Impact of Corporate Board Structure and International Financial Reporting Standards on Voluntary Risk Disclosure and Firm Value: The Case of Saudi Arabian Listed Companies

Abstract

The global financial crisis of 2008 and 2009, combined with the digitalisation and globalisation of business, has caused multinationals and other types of corporations to become more vulnerable to a variety of risks and dangers that can undermine or damage their performance and viability. Thus, risk disclosure has received a substantial amount of attention from academics and researchers. This study focuses on voluntary risk disclosure (VRD), which concerns the disclosure of information about risks, which is mandated by government legislation and regulations, for example, processing and technology, integrity and strategic risks. This study aims to investigate the impact of the corporate governance mechanism, ownership structure and international financial reporting standards (IFRS) on the VRD practices of listed companies in Saudi Arabia. Moreover, it investigates the impact of VRD practices on a firm’s value. More specifically, the study analyses the impact of five board composition types (board size, board independence, audit committee meetings, board expertise and gender diversity) and three types of ownership structures (foreign ownership, state ownership and family ownership) on the VRD practices of Saudi listed companies. A research model is developed using agency theory, signalling theory and voluntary disclosure theory. The research model hypothesises that each of the aforementioned factors does affect the VRD practices that are employed by Saudi listed companies.A disclosure index is devised using seven selected items to measure VRD: compliance, reputational, operational, strategic, technological, commodity and sustainability risks. The study’s sample consists of all non-financial companies that are listed on the Saudi stock exchange, otherwise known as Tadawul. Secondary data aregathered from the annual reports of 108 listed companies for 2013 to 2020. Using regression analyses, the results reveal that qualification, gender diversity, state ownership and IFRS have a significant relationship with VRD. Furthermore, the findings indicate that this form of disclosure shapes firm value, which is measured using market-to-book value and return on assets. The current research provides important insights into the extent of the VRD practices of listed companies in Saudi Arabia. This study is significant given that limited research has been published on VRD in that country. This research is essential to Saudi Arabia’s stock market and international investors. Indeed, a better understanding of the disclosures of Saudi corporations may aid investors in making sound investment decisions. Examining the correlation between risk disclosure and firm value helps to identify the possible impact of investor expectations on the level of corporate VRD. The results of this study provide practitioners and owners or managers with an understanding of the attractiveness of foreign investors and the implications that this has for their investment allocations in connection with VRDs. This study contributes by providing new evidence to the related literature, including on VRDs, corporate governance and IFRS.