measures of political connections. Additional analysis reveals that the positive effect is concentrated in the environmental and social dimensions, while the effect on the governance dimension is not statistically significant. Further evidence shows that ESG committees strengthen this relationship, whereas foreign directors weaken it. The findings, consistent with legitimacy theory, suggest that royal family members on corporate boards enhance ESG disclosure to reinforce institutional legitimacy and signal alignment with national reform agendas such as Saudi Vision 2030.

Collectively, the thesis contributes to the sustainability accounting and corporate governance literature by demonstrating that market competition and political connections shape corporate ESG disclosure in the GCC countries. Thus, the thesis provides the region-specific insights for regulators and policymakers seeking to enhance ESG disclosure practices in GCC countries. First, relying on market forces alone will not encourage meaningful sustainability reporting in the region. Policymakers and regulators should therefore prioritise the development of standardised and enforceable ESG disclosure frameworks to reduce managerial discretion and ensure comparability across firms. Second, royal family members on boards can serve as catalysts for ESG reporting and may help accelerate the adoption of ESG disclosure practices within firms.