To what extent are the Saudi companies committed to applying the firm's statutory obligations

Abstract

Drawing upon the existing literature on corporate governance, the overarching aim of this doctoral study is to examine the extent to which Saudi firms comply with the obligations and how laws continue to emerge to create a conducive business environment. Three quantitative research papers have been conducted to address this research aim. The first study examines the impact of Saudi bankruptcy law (SBL) on earnings management, with the results indicating that SBL reduces the risks of financial statement manipulations. Agency theory and bargaining power theories are primarily used to understand the impact of SBL on earnings management. These theories are essential in illustrating the role of the trustees in corporate governance. Since the first study focused on SBL, the second study analyzed the role of board gender diversity on financial statement fraud (FR). In addition, the study also investigates the moderating impact of foreign directors on the relationship between board gender diversity and fraud. The outcomes indicate that more women on the board reduce such misstatements. Moreover, the inclusion of international members on the board supports the beneficial impact of female directors in reducing corporate fraud. Agency theory, prospect theory, signaling theory, and resource dependency theory are theoretical underpinnings that explain the key concepts. It emerges that having a board composition with more women reduces the risks of financial statement fraud. The third part of this thesis examines the impact of financial reporting quality (FRQ) on stock price crashes. Furthermore, the study adds another angle by investigating the moderating influence of CEO power in this relationship. The results reveal a negative correlation between FRQ and risks of stock price crash. Moreover, the study showed that CEO power serves as a mitigating factor, lessening the adverse impact of FRQ on stock price losses. The thesis provides several contributions to the knowledge and practice. First, this study makes distinctive contributions to the related studies of SBL and earnings management. It is among the first studies to analyze the impact of the SBL policy on the earnings management of financially distressed firms in Saudi Arabia using a causal identification approach. Secondly, this research makes significant contributions toward understanding the effects of the composition of board gender diversity on financial statement fraud. Thirdly, the study adds more knowledge on the influence of financial reporting quality on stock price crashes. Saudi Arabia is emerging as one of the fastest-growing economies in the world and an emerging market with a dearth of research on bankruptcy law and corporate governance. Due to these advancements, the country has established laws and regulations to improve the business environment and attract foreign investors. Laws like bankruptcy have been undergoing reforms, leading to new business impacts. Primarily, a new focus is emerging as a new desire to study the impact of corporate governance on adherence to obligations. The results of this thesis will provide useful insights into how Saudi Arabian firms comply with obligations and how laws are developing in this emerging market.