THE IMPACT OF CORPORATE VOLUNTARY DISCLOSURE AND FINANCIAL LEVERAGE ON THE RELATIONSHIP BETWEEN CORPORATE GOVERNANCE PRACTICES AND SHAREHOLDERS VALUE

Abstract

Corporate voluntary disclosure (CVD) is a critical element of accountability and transparency in corporate governance (CG) aimed to enhance investor confidence and potentially increasing shareholder value (SV). This study investigates the impact of CG practices on SV, while examining the mediating role of voluntary disclosure and the moderating role of financial leverage (FL). Grounded by agency theory, stewardship theory, and stakeholders theory, this study collectively explain the mechanisms through which CG affects disclosure and consequently SV. The population and sample in this study comprises of 43 non-financial firms listed on the Saudi Stock Exchange (Tadawul) over the period 2011–2022, representing approximately 65% of the total paid-up capital of all non-financial listed firms. Data were extracted from annual reports and financial statements available on the Capital Market Authority (CMA) and company websites. Panel data analysis was employed using Panel Least Squares estimation with fixed effects, random effects, and robustness checks to achieve reliable results. Mediation analysis was performed using the Sobel test, while moderation was tested through an interaction term approach within the regression models. The empirical results reveal that several CG mechanisms including board size, board independence, audit committee effectiveness, ownership structure, and board diversity, significantly influence CVD levels which in turn enhance SV. Voluntary disclosure is confirmed as a significant partial mediator between CG practices and SV. Additionally, FL was found significantly moderates the relationship between voluntary disclosure and shareholder value, suggesting that higher leverage strengthens the influence of disclosure on firm performance. This study contributes to the growing body of literature on corporate governance and disclosure in emerging markets of Saudi Arabia during the ongoing Vision 2030 reform period. The findings have important policy and practical implications to policymakers, particularly the CMA where they should reinforce board independence regulations, mandate director training, and promote global disclosure standards such as International Financial Reporting Standards and Global Reporting Initiatives.